N'DIGO - The Haven Maven

FHA To Increase Mortgage Insurance Premiums Nearly 64% - Prospective Buyers Tip

As if the home market isn't tough enough today, prospective homebuyers hoping to secure an FHA loan will be facing higher mortgage insurance premiums.

An FHA loan is one that is backed by the government, allowing new buyers the ability to purchase a home with only 3.5% of the purchase price as downpayment. This is a good thing for those who do not have 20% of the purchase price as the downpayment. The way the mortgage market works, a homeowner needs to have 80% equity in his or her home in order to NOT pay mortgage insurance premiums. Most often, when you buy a home without a 20% downpayment, you will also have two mortgages! Yes, one mortgage for 80% of the purchase price, and another one for the other percentage, in the case of an FHA downpayment deal, 17.5%! Both mortgages are not necessarily at the same interest rate either!

Now, that is not a bad thing, but you have to know what you are getting into up front. 

As for the increased mortgage insurance, the current rate is .55% of the loan if a buyer puts down less than 5%. The new rate, which goes into effect on October 4, 2010, increases the rate 64%. How much is that? Well, on a mortgage of $150,000 (with 96.5% loan to value - 3.5% down), the current rate is equates to $68.75. On October 5, the mortage insurance will be $112 per month!! An increase of 43.75, yes per month!

That is a big difference! And as reported by Dorothy Tucker on CBS News at 5pm today, every dollar counts in today's economy.

This does not effect current homeowners, only those looking to purchase now. So what should you do? Get approved, talk to your Realtor, (I'm one - contact me!) and get a contract on a home by October 4, 2010! You don't have to close before the rates change, but have a fully executed contract by then - a contract approved and signed by all the owners/stakeholders.

You can get a deal and interest rates are low, real low! Don't wait any longer!

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1 Comment

MichaelW said:

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Yes, it's getting more expensive. If you've got an FHA mortgage and would like to get the rate lowered to the great rates available right now, you should act quickly so you can avoid the increase mentioned in this article. Contact me for a quote residentfinance.com

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