The Federal Housing Administration (FHA) is giving homeowners and homebuyers until October 4 to lock in low monthly insurance premiums currently available. After October 4, the monthly insurance premiums on FHA loans will increase by over 63%. This increase will decrease a homebuyers purchasing power by increasing monthly payments. Homebuyer purchasing a $200,000 home with the minimum FHA down payment of 3.5% before October 4 would pay an insurance premium of $88.46 per month. If the same home buyer waits until after October 4, the insurance premium would jump to $144.75
In this example the home buyer would lose $56.29 per month, or $6417.06 over the 114 months the insurance is typically required. The upfront mortgage insurance premium is going down after October 4 but the real impact to the homebuyer is a net increase in their out of pocket costs as the monthly premium goes up by 63%. Sellers can pay the upfront premium or it can be financed into the loan amount and homebuyers rarely pay the upfront premium out of pocket. In turn the increase in the monthly premiums will be paid directly from the homebuyers as a larger monthly payment.
Although this change may be beneficial for homeowners who plan to keep the mortgage for less than 3 years the record low rates seem quite the risk. Another thing to keep in mind is the fact that FHA loans are assumable adding value to a sales transaction in the event that rates increase dramatically. The change takes effect for FHA case numbers issued before October 4th 2010 so this does not mean the transaction must be done before then just registered so there is still time. The Bottom line is if you are considering purchasing or refinancing an FHA mortgage in the next 30 days you should talk with a mortgage lending professional.
Sean La Rue-- you really have to say both names. I am a photographer, writer, thinker, dreamer, doer. I also do home loans.... but I bet you knew that somehow, huh? Subscribe now for more interesting info! Stay tuned...