You may be wondering just how the recent announcement by the US Department of Housing and Urban Development to raise mortgages backed by the FHA affects you. Given that FHA loans have soared in popularity in recent years, with around 40 percent of all new mortgages for home purchases in 2010 coming from FHA-backed mortgages, you are not alone in wondering just why and what these additional costs mean as you navigate the roads of home ownership.
According to the Department of Housing and Urban Development, the decision to raise fees is an effort by the FHA to recoup some of its depleted reserves, which suffered from a rising number of home owners who defaulted on their mortgages. Moreover, the FHA has stated the increase is also an effort to encourage more private capital to return to the market.
In terms of what this will mean for you, there are two fees you should expect, as a borrower, to see increase by this announcement. The first begins April 1 when annual mortgage insurance premium for loans under $625,500, will increase from a total cost of 1.15 percent of the loan amount to 1.25 percent. For larger loan premiums, the changes will take effect June 1, when an increase of 0.35 percent of a percentage point will be implemented, bringing the total premium costs up to 1.5 percent of the loan amount.
The second fee announced by the FHA will be a 0.75 increase of a percentage point to the upfront mortgage premium, which will now total 1.75 percent of the loan amount. These changes result in an increased mortgage payment. For example, for a $200,000 FHA loan will increase approximately $31/month and $39/month on a $300,000 FHA loan (this assumes the lender will finance in the Upfront Mortgage Insurance Premium which is typical).
While, the higher fees may initially leave you with a degree of sticker shock, keep in mind that the rise in higher fees would actually be relatively modest. Homebuyers are allowed to finance the upfront insurance premium into the balance of their mortgages which nearly all FHA borrowers select to do because it reduces their out of pocket costs at closing. Additionally, the annual premium is paid by borrowers on a monthly basis, further reducing the impact of the increase in fees.
To better understand just how your loan will be affected, I can connect you with a Home Mortgage Consultant. With the change to fees right around the corner, speaking with your Home Loan Consultant as early as possible will increase the likelihood of being issued a case number before the April 1 deadline. This also includes those who are considering a refinance. Your Home Loan Consultant can determine if a FHA loan is the best option for you and what you should expect come April 1.