Here we are again. As we begin to come out of the housing market decline, the cost of FHA loans is due to increase. Its official, FHA has publicly announced and confirmed that FHA buyers will pay mortgage insurance premiums (MIP) for the life of their loan on or after April 1, 2013. Unlike previous FHA backed loans, the purchaser was allowed to drop MIP off their loans once their homes reached 22% equity and a minimum of 5 years.
The increase is set to .10 basis points. If you get a FHA loan for $300,000 your MIP contribution would be $30 added onto your mortgage payment for the life of the loan. There is also talk of increasing the down payment requirement from 3.5% to 5% which may make home ownership harder for some.
Due to the upcoming changes on FHA loans, buyers may want to consider looking into alternative financing such as Conventional loan programs that do not have mortgage insurance premiums.
Example (provided by a mortgage lender) Cost of home $400,000
Conventional option: 5% down, loan amount $380,000, interest rate 3.75%, 30 year fixed. Buyers total (principle and interest, taxes and insurance) payment = $2,176 a month.
FHA option: 3.5% down, loan amount $386, 000, interest rate 3.5%, 30 year fixed. Buyers total (principle and interest, taxes and insurance ) payment = $2,552 a month, resulting in an monthly increase of $376 a month which is $35,000 over the next 10 years!
Bottom line…….the overall cost of a FHA loan is going up!
If you have been thinking about purchasing a home, I highly encourage you get moving now before you're loan is subject to the new rules or look for other financing alternative.