The FHA announced this week that they are revising the insurance premium structure for loans that are going FHA. The upfront premium is going down from 2.25% to 1.00% ->good. However, and here is the kicker, the annual premiumis increasing from a range of 0.50% to 0.55% up to a newrange of 0.85% to 1.55%. These changes are effective withall new FHA case numbers assigned October 4th andbeyond.
What does this all mean?
Let’s take a 5%, $200K loan amount as an example: regarding the upfront premium, the P&I payment would decrease from $1,098 to $1,083 -> a decrease of $15 amonth. However, the increase on the annual premium goes from $94 a month up to anywhere from $152 to $261 amonth. Thus, the “old” all in payment with the insurance built in (less taxes and home owners insurance) was $1,192 amonth. The “new” payment would be in the range of $1,235 to $1,344 a month -> an increase of $43 to $152 a month.That equates to an increase of anywhere from .375% in rateto 1.125% in rate.So what should you do? Well, one, if you are sitting onthe fence looking for a home, and you are going to need touse FHA as your means of financing/qualification (or if youare going to refinance an FHA loan), you have until October1st to get your application in to guarantee that your paymentrate (insurance tax base) does not increase. That’s about 50days, so get moving to take advantage of this quasi “taxbreak”. And two, if you can’t meet the early October deadline, take a look at alternate financing methods afterOctober 4th (i.e. – a Fannie Mae/Freddie Mac loan with traditional mortgage insurance) to reduce your costs and asa better financing alternative.
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