Increase Not Expected to Go Higher Than .90%
Starting sometime later this year, the monthly cost to carry an FHA-insured mortgage is expected to rise. And big.
In an almost-unanimous vote, the House of Representatives gave the FHA power to raise the monthly mortgage insurance premiums it charges to its borrowers.
Currently, monthly mortgage insurance premiums are 0.55% of the unpaid loan balance, divided by 12. The recently approved Federal Housing Administration Reform Act provides for an increase in monthly premium of up to 1.55 percent, among other details of the bill.
Despite the ability to charge 1.55 percent, FHA officials say an increase to 0.90 percent would be sufficient to self-insure its loans.
In everyday terms, assuming a $200,000 mortgage, the cost to a homeowner looks like this:
- Current Premium (0.55%) : $91.67 monthly mortgage insurance premium
- Expected Increase (0.90%) : $150.00 monthly mortgage insurance premium
- Maximum Increase (1.55%) : $258.33 monthly mortgage insurance premium
Bottom line: You’re going to feel it in your pocketbook.
Still Waiting on Final Approval from Senate
A increase in monthly mortgage insurance premiums will reduce home affordability for buyers in Des Moines and strain household budgets.
The news isn’t all horrible, though.
Because higher monthly insurance premiums are expected to pad the FHA coffers sufficiently, the FHA has said it plans to reduce its upfront mortgage insurance premium paid at closing from 2.25 percent down to 1.000 percent.
On the same $200,000 mortgage, a move like that would reduces closing costs by $2,500.
The bill awaits companion legislation in Senate and final approval into law, but considering the House’s lopsided vote Thursday, it could happen rather quickly. If you’re planning to buy or refinance a home using an FHA mortgage, you may find that waiting to take the next step could be a costly one, long-term.
The FHA insured close to a 1/4 of all mortgages made in the first three months of 2010.
If you’re considering an FHA loan and need some help, I can help. Send me a message or give me a call at the number listed above. I’d be happy to help!
