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FHA: More Expensive Than Expected

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We are happy to post this great information from our good friend Pat Zaby's InTouch program which is an automatic contact system creating top of mind awareness through personalized email and social networking. - The KCM Crew

Act Now - Red ButtonThe 3.5% down payment on FHA loans could be more expensive for buyers than expected. Beginning April 1, 2013, the mortgage insurance premium will go up by .1% to 1.35% which may not even be noticeable to most would-be homeowners.

The staggering increase will occur on 6/3/2013 when FHA's policy on the duration of the required mortgage insurance will be increased for the life of the mortgage. It basically doubles the amount of total MIP if the loan is paid to term.

Below is an example with a purchase price of $175,000 with 3.5% down payment at 4% mortgage rate on 30 year term.

FHA Changes

(Regarding the current MIP duration: When the unpaid balance reaches 78% LTV of original purchase, the MIP can be released. In any event though, the minimum time must be five years.) 

Currently, the MIP is required for approximately 9 years 9 months with normal amortization. The new program would require the MIP for the life of the loan. In this example, the initial monthly MIP is $196.88 which decreases based on amortization.

There are buyers that qualify on income and credit who may not have the necessary additional down payment required for 80% and 90% conventional loans. The 3.5% FHA program has provided a great vehicle to get into a home with a minimum amount of cash.

For homeowners that expect to stay in their home for ten years or less, the new changes might not have much financial impact. Homeowners who expect to be in their home long term can refinance with a conventional loan without mortgage insurance once the equity has increased due to amortization and appreciation.

For buyers to avoid these increases, they will need to act now to get the FHA commitment issued prior to these change dates.

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5 Responses to “FHA: More Expensive Than Expected”

  1. Dave Hanna February 19, 2013 at 10:41 am # Reply

    Insane. This adds over 20% to the cost of the house.

  2. Jane Natale February 19, 2013 at 5:29 pm # Reply

    another hit for the middle class

  3. Don McComb February 20, 2013 at 10:26 am # Reply

    This is the government working for the middle class.

  4. Chica March 12, 2013 at 5:13 pm # Reply

    You know this post is really frustrating. What the author neglects to tell you is the account where all the MI is held has been running into the red due to all the foreclosures. If the MI rates aren’t raised there will soon be no FHA. Now ask yourself: 1. How would this impact our housing market if you removed the millions of home buyers who use the program? Think about it…

    • KCMcrew March 13, 2013 at 1:27 pm # Reply

      Great point! A healthy FHA is a vital to the housing market.

      With this post, we were alerting our followers to the changes in FHA policy. We were not making a judgement as to whether it was a good or bad thing for the overall housing market.

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