FHA Mortgage Insurance Premiums Increasing in April 2011

I just got off the phone with Ross Barrett at Bank of America, and if you are thinking about buying a home, and financing with an FHA mortgage, some changes are coming in April 2011 that may increase your monthly payment!

Last November the annual mortgage premium for FHA loans increased to help increase FHA's capital reserves. Another increase is coming in April 2011. The increase will apply to most loans that are assigned a 'case number' on or after April 18, 2011.  In order to beat the increase you probably need to be under contract to purchase a home and have all your documentation submitted to your lender no later than April 11.

Here's how the increase works:

FHA charges two types of mortgage insurance premiums. The upfront charge (1% of the loan amount) is paid at closing, and that is not schedueld to change. The second premium is an annual amount, paid monthly with your regular mortgage payment. Currently the annual premium is 90 basis points (0.9% of the loan amount) but is scheduled to go up to 115 basis points (1.15% of the loan amount).

For a $300,000 loan, this is an increase of $750 annually (0.25% x 300,000) or $62.50 per month.

Another way of looking at it is that that additional mortgage insurance premium reduces your purchasing power by about $11,000.  If you qualified for a $300,000 loan before the increase, you may only qualify for $289,000 afterwards!

Confused or want more information? Give a call to one of our recommended mortgage lenders today!