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The benefits of FHA loans are usually having lower down payments, less stringent credit-worthiness guidelines and seemingly fewer hurdles to get through the mortgage process among other things. It seems that the price of these benefits may just have kicked up a notch for consumers with some changes expected soon. Effective April 9th, 2012 all newly acquired FHA mortgages will incur increased up-front mortgage insurance fees as well as a higher monthly premium for mortgage insurance. This comes at a time when the economy has an ever-tightening stronghold on many homeowners across the nation.
Increases Come At a Difficult Time But Are Not Too Harsh
Despite the alarm that may be caused by the mortgage insurance increases, the amounts will not significantly affect homeowners’ pocketbooks. Still an increase like this is not welcome news at a time when homeowners are looking to as many assistance programs as there are out there.
Up-front mortgage insurance rates will go up from the current 1% to 1.75%. On a $100,000 mortgage this translates to an increase of $635 due at settlement ($1,750 from $1,150). Similarly, monthly mortgage premiums will be going up from 1.15% to $1.25% – amounting to $8.34 more each month according to the same $100,000 mortgage example. These figures assume the maximum loan to value if the buyer is putting down 3.5% on the property.
Higher Fees To Create Funds for Mutual Mortgage Insurance Fund
What is the need for these added fees? FHA is required to have at least 2% reserves in their Mutual Mortgage Insurance Fund, for which the newly increased fees are the main resource to replenish the monies. While this may seem a steep price to pay for some homeowners, in the general scheme of things the same funds will ultimately be used to allow the FHA and HUD to continue investing in the housing market and insuring a low down payment mortgage option.
High Balance Loans Will Incur Slightly Greater Fee Increases
Loans that are over the Federal high-balance loan limit will see a higher increase than that on homes below the high-balance limit. Whereas monthly mortgage insurance premiums will be revamped to the tune of 0.1% on most FHA mortgage properties, high-balance properties will incur a monthly mortgage fee of 0.35% higher than the current rate.
Though new mortgages will be met with higher mortgage insurance costs, homeowners with prior FHA mortgages are eligible for reduced fees and insurance costs. As an incentive to compel homeowners that are facing foreclosure or distressed situations, millions of homeowners will be eligible for lower fees through streamline refinancing of their homes. The goal is to stimulate the housing industry while easing the hardships somewhat for owners of FHA properties that have mortgages with higher interest rates.
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Though any increase in fees is more than we would like to pay, in the grander scheme of things the new amounts are not that significant. If you would like to learn how this might affect you, visit with your Realtor or mortgage loan consultant today to find out more.
