Not again!

by

For the second time in a year, the Department of Housing and Urban Development is increasing the monthly mortgage insurance premium on all FHA loans. In October 2010, the monthly premium was almost doubled. Starting in April 2011, it will increase again.

My feelings exactly Captain Picard!

What does that increase look like? Great question. Let’s look at the monthly mortgage insurance premium rates over the past year for 30 year fixed FHA loans:

  • it was $90 per month on a $200,000 loan prior to October 2010
  • currently, it is $150 per month on a $200,000 loan through March 2011
  • it will become $190 per month on a $200,000 loan starting April 2011

Did you see that? In less than a year, the monthly mortgage insurance premium for 30 year fixed FHA loans has more than doubled!?!

The logical question is “why?!?” The FHA is mandated by Congress to hold at least 2% in reserves versus the FHA loans in their portfolio. With the dramatic rise in the number borrowers using FHA loans to buy homes, their reserves have dropped to roughly 0.5%.

In short, the FHA doesn’t have a choice. They must raise funds to bolster their reserves, and home buyers are the ones feeling the pinch.

If you’ve been sitting on the fence and plan to use an FHA loan, now is the time to get started before it is too late. Getting started before April could save buyers roughly $40 per month (almost $500 a year) on their mortgage payment. What are you waiting for? 🙂

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