FHA mortgage insurance increasing (again!)


It has been six months since we’ve seen a change to FHA guidelines, so we are LONG overdue! Starting April 9, 2012, the monthly premium on mortgage insurance for FHA loans will increase (again!). This will be the fourth increase in the past four years. Remember the premium was 0.50% of the loan amount* in 2008. Those days are long gone.

* to compute monthly mortgage insurance payments, you multiply the premium by the loan amount. For example, in 2008 you multiple 0.50% (or 0.005) by the loan amount. You then divide that number by 12 to get the monthly payment.

All new FHA loan applications on April 1st will have the monthly mortgage insurance premium increase to:

  • 1.25% for 30 year fixed loans with a 5% (or less) down payment
  • 1.20% for 30 year fixed loans with more than a 5% down payment
  • 0.60% for 15 year fixed loans with a 10% (or less) down payment
  • 0.35% for 15 year fixed loans with more than a 10% down payment

Did you see the jump on 30 year fixed mortgages over the past four years? The monthly mortgage insurance premium has increased 2.5 times since 2008! That means the monthly mortgage insurance for a $200,000 loan was only $83 per month in 2008. That same loan amount will now cost $208 per month in 2012. It is truly a staggering figure!

How does this impact people looking to buy a home now? The increase from the current level to the new level is modest. Using my same $200,000 loan amount, the current monthly mortgage insurance payment is $192 per month (1.15% of the loan amount). After the increase, it will be $208. Using this example, it will be $16 more per month. If you look at it solely from a numbers perspective, $16 more a month isn’t horrible.

What a prospective home buyer should take away from this is the cost of getting an FHA loan continues to rise. If you see the trend over the past four years, FHA loans are becoming more and more expensive each month. In fact, there are proposed changes that will continue to increase the cost of getting an FHA loan (more on that in my next post).

In the meantime, if you are looking to buy a home this year and need to use an FHA loan, now is the time to act. As you can see from the trends, the numbers will only get worse. If you are in the state of Georgia, I can help you get prequalified to buy a home. Contact me to get started!

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