FHA gives homebuyers one-month window to save
Published: August 31, 2010
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“The Federal Housing Administration (FHA) is giving homeowners and buyers until Oct. 4 to lock in a low monthly insurance premium,” said Gibran Nicholas, chairman of the CMPS Institute, an organization that trains and certifies mortgage bankers and brokers. “After Oct. 4, the monthly insurance premiums on FHA loans will increase by over 63 percent.”
What does this mean for homebuyers?
A homebuyer purchasing a $200,000 home using a $193,000 FHA mortgage before Oct. 4 would pay an insurance premium of $88.46 per month. If the same homebuyer waits until after Oct. 4, the insurance premium would jump to $148.01. “In this example, the homebuyer would lose $59.55 per month, or $7,146 over a 10-year timeframe,” Nicholas said. “Although the upfront mortgage insurance premium is going down after Oct. 4, the real impact to the homebuyer is actually a net increase in their out-of-pocket costs because the monthly premium is going up by 63 percent. Remember, sellers can pay the upfront premium or it can be financed into the loan amount, so homebuyers rarely pay the upfront premium out-of-pocket. On the other hand, the increase in the monthly premiums will be paid right out of the homebuyer’s pocket with their mortgage payment each month.”
Ironically, homebuyers who plan to be in the mortgage for less than three years and decide to pay the upfront fee themselves (instead of having the seller pay it for them), may actually save money by waiting until after Oct. 4 to apply for an FHA loan.
“Homebuyers with a short-term time horizon may actually benefit from this change because the upfront premium will be reduced to 1 percent from 2.25 percent,” Nicholas said. This change will impact over 30 percent of the homebuyers in today’s market who use FHA-insured financing.
