FHA Gives Home Buyers an Extension!
FHA is giving homeowners and buyers until October 4, 2010 to lock in a low monthly insurance premium. Afterwards the monthly insurance premiums on FHA loans will increase by over 63%.
What does this mean for you the home buyer?
A home buyer purchasing a $200,000 home using a $193,000
FHA mortgage before October 4 would pay an insurance premium of $88.46 per month. After this deadline the insurance premium would jump to $148.01 per month.
In this example, the home buyer would pay $59.55 per month MORE. Although the upfront mortgage insurance premium is going down after the October 4th deadline, the real impact to the home buyer is actually a net increase in their out of pocket costs because the monthly premium is going up by 63%.
Remember, sellers can pay the upfront premium or it can be financed into the loan amount, so buyers rarely choose to pay the upfront premium out of pocket. On the other hand, the increase in the monthly premiums will be paid right out of the buyer’s pocket with their mortgage payment each month.
So Lyn in plain english please, how will this effect me? This change will reduce your ability to borrow by about $10,000 on a $200,000 purchase.
Ironically, home buyers 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 October 4th to apply for an FHA loan.
Home buyers with a short term time buying strategy may actually benefit from this change because the upfront premium will be reduced to 1% from 2.25%. This change is anticpated to impact over 30% of the home buyers in today’s market who use FHA insured financing.
Very good information for home buyers and an incentive to purchase now rather than later. Buyers should not wait until the last minute since the date refers to the date of the FHA case number assignment, not the contract.
Roy: Not planning can really hurt with about $10K in purchase power.