If you are currently unemployed, you are grateful for continued benefits. If you are employed and want to buy a home, you are paying for the unemployed with a new “loan” tax increase. Borrowers will pay more to get an FHA loan in 2012. The payroll tax cut worked out by Congress will also raise the cost of an FHA mortgage starting April 2012.
Think of it as a back-door tax increase. While the public was watching the payroll debate in Washington Congress was actually increasing the cost to finance or refinance a home.
The Temporary Payroll Tax Cut Continuation Act of 2011 was widely applauded because it prevented the Social Security withholding from increasing to 6.2 percent from 4.2 percent of wages. However, the extension is only for two months and is set to end as of February 29, 2012. In other words, the payroll tax debate will be renewed once Congress returns from the mid-winter recess.
New Borrower Costs
Buried in the payroll compromise are new costs for borrowers. Specifically, these new costs come in two forms.
First, Congress has directed Fannie Mae and Freddie Mac to increase the fees lenders pay by ten basis points or .10 percent. This new cost — called the g-fee — will begin April 1, 2012.
This increase is substantial. According to Market Watch, lender fees now amount to .26 percent of the loan amount. The congressional increase will cost borrowers with a $200,000 mortgage an additional $5,400 over a 30-year loan term.
Second, Congress has directed the FHA to increase its annual mortgage insurance premium or MIP by .10 percent.
The FHA, which is an insurance program, has two borrower charges.
There is an up-front mortgage insurance premium which is now equal to 1 percent of the mortgage amount.
There’s also an annual mortgage insurance premium which in 2011 was increased to 1.15 percent for most borrowers. It will now rise to 1.25 percent.
The annual MIP increase will be costly to borrowers. The expense of a $200,000 mortgage will grow by about $4,200 over the life of the loan.