FHA Loan Will Cost Thousands More Starting in April

Buy Utah homes with FHA loanHUD announced that mortgage insurance for FHA loans will increase April 1, 2012 and again June 1, 2012. Mortgage insurance protects the lender from losses if the borrower stops making payments and loses the property to foreclosure. Mortgage insurance is required whenever you buy real estate and put less than 20% for down payment. FHA loans have two tiers of mortgage insurance (MIP). There is a one-time up-front mortgage insurance premium equal to of 1 percent of the loan’s amount. Upfront MIP can be added to closing costs, or borrowers can finance it by adding it to the loan amount.

There is also an annual MI premium that varies by loan type. For 30-year fixed rate mortgage, annual MIP is equal to 1.1% of your loan size for LTVs of 95% or lower. For everyone else, annual MIP is 1.15% of the loan size.

Annual MIP is paid monthly. The formula is (Loan Size) * (MIP Rate) / (12 Months) = Monthly MIP payment.

How much more money does this cost Utah FHA buyers?

Starting April 1, 2012, Upfront MIP for loans raises from 1.000% to 1.750% of the loan size. Annual MIP fees change, too, climbing by 10 basis across the board, and by an additional 25 basis points for loans between $625,500 and $729,750. This is only the first increase of 2012, there will be one more in June 2012.

Typical Salt Lake Home Purchase for $200,000

Current FHA Costs (use the formula)

$193,000 * 1.15% then divide by 12 = $185 per month for as long as you have the mortgage insurance
MIP=$185
Then add the one-time upfront insurance premium of 1% to the loan.
$193,000 * 101% = $194,930 is the new loan amount.

April 1, 2012 FHA Costs

$193,000 * 1.25% then divide by 12 = $201 per month for as long as you have the mortgage insurance
MIP=$201
NOW PAY ATTENTION to this change…the new upfront mortgage insurance premium (MIP) is 1.75% so,
$193,000 * 101.75% = $196,378 is the new loan amount starting April 1, 2011.

A buyer who purchases a $200,000 home with a FHA loan and 3.5% down payment will see more than $2700 in additional costs during the first five years.

If you think you’ll want an FHA loan for your next mortgage, the best way to avoid the new FHA fees is to have your FHA Case Number assigned before the new FHA MI premiums go into effect April 1, 2012. All existing FHA mortgages will use the “old” MI rates. How do you get a FHA Case Number? Find a home or condo you like and make an offer. Once you are under contract, the lender can request the case number.

Inventory is tight and buyers know that there are often multiple bids for the same home. If you want to save thousands and find your new home or condo before the costs go up, call or text me to start searching for Utah real estate. Brandon Hacker, Realtor (801) 999-8084.

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