FHA News
Beginning April 9th, there are going to be a few changes to FHA loans. In December 2011, President O’Bama signed the Temporary Payroll Tax Cut Continuation Act of 2011.
Because of this, FHA has increased their fees and is passing those onto the consumer. FHA has increased its Upfront Mortgage insurance premium from 1% to 1.75%. In addition, FHA has also increased its monthly mortgage insurance by 10 basis points.
So what does this mean to the consumer?
Example:
Let’s assume you have a purchase price of $200,000 and a base loan amount of $193,000 (96.50% LTV) with a term of 30 years and a rate of 3.75%. Let’s also assume that property taxes are $2,400 per year ($200 per month) and home owners insurance will be $720 per year ($60 per month):
|
Existing FHA Loan Structure |
New FHA Loan Structure |
||
|
Purchase Price |
$200,000 |
Purchase Price |
$200,000 |
|
Base Loan Amount |
$193,000 |
Base Loan Amount |
$193,000 |
|
Adjusted Loan Amount |
$194,930 |
Adjusted Loan Amount |
$196,377 |
|
Principal & Interest |
$902.75 |
Principal & Interest |
$909.45 |
|
Monthly Mortgage Insurance |
$184.96 |
Monthly Mortgage Insurance |
$201.04 |
|
Taxes & Insurance |
$260 |
Taxes & Insurance |
$260 |
|
Total Monthly Payment |
$1,347.71 |
Total Monthly Payment |
$1,370.49 |
What this means to the consumer is that by doing an FHA loan, the consumer is going to end up paying a higher payment than before. Because of this increase in monthly payment, there will more consumers that will choose the Conventional loan.
Plain and simple – Conventional has a larger down payment (5%) but lower mortgage insurance. In the example above, consumers would have a monthly payment of $1,246.00 by going with a Conventional loan. As you can see, it is a much better choice for the consumer.
Jeff Boyer #405459
Mountain West Bank
406-459-5133