Congress has recently passed H.R. 5981. This bill gives FHA authority to adjust (increase) its annual mortgage insurance premium. Concurrent with the increase will be a decrease to the Up Front mortgage premium.   This will become effective on September 7, 2010.  HUD Assistant Secretary David Stevens said that this would yield approximately $300 million per month in value to the FHA Mutual Mortgage Insurance Fund. As the reserves are critically low as a result of the effects of mortgage defaults, this is a necessary move.

All FHA guaranteed loans must have mortgage insurance. The premiums are two-part: 1 – the Up-Front mortgage premium, which, on September 7th, will be 1% of the loan amount. And, 2 – the monthly premium, which will be .85% to .90% of the monthly payment.

The hit on a $200k loan with a 30 year term will be an additional $43 per month. Over the course of the 360 months of the loan, the cost to the borrower will be an additional $15,480.

Unlike conventional loans, where once the principal is reduced to 80% of the value, the MI can be dropped, FHA requires MI for the life of the loan. The primary benefit of an FHA loan is that the borrower can purchase a house with as little as 3.5% down.

If you’ve been looking to buy via an FHA loan and can get it done before September 7th, you can save yourself some serious money.

Regardless, house prices are really low. The average price hit a low last April at somewhere around 38% below what it was four years ago. And, loan rates are hitting historic lows. If you can do it, now is the time to buy.

Posted on Monday, August 9th, 2010 at 3:42 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.