Post by: David Setti of Turnkey Mortgage Solutions
The FHA has announced that come early October, they will be simultaneously lowering their up front mortgage insurance fee from 2.25% to 1.25% as well as increasing their yearly mortgage insurance premium from .55% to .9%. What will the impact be on new home-buyers? There will be an overall increase in monthly payments.
Let’s put these numbers into a real world example. A client is buying a $400,000 property, using an FHA loan and planning on putting down 3.5%, or $14,000. This leaves a base loan amount of $386,000. The current upfront mortgage insurance premium of 2.25%, which equates to $8,685, when added to the loan amount, offers a total loan amount of $394,685. Assuming an interest rate of 4.5% and a yearly mortgage insurance premium of .55%, the total monthly payment (not including property tax or home-owner’s insurance) would be $2,175.43.
Once the proposed changes take place, the total monthly payment, assuming the same purchase price, down payment and rates would be $2,267.63. This constitutes a difference of almost $100 per month.
While, for most clients, this will be nothing more than an annoyance and will not disallow for a qualification that would otherwise be obtainable. However, there are some clients whose purchasing power will be reduced by this change.
If you have already been pre-approved by a lender, do yourself a favor; confirm how and if this change will impact you approval.
For more about the San Jose Real Estate Blog post, please contact the Andrew Scott Group 408-982-6636
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