The US Department of Housing and Urban Development (HUD) announced Monday that the cost of mortgage insurance for Federal Housing Administration (FHA)-guaranteed mortgages will increase on April 1, and again on June 1, 2012. The increase is necessary to protect the FHA’s mandated reserves, and, potentially, encourage the return of private capital to the national mortgage market (the idea being that if FHA-insured mortgages are more expensive, others will enter the market to compete).
The “upfront” premium, paid at purchase, will increase from 1.0% to 1.75% on April 1. On a $300,000 mortgage, that’s $5,250 instead of $3,000; however, FHA will still allow the upfront premium to be added to the loan amount so it does not increase the amount of cash a borrower needs to bring to the table (still a minimum of 3.5% of the purchase price).
The “annual” premium, which is now 1.15% of the loan amount if you put less than 5% down, or 1.10% otherwise, will also increase on April 1 by 0.10% for all loans. On the $300,000 mortgage, that’s about $25 per month. On June 1 , the annual premium on loans over $625,500 will increase by another 0.25%. At that point the annual premium rates will be 1.25% for loans under $625,500 and 1.50% for higher amounts, with a small 0.05% discount if you put at least 5% down.
If you are thinking about using an FHA-insured loan to buy a home – and if you don’t have 20% for a down payment, you should be – act now. Your application to a lender to purchase a specific home must be entered by April 1, meaning you can’t wait much longer to start the process. The same advice applies if you are considering a refinance.