FHA has been a great option for many buyers for some time now. However, as of April 1 and then June 3, that option is about to get significantly more expensive. The Federal Housing Administration, which is the largest insurer of low downpayment mortgages, announced Wednesday that it will raise premiums by 10 basis points, or 0.1%, on most of the new mortgages it insures. As of April 1 this 0.1% change means you'll pay a little more in monthly payments.
The increase is minimal: On a $100,000 purchase with the minimum 3.5% down, your monthly insurance payment would increase from $98.16/month to $106.01/month. It's only an additional $2826 over the life of the loan.
However, this is where it really makes your decision as a buyer more difficult:
As of June 3, the previous rule of only paying mortgage insurance until you build up 20-22% equity in your home or you reach the 5-year mark changes. As of 6/3, you will pay that insurance premium for the life if the loan. It will be amortized on a sliding scale, but the additional payout is significant. On a $100,000 purchase, that means an additional ~$17,000 in cost to you for a 30-year mortgage.
Buyers that have a downpayment of 10% can avoid insurance premiums on a 15-year mortgage, but if this is the case, they have most likely chosen another financing option .
Additional new policies will make it harder for those with average credit scores to get a mortgage.
Bottom line: Work with a qualified agent to help you find a home before the 4/1/13 and 6/3/13 deadlines if you are going FHA. Otherwise, know your options before searching and placing an offer on a new home.
* Examples provided by Shantelle Porack at Homestead Funding. Contact Shantelle at firstname.lastname@example.org