FHA increasing costs on October 4th 2010.
Over the last 10 years FHA was providing financing to just about anyone. They also allowed you to get into a home with little or no investment. So essentially you could buy a home and actually get money back at closing. Sound crazy? Well it was going on everywhere. Now the bar for FHA credit criteria has been raised, but the damage has already been done.
During 2007 the bottom fell out of real estate and foreclosures were on the rise. FHA charges an up front Mortgage Insurance Premium (M.I.P.) and a monthly Mortgage Insurance (M.I.) to the cover the cost of these foreclosures. M.I.P. is a one time fee of 2.25% of loan amount that is financed into the note. Earlier this year the M.I.P. was 1.75, which was increased to 2.25%. They also charge .50% of your loan amount that is paid monthly. Well according to HUD they are running out of money to cover all the claims due to foreclosures with the current premiums.
So they have recently passed a bill that will increase the monthly M.I. to .80% of your loan amount and drop the M.I.P. to 1% on October 4th of this year. How does this affect you? See example Below.
We will use a home of $100,000 for an example.
Illustration from Bankrate.com
You can see how the changes will cause an increase in your monthly payment. Your payment will increase $22 bucks a month with this scenario provided on a $100,000 dollar home. So if you are in the market to buy and FHA is your route, you may want to buy before October 3rd of this year. According to Bankrate.com the new changes will take affect on October 4th.
Author: Mike Clover
CreditScoreQuick.com
