Government Change Could Cost You $7,000

A few months ago I reported on some possible changes coming from Washington D.C. The wait is over and Change is approved!

The Senate has approved changes in FHA financing that will reduce the upfront costs of an FHA loan, but increase the monthly payment for mortgage insurance. The official statement points at 'perilously low' reserves as their reasoning for making the change.

The changes will go into effect October 4th, 2010.

Here is how it is right now:

If you were to get a $200,000 FHA Mortgage...
The upfront Mortgage Insurance Premium would be $4,500 (2.25% of the loan amount)
Monthly premiums would be $92 per month or $1,100 for the first year (.55% the loan amount)

Here are the new terms on a $200,000 FHA mortgage...

The upfront Mortgage Insurance Premium will be $2,500 (1.25% of the loan amount)
Monthly premium will be $142 a month or $1,700 for the first year (.85% if financing 95% of the purchase price).
If the loan is for more than 95% of the purchase price (in other words you paid less than a 5% down payment) your monthly premium will be even more: $150 a month or $1,800 for the first year. (.9% the loan amount)

Here is the difference:
Upfront cost will decrease 1%
Monthly payments will increase .3% - .35%

These may seem like small numbers, but this increased monthly payment will reduce your puchasing power. To be exact, your purchase power will be reduced $7,000! Because you'll be required to pay more each month toward insurance, you have less to pay towards the principle. It is important to get your terms locked into the current rate before these changes go into effect.