Today’s turbulent real estate market makes for a tough environment for homebuyers. There’s more red tape, which means more hoops to jump through for financing, closing loans is taking somewhat longer than it did in recent years, and there are seemingly ever-increasing costs to consider.
This leads many buyers to wonder why they ever got into the home buying process in the first place once the fun of house hunting has ended and the dread of the loan process has begun. And once again, with the spring weather and vacation season looming. changes in FHA loans are again upon us.
As of April 1, 2012 up-front and monthly MIP (mortgage insurance premium) insurance will increase. This is the insurance required on all FHA loans to protect the lender in the event that you should default on the loan. Specifically up-front MIP will increase .75%, from 1% to 1.75% of the loan amount, and annual MIP will increase .10%, from 1.25% to 1.35%. These percentages only apply to loans being made for less than $625,500.00. For loan amounts greater than this there will be a .35% increase in annual MIP starting in June 2012.
What does this mean for buyers? It means some serious increases in your up-front closing costs, often the difference of thousands of dollars. It also means increases in the amounts of monthly payments. According to a release issued by The Department of Housing and Urban Development (HUD) on February 27, 2012 these changes stem from a desire to keep private capital flowing in the Real Estate market, and also by mandate from the Temporary Tax Cut Continuation Bill of 2007. The changes are noted to take place only for FHA-insured single-family loans.
It’s important for buyers currently searching the market to understand that FHA case numbers provided before April 1st will not be subject to this increase. So if you’re already in the midst of the loan process chances are good that you’ve already got a case number (this is something done very early on in the loan process, typically within the first week).
The effects of the increase on the struggling Real Estate industry remain to be seen. But with interest rates still hovering at or near historic lows and home prices across the country remaining low chances are that buyers won’t be too put off by the increases. Even considering these increases in up –front costs and monthly payments the FHA loan remains the best option for many low to moderate-income home buyers.