FHA Mortgage Insurance Changes & How It Could Impact Your Purchase or Sale

You may have heard that costs surrounding FHA loans are changing in October, reducing the dollar amount needed at closing for Upfront Mortgage Insurance, while increasing the monthly portion of mortgage insurance that is added to a homeowner's payment.

If you have previously been approved for an FHA loan but haven't yet found a home, you'll want to be sure to factor in the larger payment requirement into your budget, along with contacting your home loan advisor to be sure that your preapproval is still valid for the higher payment amount. You may also want to consult with your advisor to see if a different mortgage program might now be more attractive.

If you are a Seller, you may be expecting to contribute towards a Buyer's closing costs, which are dropping considerably when the Buyer uses an FHA loan. In the past, I've suggested to a Seller that the buyer's closing costs could easily total 3-4% of the purchase price. With the 1.25% drop in upfront mortgage insurance, contribution towards closing costs may be less hurtful towards your net amount at closing, thus perhaps becoming an attractive marketing tool.

Monthly Mortgage Insurance for FHA Increases October 4th: For FHA case numbers that are assigned after October 4th, FHA will

• decrease the Upfront Mortgage Insurance premium from 2.25% to 1.0%.
• increase the monthly mortgage insurance premium from .50%- .55% to .85% - .90%, depending on the combined loan to value.

My trusted Mortgage Advisor sent along this chart to help you understand how this will affect a homebuyer's mortgage: