You may have heard recently in the media or even read it on a news, mortgage or real estate website.
HUD also known as the U.S. Department of Housing and Urban Development announced new lower premiums on the common fee of Mortgage Mortgage Insurance or to some often referred to as PMI.
Just a little rundown. If you take out a FHA Loan to secure the financing on your home, you have what’s referred to as MIP aka Mortgage Insurance Premium attached to your loan on a annual (it’s broken down monthly in your mortgage payments) basis and upfront fee.
Essentially, the upfront fee was 1.75% of your loan for loans issued on a 30 year note. This amount can be paid at closing by you, the borrower along with your other closing costs associated with your loan including your down-payment funds or it can be rolled into your loan (at lender discretion) instead. So to give you a rough estimate of that amount. Let’s say you are doing a loan for $100,000 and on that your down payment would be 3.5% or $3,500 on a FHA loan. With the MIP upfront fee of 1.75% (current rate prior to change effective January 26, 2015), that would leave you having to bring $1688.75 + 3500 for a total of $4,688.75 to closing and that’s before any other closing fees like appraisals, title work, home warranty, or escrow funds. And on your monthly loan payments say at a 4.75% Annual Percentage Rate, that tacks 1.35% or for the example given $108.56 on to your Principal & Interest would be $512.20, and that total doesn’t include your Taxes and Home Insurance which all comprises your mortgage payment. Those totals so far monthly would be $620.76 again not including your taxes and insurance that would be required as part of your monthly payments.
Confused much? I hope not this is just a rough estimate to show you the effect of the current 2013 MIP Upfront and MIP Annual fees on your mortgage payment each month and closing on your loan.
WHO WANTS THAT?
Now with the proposed announced change, that fee has now been changed to 0.85% on the annual MIP amounts. So for that same loan in the example above your Principal and Interest would be $512.20 but now your monthly MIP would be roughly $71. So under the proposed new changes your payment would $583.20 before taxes and insurance. That new $38 difference can mean a lot to FHA borrowers especially when you look at it over the life of the loan or on a 30 year basis. That would be essentially saving roughly $13,680 over 30 years in a fee that doesn’t apply towards the principal balance of your overall loan.
Dramatic Difference in Payments Right?
That now makes the FHA more affordable to first time home-buyers and those holding loans issued in the last 36 months. And it could result in reductions for those existing FHA borrowers serving to put money back in their pockets each month or they can take a hint and apply it to their principal each month and pay down their mortgages quicker.
Take a look at this past post I did as well regarding money and home purchases.
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