A Federal Housing Administration (FHA) loan is a loan that’s insured against default, meaning the FHA guarantees the loan will not be a loss for the lender should the borrower not pay … which is why there’s a fee for mortgage insurance. The FHA charges this upfront fee – currently set at 1% of the loan amount – in addition to a monthly insurance premium, called MIP. Lenders like these FHA loans because of the guarantee, and borrowers – home buyers – like them because of the low downpayment requirement of as little as 3.5%.
It all changes April 1 2012, though. From the post:
Upfront MIP for loans raises from 1.000% to 1.750% of the loan size. Annual MIP fees change, too, climbing by 10 basis across the board, and by an additional 25 basis points for loans between $625,500 and $729,750.
Using the example of a recent transaction, the borrower purchased a $217000 house, and paid a fee of $2100 at closing for the upfront MIP. Starting April 1 2012, that same borrower would pay a fee of $3797 for the upfront MIP on the same house. A difference of $1697 just because they closed before April 1. That’s comparable to saving enough to pay a year’s worth of electric bills.
If you anticipate buying a home in the New River Valley this summer, get your FHA case number assigned before April 1. It’ll save you quite a bit of money.