New FHA Loan Changes Give You Three more Reasons to Buy Your First House Now

by Tom Tousignant

in Blog, Home Buying, Mortgages

You know everyone is telling you that now is the best time to buy a house, especially if it is your first house. With the low interest rate, Home Buyer Tax Credit, and lower house prices, people telling you that are probably correct.

Logo of the Federal Housing Administration.
Image via Wikipedia

Here is another reason:

The Federal Housing Administration, or FHA, just released word that they are raising the costs of the FHA insurance program this spring.  Right now, you would pay 1.75% of the loan amount upfront, and 0.55% annually to get FHA mortgage insurance on your loan. FHA announced yesterday that they are raising the upfront premium to 2.25% of the loan amount, or $1,000 on a $200,00 house April 5th, 2010.  They are also looking at increasing the monthly mortgage insurance from the current 0.55%.

The new, higher, Upfront premium goes into effect for all FHA case numbers assigned on or after April 5th.  The Case Number is usually assigned when you apply for an FHA home loan and have identified the property address you are buying / refinancing.

The FHA insured loans allows you to buy a home with as little as 3.5% downpayment.  In most areas, you can get an FHA loan for loans as big as $270,000.  In Charlotte, NC, FHA loans can be as large as $303,750. FHA insured loans account for 30% of all loans being done today – so if you are buying your first home, your lender should likely offer you the FHA loan as an option.  (If he doesn’t, and you are not putting 10-20% down, you should talk to a second lender).

The upfront Mortgage Insurance is added to the loan, so, while it’s not an out of pocket expense, it still eats into your equity and results in less money for you when you go to sell your home later.

FHA also announced they are going to allow seller’s to pay less of your closing costs. Right now, they can pony up to 6% of the price of the house – this summer, they are lowering that to only 3%. In North Carolina, the new limit will be ok for most buyers as we have some of the lowest closing costs in the country, but in some states, or with lower priced homes, the reduced seller contributions will mean more money from buyers at closing.

Key points:

  • Right now, FHA upfront fee is 1.75%, going to 2.25% on April 5, 2010
  • This summer, seller’s will be capped at 3% of the price in contributions, right now they can pay 6%
  • Monthly Mortgage Insurance may also be increasing if congress allows.

Three more reasons to get moving if you are thinking of buying a home!

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