FHA mortgages are set to increase their mortgage insurance premiums come April 1st, 2013. While this might not have much impact on you if you have 5% or more to put down on your home purchase, for most first time home buyers, this is a significant change.
FHA mortgages typically cater to first time buyers who only have the minimum of 3.5% to put down or buyers with less than stellar credit. In an effort to minimize their exposure to these sometimes riskier loans, FHA has decided to increase their premiums by .1% on most loans they insure. For the average priced home of $250,000, this is about a $20 increase per month.
While $20 a month doesn't sound like a significant increase, it is when you consider the other change FHA is making. Currently, when you have 22% equity in your home, mortage insurance for FHA loans falls off and you no longer have to pay it. But with these new changes, you will have to pay the mortgage insurance for the life of the loan. So instead of paying the $20 extra a month for say 5 years, now you are looking at 30 years. That is $7,000 more for the life of the loan.
Luckily, there are some options. If FHA is your only choice, then there is no reason to wait for this summer to buy when it is considered the "buying season." Get busy now and start looking. If you can swing 5% down, then going conventional is a great alternative and most of my first time buyers have been going that direction of late. And there are numerous local banks that offer 3% down mortgages with low or no mortgage insurance so that can be an option too.
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