Mortgage Insurance Premium Increase Begins April 9th 2012

Buyers who are considering purchasing a home with the intent to Occupy a Property, can take advantage of programs that allow them to put less than 20% down on a property.

Owner Occupied Buyer Programs are particularly great for first-time home buyers who don’t have a lot of money to put down on a home.  With today’s low interest rates, many buyers have take advantage of programs such as FHA Financing which allows them to put as little as 3.5% down on a home, as long as they intend to live in the property with a minimum of 2 years.

Because interest rates have been at at an all-time low, there have been a tremendous influx of these types of loans in the market.  Buyers who leverage more than 80% of the purchase price of a home must pay a Mortgage Insurance Premium, which is tacked on to their monthly mortgage payment.  Due to the high volume of these types of loans on the market, rate increases are eminent in the near future…

New FHA Rate Increase Scenario

The following  comparison was provided by Scott Evans with CMG Financial.

Based on a $400,000 purchase with $500/month Home Owners Association fee, the MI is monthly mortgage insurance and UFMIP is the upfront mortgage insurance premium. The UFMIP is going up from 1% to 1.75% and the monthly premium will be increasing from 1.15% to 1.25% for less than 5% down for a 30 year fix. Currently the 30 year fix is at 3.875% with no points.

Current MIP – Case numbers created on or before April 8, 2012.
$400,000 Purchase
3.5% down = $14,000
$386,000 base loan plus 1% UFMIP ($3860)
$389,860 total loan
P&I = $1833.27/month
Condo insurance = $25/month
Taxes = $416.67/month
MI = $366.95/month
HOA = $500/month
Total = $3141.89/month

New MIP – Case numbers created on or after April 9, 2012.
$400,000 Purchase
3.5% down = $14,000
$386,000 base loan plus 1.75% UFMIP ($6755)
$392,755 total loan
P&I = $1846.88/month
Condo insurance = $25/month
Taxes = $416.67/month
MI = $401.75/month
HOA = $500/month
Total = $3190.30/month

This is a total increase of $48.41/month due to the MI changes based on the model noted above.  This is a significant change that can certainly impact a buyer who is planning on putting les than 5% down on a home.

This approximate $50.00 payment difference equates close to a $10,000 difference in purchase price of a home.

For more information about purchasing a home with less than 5% down, give us a call at (858) 531-8785.