FHA Changes Effective October 4th, 2010

It is official. The bill HR 5981 has been passed and made into law. But what exactly does that mean to people in the process of LOOKING for a home? My hope is that these points will clarify any and all of your questions:

1. First the great news. If you are currently looking at an FHA loan with a value of $250,000, your closing costs will go down due to a decrease in the Upfront Mortgage Insurance Premium from 2.25% to 1%.  So on $250,000 loan  under the current plan that premium would add $5,625 to your closing costs. Under the upcoming plan your premium would be $2,500, a $3,125 difference in closing costs. Great news!!
2. Now the not so good news. If you borrow more that 95% of the value of the home to 96.5% your monthly payment is going up. Just taking into account your monthly payment without including taxes and home owners insurance, since each area is different, you payment on a $250,000 loan at 4.5% will go from $1,267(Principal + Interest)+ 114.58 (Private mortgage insurance)= $1,381.58.  After October 4th, with that same loan amount and interest rate you payment will go to $1,267 + 187.50 (Private mortgage insurance)= $1,454.5. Although the difference does not see that high it will affect the purchasing power of some buyers especially as you seek a higher loan amount.
3. If you borrow less than 95% of the value of the home the numbers go from $1,381.58 to $1,433.67 after October 4th

This is just a summary of the new guidelines. For a more detailed look, please visit the HUD website at: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-28ml.pdf

As always, consult with your mortgage professional for a detailed mortgage payment analysis that includes taxes,  homeowners insurance and an accurate mortgage insurance premium for your specific loan amount.