Costs of FHA Loans Set to Rise in 2013

FHA loan costs rising in 2013

Beginning April 1, the mortgage insurance premium will be rising by 0.1 percent to 1.35 percent for FHA loans. While some would-be homeowners would gloss over this small amount, is it the first part in a bigger problem; on June 3, the duration of the mortgage insurance will lengthen significantly, to the point where it will essentially double the amount of mortgage insurance premium paid over the life of the loan.

For example, on a home with a purchase price of $175,000 with a 3.5 percent down payment at 4 percent interest rate on 30 year term, the current total amount that would be charged on the loan under best case scenarios would be around $20,000; after the increase, it may be as much as $42,000. This is just an example, and you should be sure to speak to a loan officer to confirm just how much more you may be looking at paying over the life of a loan with these changes.

These additional costs mean that borrowers who may not be able to put down 10 or 20 percent of the home’s cost for a down payment on a conventional loan, will be straddled with a much heavier long-term burden for choosing the FHA 3.5 percent program, especially if they plan on staying in a home for more than 10 years. Homeowners can also use the FHA program to secure their home and then refinance before the 10 years are up to prevent paying the additional mortgage insurance premium costs, though that requires careful planning.

For more information on the impact of these changes on your Chicago real estate search, visit the Department of Housing and Urban Development website.