We’ve been stressing the urgency of buying now for almost a year, and I am sure you are probably tired of hearing it. However, the reason we reiterate the point so much is because new home shoppers still are not quite comprehending the situation. You are likely never going to see such amazing prices on homes again in your lifetime. The exceptional values, like being able to purchase a $350,000 home for $225,000, should be enough to get you investing in a new home, but just in case it isn’t you also have sizable tax credits from the government and some of the lowest interest rates in history.There’s no denying it is a perfect time to buy a new home, but the conditions will soon be changing.
In a little less than two months, the federal housing tax credit is going to expire. Inventory throughout Atlanta is being absorbed more and more everyday, so the low prices are going to start rising. The interest rates are expected to increase this year, and, for all of you first time home buyers looking to use an FHA loan to secure your first home, the Upfront Mortgage Insurance Premium is increasing.
The FHA loan is perfect for first time home buyers because you do not need 20% of the price of the home as a down payment. Instead, you only need 3.5%, which is much easier to acquire. The reason you are able to get approved for a home loan with so little down is because the Federal Housing Administration (FHA) insures the loan for the lender. In order for them to do so, the FHA charges an Upfront Mortgage Insurance Premium, and, beginning April 15, 2010, that insurance premium is going to be 2.25% – it used to be only 1.75%.
I know you must be thinking can .5% really make that much a difference, so let’s look at an example.
Home Price: $150,000
3.5% Down Payment: $5,250
2.25% UMIP: $3,375
1.75% UMIP: $2,625
Before April 15th, to purchase a $150,000 house with an FHA loan, the insurance premium cost will be $2,625, but after April 15th it jumps to $3,375. That’s almost a difference of $1,000. While most people finance the premium into their mortgage, the difference will affect closing costs and your monthly mortgage payment. In this example, the $750 difference will add $5 or $6 a month to your payment on a 30-year mortgage with market interest rates, which may not seem like a lot but in this economy every penny counts.
For more details about the insurance premium, closing costs or FHA loans in general, contact your real estate agent or mortgage broker.