By Mike Colpitts
A surge in home buying activity is expected to develop as a result of the Federal Housing Administration’s announcement that it will increase charges to home buyers for upfront mortgage fees. The cost of mortgage insurance premiums will rise by 75 basis points April 1st.
The increase translates to $750 for every $100,000 borrowed for a mortgage. The hike will apply to 30-year loans, and is in addition to a 35 point rise in fees charged for the annual premiums on mortgages above $729,750 announced in February. Smaller mortgages only previously saw an increase of 10 basis points.
The FHA increase was made after Dodd-Frank legislation urged regulators to increase fees charged for home mortgages to cover the spiraling costs of foreclosures. FHA insures loans for home buyers and currently accounts for an estimated 40% of home mortgages.
Home buyers with as little as 3.5% down payments and a FICO score of 580 may obtain FHA backed mortgages.
Buyers of a $200,000 home, with a 3.5% down payment would have a mortgage of $193,000. In April they can expect to pay an upfront mortgage premium of $3,377, compared to $1,930 before the increase. The charges can be added to the mortgage but will increase the monthly payment.
Mortgage borrowers with a credit score of 700, who can come up with a slightly larger down payment of 5% would pay about $44 a month less with a loan backed by Fannie Mae or Freddie Mac.
However, mortgage borrowers on the edge who cannot qualify for conventional loans through Fannie or Freddie with spotty credit would still be able to obtain financing through FHA with its easier lending standards.
Home buyers applying for FHA mortgages before March 31st can still obtain lower cost loans as long as they submit their mortgage application with an accepted contract to purchase a home before the end of the month, even though the loan won’t be funded until after the April deadline.