WASHINGTON — Sizing up the true cost of buying a home can be complicated. On top of the home’s list price there are numerous fees and financing costs to factor in.
To complicate matters, the Federal Housing Administration is now hiking the insurance fees for the mortgages it backs.
FHA loans are generally used by first-time home buyers and require at least a 3.5 percent down payment. If you’re in the market for a new home and considering an FHA loan, here’s what you should know.
Starting Oct. 4, the upfront fee on FHA loans will fall to 1 percent of the loan amount from 2.25 percent. However, that savings will be offset by a hike on the annual fee to 0.90 percent, from 0.55 percent.
Most homeowners roll both fees into their monthly payments. The combined effect of the fee changes will result in higher costs overall for most homeowners.
The exception is if a borrower pays the upfront fee out of pocket and only stays in the home for less than 3.5 years. That’s when the higher annual fee — typically paid monthly — starts eating into the savings on the upfront costs, notes Gibran Nicholas, chairman of the CMPS Institute, which trains and certifies mortgage professionals.
Let’s say a home costs $200,000 and you take out a $193,000 loan. The current monthly FHA insurance premium of $88 a month would jump to $148 a month after Oct. 4. That $60 difference translates to about $7,200 over 10 years.
That would offset the savings of $2,400 on the upfront costs.
The FHA is hiking fees to shore up its funds, which have deteriorated because of the foreclosure crisis. Recent legislation gave the FHA authority to hike the annual fee to as high as 1.55 percent of the loan amount.