FHA mortgages are very popular in the Baltimore real estate market.

For not much money down, Baltimore homebuyers can get into the home of their dreams, and use any reserves they have to decorate or buy furniture.

The amount that may be in reserves is going to lessen by a significant amount on April 1, 2012.

The upfront Mortgage Insurance Premium is due to go up by .75% to 1.75% of the loan amount. The annual insurance premium will rise .1% to 1.25% for loans under $625,000, and .35% for loans exceeding that amount.

In an CNNMoney article, Les Christie writes,

“The agency said the hikes are necessary to replenish the agency’s declining capital reserves, which fell below the level mandated by Congress back in 2009. Further red flags were raised in November when the agency’s annual report warned that if home prices continued to drop in the coming year, the agency’s losses could exceed its reserves.”

Brett Reichhart, of First Home Mortgage, and one of the lenders who notified me of this change today, put together a scenario that really puts things in perspective:

$300k – Contract price
$289,500 -Base Loan Amount
$2,895-Upfront MI
$292,395-Total loan amount
$280.21-Monthly MI

After April 1st
$300k-Contract price
$289,500-Base Loan Amount
$5,066-Upfront MI (Increase in cost of $2,171)
$294,566- Total Loan Amount
$306.84-Monthly MI (Increase in monthly payment of $26.63)

The big things that jump out at me is the upfront mortgage insurance cost increase of $2,171 and a monthly payment increase of $26.63.

This comes just about a year after the FHA mortgage insurance rates raised last.

What does this mean for Baltimore home buyers? Well, if you are planning to use an FHA loan, you may want to try to get under contract for a home and your loan application underway prior to April 1, 2012. That way you will receive the lower upfront mortgage insurance AND the lesser monthly mortgage insurance.

Please contact me for more information and details on these FHA mortgage insurance premium changes, and how they may affect your homebuying power!