Thinking about purchasing or refinancing using the Sonoma County mortgage? If yes, the mortgage insurance premiums on FHA Home Loans are set to rise again on April 1. The Federal Housing Administration continues to keep a close eye on their capital reserves and as a result, have instituted higher costs on FHA Home Loans originated on or after April 1, 2012.

The mortgage insurance premiums are set to rise in purchase loans and in refinance transactions. Following are the changes:

→UFMIP (upfront mortgage insurance premium) presently at 100 basis points will rise to 175 basis points

→MIP (monthly insurance premium) presently at 115 basis points will rise to 125 basis points

Here is how the math breaks down on your FHA home loan preapproval:

Assumptions all other items constant-

Purchase Price for $350,000

Down Payment 3.5%

Interest Rate 4.0%

→Total Mortgage Payment $2367

→Total Mortgage Payment on or after April 1, 2012 $2407

When the mortgage insurance on FHA Home Loans increases the purchasing power decreases.

Our scenario represents a mortgage payment difference of $40 per month. $40 per month might not seem like a lot of additional payment, however the cost of the mortgage inherently changes. Here’s why:  We were using a 4% interest rate. The payment is increases by $40 per month thereby making the effective interest rate more like 4.25%. So in essence your effective mortgage rate post April will be .25% higher.

As the mortgage insurance premiums continue to rise, purchasing power will ultimately be reduced to offset the higher mortgage insurance premiums on all FHA Home Loans moving forward. The change of $40 per month in our scenario reduces the purchasing power by approximately $20,000.

As a Sonoma County first time home buyer here is how you will need to adjust to these changes:

→Reduce your purchase power to the tune of $20,000

→If you have monthly revolving debt, reduce this by $40 per month or the equivalent with your own individual purchase price scenario

→ Switch loan programs. If you can,  consider switching to USDA financing. Consider conventional financing, the requirement 5% down on a primary residence

→Reduce the interest rate you’re receiving from the mortgage lender

FHA Home Loans still provide a very flexible approach to qualifying despite the changes to the mortgage insurance premiums.

Speak with your loan officer as soon as possible to make sure these changes are accounted for in your home loan pre-approval. It’s likely that as the Federal Housing Administration along with HUD will continue to closely watch their capital reserves meaning the mortgage insurance premiums will probably continue to rise even beyond April.

Begin by getting a complementary mortgage rate quote, get pre-approved, find a house, lock in a historically low mortgage rate and close escrow as soon as possible. The mortgage insurance on FHA Home Loans is set to rise April 1, 2012.