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FHA-Insured Loans Will Cost More After April 1st

  • March 14, 2012

by Don DeBat


The honeymoon is over for home buyers who utilize Uncle Sam’s low-down payment, federally insured FHA home-loan program.

Over the years, the Federal Housing Administration loan program has never required taxpayer assistance. However, loan defaults caused by the real estate downturn, have lowered the FHA’s reserves to 0.24 percent—far below the 2 percent of projected losses set by law.

So, starting April 1st, Uncle Sam will launch new premium structure to help shore up the agency’s sagging finances. The FHA will increase the annual mortgage insurance premium by 0.10 percent. For borrowers who place a minimum 3.5 percent down payment, the monthly payment likely will increase about $25 a month on a typical FHA-insured loan, mortgage experts say.

On June 1st, another 0.35 percent will be added to the annual insurance premium for loans that are greater than $625,500.

Effective April 1st, the FHA also will boost the upfront mortgage insurance premium to 1.75 percent of the loan amount from 1 percent. On a $250,000 mortgage the upfront premium will skyrocket to $4,375 from $2,500. Borrowers still may roll this hefty upfront charge into the loan amount.

According to the FHA, the higher fees will pump more than $1 billion into the agency’s Mutual Mortgage Insurance Fund by the end of fiscal year 2013.

Created during the Great Depression of the 1930s, FHA-insured loans have ushered tens of thousands of buyers across the threshold of houses from Maine to California.

In 2011, Uncle Sam insured one of every seven residential mortgages issued by lenders. Today, 30-year FHA-insured loans are generally available at interest rates of 3.875 percent with down payments as low as 3.5 percent.

During the recent housing downturn, tightening credit conditions and difficult down payment requirements has forced more new home buyers to pursue financing from FHA or, for veterans, through the Veterans Administration.

According to Housing IntelligencePro, in 2005 only 5 percent of new home closings were FHA loans, and a mere 2 percent were VA loans. In 2008 that share rose to 25 percent and 7 percent, respectively. In 2011 the total increased again to 29 percent for FHA and 14 percent for VA.

If there is one remaining untouched bastion of housing help left untouched in today’s shaky economy, it is the Veterans Administration-guaranteed loan.

Designed to finance homes for U.S. military veterans with low interest rates and down payments as low as zero with no private mortgage insurance, the VA loan program is a great deal now being widely tapped by credit worthy veterans who were honorably discharged, including many who served in the Iraq and Afghanistan wars.

And, even if a Vietnam vet took out a VA home loan many years ago, if the mortgage was paid off the veteran has a credit score of 640 and steady income, he or she can qualify for another loan.

The maximum amount of a VA loan is $417,000. The interest rate currently is 3.875 percent for a 30-year loan. Call 1-800-827-0611 for more information.


Don DeBat’s weekly real estate column is syndicated by DeBat Media Services. For more home-buying information visit his website at:

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