Mortgage insurance fees to be raised by FHA

The Federal Housing Administration (FHA) insures mortgages issued by banks and other lenders.  Since the crash it has become almost the only way to get a mortgage with a low down payment.  About half of all new mortgages for home purchases (not including refinances) are now insured by the FHA.

The FHA is worried that they do not have enough reserves to cover the potential defaults on all these new mortgages, so they are now planning to raise fees and some requirements as of this October.

The down payment minimum will stay at 3.5%, and upfront fees (“points”) will be dropped from 2.25% to 1%.  But monthly insurance premiums (added to your loan payment) will rise from a maximum of .55% to .9%.  This will add about $40 a month to the average loan payment.  Also, the FHA will reduce the amount of money the seller can kick in to cover your closing costs from 6% of the purchase price to 3%.

All in all it is going to be a bit more difficult and expensive to buy a house with a low down payment and an FHA-insured loan.  For more tips, click to our main article on Getting Better Mortgage Rate Terms.

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