Borrowers to Pay More for FHA Loans

With rule changes that will be coming in the summer, an FHA loan could cost you 10% more to close. That $20,000 on a $200,000 loan.

3.5% Down Payments and seller concessions of up to 6% will soon be a thing of the past for many. Mortgage insurance premiums will also increase by 1/2 point.

The FHA is writing about 30% of all current mortgages – Meaning BIG exposure. Now, the agency is acting to limit the risk of future exposure. That’s probably a good thing for most Americans, but if you are planning to use an FHA for you Daytona Beach Homes purchase, it may cost you more if you wait until summer.

FHA Loan Change Prosposals

The FHA is making proposals to change mortgage insurance premiums, FICO (credit score) and down payment combinations and seller concessions.  The changes will be posted in the Federal Register next month and after a comment period would become effective early summer.

Here is a quick summary of the changes:

• Increase upfront Mortgage Insurance Premium (MIP) to 2.25% – up 0.5%
• Decrease seller concessions from a maximum of 6% to a maximum of 3%
• Change FICO score/down payment combinations to as low as a 3.5% for a FICO Score above 580 and up to 10% for a FICO Score below 580.

So, with a FICO score below 580, the amount of out-of-pocket money to close an FHA loan would increase by about $20,000 on a $200,000 mortgage ($1,000 MIP, $6,000 increase in seller’s concession, $13,000 increase in down payment). This would be added to the current total cost, an increase of 10%. A FICO score above 580 could still add about $7,000 or 3.5%.

The FHA is taking these actions to reduce troubled mortgages in the future. They will also be making changes to reduce fraud. See FHA Loan Sharks Creating More Real Estate Foreclosures for more information on that problem.

These actions will allow them to add to their reserves against bad loans. Whether it’s a good thing depends on your point of view. As a taxpayer, this should reduce the cost of running the agency to you. As a home buyer, it will increase your overall costs to borrow.