FHA Loans Are Now More Expensiveby Tim Manni
Our blog post back on June 11, 2010 was titled “FHA Loans Could Be Getting A lot More Expensive.” This past week Congress has approved changes that allow the FHA to replenish their depleted reserves, thus increasing costs for borrowers.
The FHA will simultaneously lower their upfront mortgage premium from 2.25% to 1%, and increase their annual mortgage premium from .55% to up to 1.55%. According to the letter issued this week by Federal Housing Commissioner David Stevens, the FHA will not be fully increasing the annual premium to 1.55% at this time. Beginning September 7, 2010, the FHA will first increase their annual premium to .85% for borrowers with 95% LTV or lower, and .90% for borrowers above 95% LTV.
How much extra will this cost me a month?
The combined impact of lowering the upfront fee and raising the monthly fee would mean a borrower taking out a mortgage of $170,000 at an interest rate of 5 percent would pay an extra $38 a month.
The good news is, the lower upfront mortgage premium will allow new borrowers to get in the door more cheaply. These changes will be in place for new FHA borrowers.