About Government Refinance and Home Purchase Programs

Information and Updates on Government Mortgage Programs
Filed under FHA streamlines, Government Mortgage Financing Programs News

Unpleasant news just came down for FHA borrowers. For a long time the up front FHA mortgage insurance premium had been 1.5%. That meant that for anyone getting an FHA loan they had to pay 1.5% of the loan amount up front in order to offset the risk the FHA was taking to essentially co-sign on the loan. But as foreclosures rose over the last year the FHA found its reserves dwindling quickly. So in recent months the FHA launched a “risk-based” upfront mortgage insurance premium. Under that program borrowers with lower credit scores paid more of a premium up front.

The new housing legislation did away with the risk-based insurance premium plan and mandated that FHA charge the same premium to all borrowers. So in response the FHA recently announced that all FHA loans will now require a 1.75% up front insurance premium payment. See a Reuters article on that here.

How does this play out? Well on a $200,000 loan borrowers with decent credit used to have to pay a 1.5% insurance premium up front, or $3000. With the new standards that same borrower will have to pay 1.75% up front, or $3500. This premium is normally rolled into the new loan amount rather than paid out of pocket by consumers but that extra $500 is still extra debt. While this move probably helps the FHA stay solvent it is still painful for borrowers.

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