FHA to Increase Mortgage Insurance Premiums

By Sari R. Updated on 6/11/2013

 

By Sari R.

The FHA announced yesterday that it will be increasing mortgage insurance premiums and will require borrowers to pay this mortgage insurance for the entirety of the loan.  Mortgage insurance premiums will rise by 0.10% for new mortgages and 0.05% for mortgages over $625,000.

Homeowners with mortgages backed by the Federal Housing Administration will have to pay the premiums (based off of the unpaid balance) for the loan’s lifespan.  In the past, premiums were canceled when a homeowner repaid twenty-two percent of the loan’s principal; this is no longer the case.  Down payment requirements for loans exceeding $625,000 will now be 5% instead of the current 3.5% requirement.

In addition, borrowers with high DTI ratios and low credit scores will now have a very hard time obtaining a loan.  Changes regarding FHA’s reverse mortgage program will be announced in the upcoming weeks.  These changes have been long sought in an effort to protect the single-family insurance programs of the Federal Housing Administration. 

At the end of fiscal 2012, the FHA’s insurance fund had a $16.3 billion deficit, largely resulting from loan origination problems between 2007 and 2009.  Since 2009, the Federal Housing Administration has increased insurance premiums four times so as to protect itself from potential loss.  The FHA insured around 1.2 million single-family mortgages last year with a total of $213 million.  First-time homebuyers made up seventy-eight percent of these loans.

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