Federal Housing Administration mortgage loans are about to get a bit more expensive. In the coming months the FHA will be raising its fees for mortgage insurance and lowering the amount of closing costs the seller can pay for the buyer.
These new changes could make things difficult for first-time buyers and others in many high-priced areas around the country. Currently the FHA is financing about 25 percent of all home loans, up from 3 percent during the housing boom. In some metropolitan areas is funds about 40 percent of all mortgages. These loans have gained such popularity as they have been essentially the only loans offering low down payments (as little as 3.5 percent) during the post-housing bust turmoil. And these loans have a maximum loan limit of $729,750, making them appealing in the nation’s priciest markets.
The FHA announced their plans under pressure from the Congress and the Obama Administration to straighten out its finances, as the FHA’s insurance fund reserves have been depleted over the past few years to dangerously low levels. Plus, delinquencies on FHA loans have been rising, to 12.4 percent according to the Mortgage Bankers Association, a significantly higher rate than that the 4.1 percent for prime conventional loans backed by Fannie Mae and Freddie Mac.
According to information in the LA Times, the new fees will increase upfront insurance premiums to 1.75 percent from 1 percent as of April 1, and annual premiums will rise 0.1 percent on all mortgage amounts under $625,000 and 0.35 percent for higher loan amounts beginning June 1.
In terms of the closing costs changes, instead of allowing sellers to pay up to 6 percent of the home price towards buyers’ closing expenses as it now stands, soon sellers will only be able to up to 3 percent of the purchase price or $6,000, whichever is greater. And the type closings costs that can be paid will be restricted as well. Sellers will no longer be allowed to pay six months’ of interest payments or homeowner association dues. Only more traditional closing costs will be permitted.