The Federal Housing Administration (FHA) announced on Wednesday, Jan 30th that premiums on most of the new mortgages it insures will be raised by 10 basis points, or 0.1%. The FHA is the largest insurer of low down payment mortgages and what this means to you as a buyer is if you opt for a 30-year fixed rate mortgage and put down 5% or more you will now pay an annual insurance premium rate of 1.3% of the outstanding balance instead of the 1.2% it is now. If you put less than 5% down you will pay 1.35%. Jumbo loan borrowers of loans amounting to $625,000 or more will be raised by 5 points, or 0.05% and the required minimum down payment will be raised from 3.5% to 5%.
The FHA also stated it will require most mortgage loans to continue to have the insurance for the full life of the loan, instead of the 2001 policy that allows a borrower to discontinue the mortgage insurance once 22% of the principal loan balance is paid. An exception to having the mortgage insurance is to put more than 10% down. These changes are designed to reduce the FHA’s exposure to risky loans and bring back its depleted financial reserves. The FHA has not said when they will implement these changes.