Higher FHA Insurance Premiums May Be In Store

Posted on April 29 By Justin McHood

The Federal Housing Administration has found itself in a position where it needs to raise revenue or cut expenses in order to survive. In an effort to raise revenues, the House Financial Services Committee has passed a bill that would substantially raise the amount a borrower pays for FHA monthly mortgage insurance - from the .55% that is required today to 1.5%.

This wouldn't be the first time that FHA has raised the insurance premiums for an FHA loan, but it usually seems like in the past they have raised the UFMIP (up front mortgage insurance premium) and not the monthly MI (mortgage insurance). Nonetheless, the proposed raise in FHA insurance could make getting an FHA loan a lot more expensive in the near future if the bill makes it through the full House of Representatives and Congress.

Should the insurance hike pass, what it means to the homeowners trying to get a loan is that it will be harder to qualify because of the increased costs. Higher insurance costs will increase the monthly payment and result in the ability of a borrower to finance a home because the increased debt ratio calculation. A higher mortgage payment while making the same money each month will result in it being more difficult to qualify for a mortgage.

There are other important changes to the FHA program in the bill as well such as FHA holding lenders more accountable for bad loans as well as increasing the authority of FHA to pull the approval of FHA approved lenders. While these items are also important to the FHA borrower, they just don't seem (to me at least) to have as big of an impact on the ability of an FHA borrower to get a loan as higher insurance fees.

Because in today's world - more than ever before - people are trying to stretch their dollars as far as they can.

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