FHA Financing

During the real estate boom leading up to the real estate bubble, home loans backed by the Federal Housing Administration, or FHA, made up only a small percentage of loans made.  This was due primarily to the higher priced homes exceeding FHA loan Limits.  FHA’s popularity has grew in popularity with lower prices (loan limits are based on location) and a lot of consumers looking to buy property with a low down payment (only 3.5%).  Sellers can also pay up to 6% in closing costs.  Most lenders require a credit score of at least  640.  However, this depends on the lender and can change based on a variety of factors.

Recent Changes

With the recent increases in demand for FHA-backed mortgages and according to Mortgagee Letter 2013-04 issued by the HUD (Housing and Urban Development), consumers can expect the MIP to increase as well as the requirement to keep the insurance during the life of the loan.  Beginning on April 1, 2013, most FHA-backed mortgages will be subject to an MIP (Mortgage Insurance Premium) increase of 10 basis points annually, or 0.10 percentage points. The increase applies to all loan terms.  The Federal Housing Administration is also reversing its policy which allows FHA-backed homeowners to cancel mortgage insurance premiums once the outstanding principal balance of an FHA loan reaches 78 percent of the original balance.  Going forward, the FHA will disallow the removal of MIP throughout the life of a loan, if the loan’s starting loan balance is higher than 90% of its appraised value.

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