FHA loans could be seeing mortgage rate increases

The Federal Housing Administration is designed to help guarantee low income mortgages. The FHA does not directly provide no credit loans for homes, but guarantees loans to certain classes of borrowers. At the moment, the FHA only has about .53 percent of the money amount in reserve, but they are legally required to keep 2 percent. You will find plans in place to really help reduce average payments when Interest rates on FHA loans go up on Sept. 7th.

Poor credit loans through the FHA

The home mortgage loans that the FHA backs are generally targeted to borrowers with bad credit that need cash now. The FHA loan programs help reduce the necessary down payment. With an FHA loan, the borrower has to put down about 3.5 percent of the value of the home. A bill that would have required a 5 percent down payment passed away in the Senate. The FHA currently originates about 20 percent of all mortgage loans.

Reserves required of the FHA

The loans guaranteed by the FHA could only be covered at a rate of .53 percent. A full 2 percent of the loans should be held in reserve, according to federal law. In order to make up this gap, the FHA requested permission to increase the rates charged on loans they guarantee. Lawmakers approved an increase of 1 percent on the premium for home insurance paid over the life of the loan. This new fee will go into effect on September 7, though it can be phased in depending on the size of the borrower’s down payment. The move is expected to raise $ 3.6 billion per year.

Change in FHA loan payment structure

The borrowers that have FHA loans can be seeing increases in their payments, though not as much as some expect. To offset the amount of cash paid over the life of the loan, the FHA will reduce origination fees. Loan origination fees will go from 2.25 percent of the value of the loan down to 1 percent. This means that homeowners who have gotten the loans will pay about $ 40 per month more for their loans, but less for the origination.