If you want to buy a house with minimal cash by using an FHA-insured mortgage, here's some sobering news: Thanks to an ongoing series of fee increases and underwriting tweaks — the most recent of which were announced Jan. 31 — FHA is getting steadily more expensive, and may not work for you.
FHA is the Federal Housing Administration, the largest source of low-down-payment mortgage money in the country. Its minimum down payment is just 3.5 percent, compared with anywhere from 5 percent to 20 percent or higher from conventional, nongovernment sources. For decades, FHA's affordable financing has made homeownership possible for first-time buyers with modest incomes and credit history blemishes.
But in the wake of losses tied to bad loans insured during the housing bust years, FHA has been raising its loan insurance fees and backing more loans to applicants with higher credit scores. With the latest increases, things have gotten to the point where some lenders wonder whether the agency is trying to move away from its traditional customers.
Starting April 1, 2013, FHA's annual mortgage insurance premiums for most new loans will jump by one-tenth of a percentage point (10 basis points in lending parlance). This is on top of two previous increases since 2011. Other coming changes, but not scheduled to take effect until June 3, include: mandatory "manual" underwriting of applications by borrowers whose total household debt-to-income ratios exceed 43 percent and who have credit scores below 620; and mandatory 5 percent minimum down payments on FHA loans above $625,500 in high-cost areas such as California, metropolitan Washington, D.C., and others.
FHA also announced that as of June 3, it is rescinding its popular policy of canceling mortgage insurance premium charges for borrowers once their loan balance declines to 78 percent of the original amount. This will force FHA customers to pay premiums for as long as they keep their loans, and is in stark contrast to the private mortgage insurance market, where homeowners can request cancellation of premium payments once their loans hit the 78 percent mark.
Bottom line for you: Make sure your loan officer runs the numbers comparing FHA with privately insured conventional alternatives. You may not want to be saddled indefinitely with higher payments — and no right to cancel.
For further information on FHA mortgages or buying a home for sale in Atlanta, GA, contact Regina Ambrose, Chapman Hall Realtors, 678-613-5636 or view www.Homes4SaleInAtlanta.com