FHA Makes Homeownership More Affordable -- But Not Until October 1, 2008

Earlier this year -- and for the first time in its history -- the FHA changed its funding fees and mortgage insurance structure.

Effective October 1, 2008, it's repealing those changes.

Partly to keep FHA loans affordable, and partly to comply with new laws, the FHA is rolling back its up-front fees and ongoing mortgage loan  insurance requirements and replacing them with new ones.

The new up-front FHA loan fees are as follows:

• 1.750% : All purchase and "standard" refinances
• 1.500% : All "streamline" refinances
• 3.000% : All FHASecure programs for delinquent mortgagors

These fees are paid as a one-time cost at closing, and are calculated by multiplying the FHA loan size by the fee.  A $200,000 FHA loan purchase, for example, now carries a $3,500 one-time charge.

Ongoing mortgage loan insurance requirements have changed, too.  These changes are based on the mortgage loan type and the amount of equity in the home.

• 15-year fixed with 90% borrowed or less: 0.000% annually
• 15-year fixed with more than 90% borrowed: 0.250% annually
• 30-year fixed with 95% borrowed or less: 0.500% annually
• 30-year fixed with more than 95% borrowed: 0.550% annually

Mortgage insurance premiums are calculated by multiplying the initial loan size by the annual premium.  The same $200,000 FHA purchase outlined above, using a 95% 30-year fixed mortgage, would require a monthly mortgage payment add-on of $83.33 until the loan is paid in full.

FHA loans have grown in popularity this year because, while the guidelines of other mortgage loan products have tightened, FHA loan guidelines have remained relatively loose.  FHA loans allows 3.500 percent downpayments on purchases, for example, and allows "cash out" refinances to 95 percent.

Fannie Mae and Freddie Mac do not.