FHA mortgages facing rate increases

The Federal Housing Administration is supposed 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. To hedge against the possibility of loans going bad, the FHA is legally required to keep 2 percent reserves – but they currently only have about .53 percent. Interest rates on FHA loans could be going up on September 7, though there are plans in place to really help reduce average payments. Article source – Federal Housing Administration plans mortgage rate increases by Personal Money Store.

FHA provides bad credit loans

The home mortgage loans 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. Some senators tried to increase the required down payment to 5 percent, but the bill was struck down. The FHA presently 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. According to the federal regulations governing the FHA, they should have 2 percent of their loan amount held in reserve. The FHA has requested to increase the rates for making up this gap. The FHA was given permission to increase the premium on home mortgage insurance that they offer by 1 percent. This change will take effect on September 7, but the FHA plans on phasing in the changes. This change will raise a little over $ 3.5 billion per year.

Change in FHA loan payments

There can be a relatively small increase, if any, within the overall cost of an FHA loan for new borrowers. 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. The effect, within the end, is that FHA loan holders will have to pay $ 40 per month more when they hold their loan .