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FHA to Raise Rates

January 20, 2010 | Author admin

Today in an AP article on MSNBC, the Federal Housing Adminstration (FHA) is going to raise rates and tighten lending standards. http://www.msnbc.msn.com/id/34944202/ns/business-real_estate/

The FHA doesn’t actually loan money, but insures against default. The rates for that insurance will rise from today’s rate of 1.75 percent to 2.25 percent of the loan amount. Borrowers will still be able to roll the fee into their loan. The down payment of rate of 3.5 percent will remain the same.

Although most FHA lenders require a higher credit score, FHA is setting 580 as the minimum. Previously, there had been no standard requirement across the entire program. Borrowers with a score under 580, will need to put at least 10 percent down.

What will the changes mean to the FHA home buyer?

Currently a borrower would pay a mortgage insurance premium of $3500 on a FHA backed home loan of $200,000. With the increase, the premium on the same size loan would be $4500. The benefits of a 3.5 percent down payment still remain. Conventional loans have been requiring a 20 percent down payment.

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