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FHA Mortgages To Cost More

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FHA Mortgages

Got an FHA Mortgage? Be Prepared to Pay More - Thanks to the housing bubble’s burst, banks are much more scared to loan money than they were a few years ago. As a result, the FHA is currently insuring more than $1 trillion worth of mortgages – putting a huge strain on the agency and, potentially, a huge strain on American taxpayers.

Right now, the FHA is operating in the red -- $34 billion in the red, to be exact! And, at the rate the housing market is going, tens of billions of dollars could be added to that total very soon. Unfortunately, it may not be long before taxpayers are told to bail out the agency, just like they did for the banks and the auto industry. In an effort to avoid a bailout, though, FHA mortgage holders are being asked to pay more – starting right now. In fact, experts say that without some sort of drastic measures, the agency that’s been in business since the Great Depression may not be able to keep going!

So, what exactly is the FHA changing?
Right now, they’re raising premiums 10 points or 0.1% on most of the new mortgages that they insure. The FHA also plans on raising the amount of the down payment required on loans for $625,000 or more. A 5% down payment will now be required, which is a 1.5% increase from before. The new plan also includes making it more difficult to qualify for the loans that they insure. Because of the high level of delinquency on current FHA-insured loans, the idea is to prevent that from happening on future loans by taking on less-risky applicants.

Who will qualify now?
The FHA is requiring tougher restrictions against new mortgages with specific requirements for anyone with a credit score less than 620. Should a lender decide to approve this applicant, they will need to write the specific reason why they are allowing this loan. These new requirements to qualify and the higher down payment requirement might be bad news especially for first time buyers. Many first time buyers turn to the FHA to secure financing. If buyers aren’t able to get financing, it could lead to further problems with the American housing market – especially since real estate experts have said that first time buyers are necessary for the market to regain strength.

What led to the FHA’s problem in the first place?
These new restrictions are based on high delinquency rates and the mortgage crisis, both of which have caused the FHA to lose significant amounts of capital. The FHA hopes to prevent any further defaults by being more stringent with approving loans. But all of these new restrictions probably aren’t enough to save the FHA without a bailout.  Experts also point out that adding more restrictions goes against the entire focus of the FHA. After all, the FHA was created in order to create opportunities for buyers who weren’t able to qualify elsewhere.

With such an unstable future for the FHA, people may need to start investigating alternatives for purchasing their next home – and taxpayers may need to realize that they’ll soon be paying more to fund this agency.
 


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