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FHA Loan Changes

With the economy in turmoil and so much uncertainty in the real estate market as of lately, it was inevitable that changes had to be made in the way banks, savings and loans, and other mortgage lending institutions do business.

Bank of America, Wells Fargo, Chase, and most of the major providers of home loans have been forced to revamp their lending practices to make qualifying for mortgages safer for themselves and their customers.

This is also the case with the Federal Housing Authority (FHA). With so many homeowners upside down on their mortgages due to the decline in home values, FHA has had to make some significant changes to how they insure loans.

Congress has authorized the up front mortgage insurance premium (MIP) that are paid at escrow closings to increase from 1 percent to 1.75 percent of the loan amount. This change became effective on April 9, 2012.

For borrowers putting down less than 5 percent, the annual mortgage insurance premium will increase from 1.5 percent to 1.25 percent per year on the outstanding balance.

Starting June 11, 2012, for new FHA loans above $625,500, the annual insurance premiums will increase by 0.25 percent to 1.50 percent.

For borrowers who have an FHA loan that was issued before May 31, 2009, annual mortgage insurance premiums will go down if they decide to refinance. Up front fees will go down from 1 percent to 0.01 percent of the base loan amount. The MIP will be reduced to 0.55 percent. This is significant because the savings could be as much as $1,000 per year.

Although they are called FHA loans, the Federal Housing Administration (FHA) does not actually loan the borrower the money to purchase the property. Instead, the loan is originated by a qualified lender using FHA guidelines and then the Federal Housing Administration guarantees the repayment of the loan.

Even with the recent changes, FHA insured loans are generally easier to qualify for than conventional loans. For FHA loans, credit requirements are not as stringent and the down payment is much less than loans offered by conventional lenders.

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