Some low income mortgages are guaranteed by the Federal Housing Administration. The FHA does not originate no credit loans for homes, but guarantees them. To hedge against the possibility of loans going bad, the FHA is legally required to keep 2 percent reserves – however they at the moment only have about .53 percent. Interest rates on FHA loans will be going up on September 7, though you will find plans in place to actually help reduce average payments. Resource for this article – Federal Housing Administration plans mortgage rate increases by Personal Money Store.
FHA guarantees poor credit loans
The home mortgage loans that the FHA backs are typically targeted to borrowers with bad credit that need money now. The amount required to put as a down payment is less when the FHA gets involved with a loan. Currently, the down payment required for an FHA loan is about 3.5 percent of the value of the home. There was a bill that would have required a 5 percent down payment, but it was struck down in the Senate. Currently, the FHA originates about 20 percent of the mortgage loans for people with bad credit.
Reserves that are required of the FHA
Currently, the FHA has money reserves on hand that would be able to cover only .53 percent of the loans they have presently guaranteed. As outlined by the federal regulations governing the FHA, they should have 2 percent of their loan amount held in reserve. To close this gap, the FHA has asked for a rise in mortgage rates. Lawmakers approved this request, saying the FHA could increase the home insurance mortgage premium by a full percentage point. This change will take effect on September 7, but the FHA plans on phasing within the changes. Each and every year, this one percentage point increase will create $ 3.6 billion in extra income.
Change in FHA loan payment structure
The borrowers that have FHA loans can be seeing increases in their payments, though not as much as some expect. 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 while they hold their loan .