Federal Housing Administration
Submitted by Lisa P on Sat, 08/14/2010 - 12:52am.
Federal Housing Administration plans mortgage rate increases
Some low income mortgages are guaranteed by the Federal Housing Administration. The FHA doesn't directly provide no credit loans for homes, but guarantees loans to certain classes of borrowers. Currently, the FHA only has about .53 percent of the cash amount in reserve, but they are legally required to keep 2 percent. Interest rates on FHA loans will be going up on September 7, though there are plans in place to actually help reduce average payments. Post resource - Federal Housing Administration plans mortgage rate increases by Personal Money Store.
FHA guarantees bad credit loans
The FHA is set up to help borrowers with bad credit that need cash now. The amount required to put as a down payment is less when the FHA gets involved with a loan. With an FHA loan, the borrower has to put down 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. At the moment, about 20 percent of the mortgage loans are originated by the FHA.
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 at the moment guaranteed. Federal law states the FHA have reserves on hand to cover 2.0 percent of their loans. The FHA has requested to increase the rates to make up this gap. The FHA was given permission to increase the premium on home mortgage insurance that they offer by 1 percent. The FHA plans on beginning to phase in the changes on September 7 of this year. The move is expected to raise $ 3.6 billion per year.
Payments on FHA loans
The borrowers that have FHA loans will be seeing increases in their payments, though not as much as some expect. While the amount of money paid over the life of the loan could be increasing, the origination fees will be going down. Loan origination fees will go from 2.25 percent of the value of the loan down to 1 percent. The final effect is that FHA loan holders will pay about $ 40 per month more for each month of their loan.
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