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FHA Mortgage & Insurance

New rules have changed the way they do business.

For most homeowners, the FHA mortgage used to be their better alternative to the high costs of private mortgage insurance considering the former’s low costs. However, the FHA decided to change hike its fees in response to the high risk that the property market started enduring.

The new fees made effective last year are as follows:

• 1.750% : All purchase and “standard” refinances
• 1.500% : All “streamline” refinances
• 3.000% : All FHASecure programs for delinquent mortgagors

A higher loan fee will of course have a higher percentage cost to be paid at the closing. Unlike its private counterpart, the FHA bears this one-time closing cost. Whatever the reason for such new rules, the FHA clearly imposes higher charges to reflect the higher risk.

But that doesn’t make it unaffordable. FHA mortgages remain to be attractive to those who cannot afford the produces of a private lender. In fact, the FHA has continued the FHASecure program amidst the growth in delinquencies. But remember, these were only affected by the increase in interest rates and the rise in insurance rates as well and not by their irresponsible behavior. In fact, the Wall Street Journal reports, “Some 59% of new home buyers are using government-backed loans from the FHA and other agencies, according to a survey of home builders by John Burns Real Estate Consulting, an Irvine, Calif.-based consultancy. The FHA accounts for nearly half of all mortgages, while loans from the Department of Agriculture and the Department of Veterans’ Affairs account for another 10% of all loans for new homes. The government’s share of the market rises even higher in certain areas. In Northern California, for example, builders said that the government accounted for 76% of all mortgages, while the government share stood at 65% in the Midwest and 62% in South Florida.”

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