FHA Loans Popular Despite Rising Costs, Rates Low

(FreeRateUpdate.com) – Since the housing bust that began in 2007, FHA loans have continued to dominate the mortgage market. Looking back to pre 2007, the FHA (Federal Housing Administration) was attracting very little mortgage business when sub-prime lending entered the market and took over potential FHA borrowers. Today, with sub-prime a mere memory of the past, FHA loans, offering rates that are low, are again popular despite rising costs.

With more credit restrictions and tougher underwriting guidelines issued for Fannie Mae and Freddie Mac loans, FHA’s presence in the mortgage industry has soared. At the same time, due to their popularity, their risks have also increased which has forced them to increase their fees. In order to rebuild their reserves at a faster pace, FHA had already increased the upfront mortgage insurance premium to 2.25%. As of October 4th, the UFMIP will decrease to 1%, but the monthly mortgage insurance premium will be increased from .50% to .85% for a mortgage with an LTV up to and including 95% and up to .90% for a mortgage with an LTV above 95%.

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