Recently  Congress took up discussion on the cost for Americans to obtain an FHA loan.  Items such as interest rates, required down payment, upfront mortgage insurance premiums, and monthly mortgage insurance premiums are all regulated by Congress and the Department of Housing and Urban Development (HUD).

Certain items [as they pertain] to FHA loans can be arbitrarily changed by HUD, other items require Congressional approval.

Regardless of who has the power to change policy, what should be important to the consumer is the fact that the cost associated with doing an FHA loan will most likely be increasing in 2010.

If you follow my updates, you know a standard FHA loan only requires 3.5% down.  However, you also know that I recommend clients put 5.10% down in order to avoid “review” appraisals and additional underwriting criteria.  It appears as though Congress may recommend that all FHA loans require 5.1% down.  In the last two years the minimum down payment has been increased from 3.00% to 3.50%… I believe by the end of 2010, this minimum down payment will be at least 5.00%

Additionally, HUD (who controls FHA lending and underwriting guidelines) is currently facing a financial and funding shortage due to loan defaults.  One way to close this financial gap is to charge new FHA borrowers a higher up-front mortgage insurance premium.  Up-front MIP is the fee charged to borrower who put less than 20% down.  By collecting this money upfront, HUD has a reserve fund to cover defaults on FHA loans.  Unfortunately, in our current financial recession, these emergency default funds have been depleted.

Overall, there are several proposals being evaluated by HUD and Congress which will most likely increase the cost to FHA borrowers.

As always, if you need information on starting a new loan for the purchase or refinance of your home, contact me at trustyourlender@gmail.com