Fee-laden FHA mortgages cost more than private loans
WASHINGTON – April 19, 2013 – Fees for low-downpayment home loans backed by the Federal Housing Administration (FHA) rose on April 1 for the third time in two years.
The agency upped its annual premium by 0.05 percentage point to 0.1 percent, depending on the loan amount and the loan-to-value ratio. That is on top of an earlier 0.1 percentage point increase in the annual fee in April 2012, in addition to an increase in the upfront mortgage insurance premium to 1.75 percent of the loan amount.
Part of the reason for the changes is a hope that it will convince borrowers to scale back their use of government backing for their mortgage – a likely result, considering that private mortgage insurance (PMI) with a mortgage from a private lenders is now less expensive compared to FHA financing.
Over a five-year period, for example, borrowers with a 760 FICO score who put down 5 percent on a 30-year, $170,000 mortgage could save over $4,000 by opting for a loan insured by Genworth Financial instead of FHA.
