The Federal Housing Administration (FHA) just announced changes to its loan insurance, which is popular among home buyers who don’t qualify for conventional financing.
FHA loans are common among first-time buyers because they require just 3.5% down and allow more leniency for individuals with lower credit scores and higher debt-to-income ratios, but FHA borrowers pay a 1.25% annual mortgage insurance premium (typically hundreds of dollars each month on top of their mortgage payment and taxes).
This insurance premium lasts until the loan-to-value ratio–the amount owed divided by the purchase price–is 78%, or after five years, whichever comes later.
With the recent FHA changes, the mortgage insurance premium will increase slightly, and it will never go away.
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