FHA Loans Are About to Get More Costly

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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