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FHA Increases Fees on Mortgages

Mortgages backed by the Federal Housing Administration will soon rise in fees. The reason for the raise in fees is in an effort to try to recoup some of FHA’s depleted reserves, which has suffered from home owners who default on their mortgages. It is also to try to encourage the return of more private capital to the market. About 40 percent of all new mortgages for home purchases in 2010 were FHA-backed mortgages.

Starting April 1, the FHA will increase its annual mortgage insurance premium for loans under $625,000, bringing the total cost from 1.15 percent of the loan amount to 1.25  percent. Beginning June 1, the larger loan premiums will see an increase of .35 percent of a percentage point, bringing the total premium costs up to 1.5 percent of the loan amount, The New York Times reports.

The FHA also announced it will raise a fee for the upfront mortgage premium by 0.75 of a percentage point, which will now total 1.75 percent of the loan amount. The New York Times illustrates the impact of the increase in a recent article: For example, a borrower with a 3.5 percent down payment with a mortgage of $193,000 can expect to pay an upfront mortgage premium alone of $3,377, compared to the prior $1,930. That can be rolled into the mortgage. The new fees will also apply to home owners who want to refinance their mortgages, the agency announced.

The raise in fees is expected to bring in $1.25 billion in additional revenue to the agency through September 2013. To read NAR’s view of FHA’s decision, click here.