As of January 21, 2010, the FHA is changing their upfront funding fee from 1.75% to 2.25%. This is the fee the borrower can finance directly into their loan without making any changes to the purchase price. It doesn't affect the amount of cash required to close a loan and it won't change borrowers' mortgage payments very much but the change is getting a lot of attention nonetheless. Here's what's really going on:
The FHA is essentially going back to what it used to charge consumers years ago before it lowered its fee from 2.25% to 1.5%, and then increased it to the current 1.75%. So while this is definitely an increase, it's not really that big of a deal. Also, it won't impact very many borrowers because few lenders are doing loans with credit scores under 620. For FHA loans with credit scores under 580, however, the change is going to be pretty dramatic. Such borrowers will have to put down funds of 10%
Check out the wording of the mortgagee letter just released from the U.S. Department of Housing and Urban Development for yourself. It's aptly entitled "Increase in Upfront Premiums for FHA Mortgage Insurance".
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Jolenta Averill, Principal
Lake & City Homes Realty