In the present times, the option of FHA loans is becoming less appealing to the home buyers. Many buyers are questioning whether or not it will be a good option to go for a FHA loan now. FHA loans are known for their low down payment flexible terms and conditions. However, now things have changed. The mortgage insurance premiums of FHA loans have increased nearly 3 times since 2008. Also, recently a rule has come up asking the FHA borrowers to pay the insurance for the whole term of the loan. Also, a number of times the various associated fees of FHA loans has increased making it less popular amongst the home-buyers.
How did FHA loans suddenly became costly?
Since its inception, the main aim of the FHA loans was to help low wage earners to buy affordable homes. However, during the sub-prime mortgage crisis, not many home-owners opted for this type of loan. Once the financial crisis was over. Most people were left with a bad credit situation. They were left with no other option but to look out for FHA loans to buy a property. Thus, in the year 2009, around 40% loans were backed by FHA. As the FHA loans became popular, the HUD tried to increase the insurance fund through a number of hikes in the insurance premiums. This made the loan costly.
What is the cost of getting a FHA loan now?
FHA loans can be quite costly. In order to get a FHA loan, you will have to pay an annual mortgage insurance of 1.35% depending upon the average outstanding balance of the loans. It should be noted here that this amount is a part of the monthly payment of the FHA mortgage. Apart from this, the borrower is also charged an upfront fee of 1.75%. Moreover, the borrowers are also liable for paying a down payment of 3.5% minimum to get the loan.
Why do home buyers go for a FHA loan?
Most home buyers go for a FHA loan because they do not have the required down payment saved in order to get a conventional mortgage. Moreover, FHA loans require low credit score to qualify for the loan. Those borrowers who do not have a credit score of around 730, have no other option left but to go for a FHA loan. These two are the main reasons why home buyers opt for a FHA loan.