FHA Mandatory Loan Fees Increase For Some, Fall For Others

For the first time in its history, the FHA changed its funding fees and mortgage insurance structure this week.  FHA-insured home loans are now subject to a risk-based pricing adjustment.  Because of risk-based pricing, FHA home loans are now more expensive for borrowers with less-than-ideal credit profiles, and less expensive borrowers with perfect ones.

Prior to the changes, most FHA borrowers paid an up-front fee of 1.500 percent, plus on-going annual mortgage insurance payments equal to one-half-percent on the amount borrowed.

FHA-insured mortgages have grown in popularity this year because, while the guidelines of other mortgage products have tightened, FHA program guidelines have remained loose. 

FHA allows 3 percent downpayments on purchases, for example, and allows 'cash out' refinances to 95 percent. Fannie Mae and Freddie Mac do not.