FHA move could add $13 a month to most mortgages

The Federal Housing Administration announced it will be hiking premiums on the majority of its new mortgages by 10 basis points, or 0.1 percent. The move is expected to add $13 a month to the average borrower’s monthly payments, according to the organization.

The FHA is the largest insurer of low down payment mortgages, mostly geared to first-time homebuyers. The changes are a way to reduce FHA’s exposure to risky loans at a time when FHA’s government-insured mortgages face depleted financial reserves due to a high number of delinquencies the last few years.

Borrowers with jumbo loans of $625,000 or more will also see premiums increase, by 5 basis points or 0.05 percent. The minimum down payment requirement on jumbo loans will go from 3.5 percent to 5 percent.

FHA also announced it will require most borrowers to pay insurance premiums for the life of the loan, no longer allowing borrowers to cancel premium payments once their debt falls below 78 percent of the principal balance. Borrowers who have a down payment of more than 10 percent will be excluded.

Lenders also must manually document why they decided to approve mortgage applicants with less than a 620 credit score and a total debt-to-income ratio above 43 percent. Lenders will have to document such factors as larger down payment or a higher level of reserves to justify approving such borrowers.

“These changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American home buyers,” said FHA Commissioner Carol Galante.

FHA did not announce when the new rates will take effect.