Since 2010, the Federal Housing Administration (FHA) has been raising its monthly fees for mortgage insurance. This move, according to Bloomberg, could be preventing some first-time homebuyers from making purchases.
Higher FHA Fees
Since the mortgage market crash and the recession, more consumers have been getting FHA loans because the down payment requirements are a little bit easier to meet than those of conventional lenders. However, the FHA also charges a monthly mortgage insurance fee. The fee is meant to help compensate the mortgage lender if the borrower defaults. Homeowners stop paying the fee once they bring down their loan-to-value ratio to a certain level.
Bloomberg reports that prior to 2010, the monthly fee was $125. Now, though, the monthly fee is $340. That’s a big increase — and one that can be a dealbreaker. Many first-time homebuyers don’t realize how much the FHA mortgage insurance fee can add to their monthly payments, and it’s a bit of a shock when they are told.
According to Bloomberg, these fees might be one of the reasons that lending volume hit its lowest point in 17 years during the first quarter of 2014. Additionally, Bloomberg reports that there are fewer first-time buyers, since the added fee can mean that an “affordable” home is no longer within reach.
Due to the difficulties, there are calls for the FHA to reduce its fees. While critics of the fees acknowledge that something had to be done to replenish the insurance fund after a rash of defaults, they say that adding a high monthly fee to the mortgage has proven counterproductive.