FHA Mortgage Financing – Pricing Itself Out Of The Market?

The FHA mortgage program is intended to provide the opportunity for borrowers with less than stellar credit a means of obtaining financing for a home. The door is getting more and more expensive to open as years of mortgage insurance increases have driven the monthly premiums to lofty heights.

Despite the fact that mortgage delinquency rates are down as a whole, the FHA holds a disproportionate share of the mortgage default market. Higher rates of default among FHA borrowers has forced the FHA to increase the cost of its Mortgage Insurance Premium (MIP) five times in the last five years.

Just how much more expensive is MIP versus conventional mortgage insurance? On average a FHA borrower will pay 45.9% more for mortgage insurance with a FHA loan versus a conventional loan for the same amount financed.

FHA VS CONVENTIONAL MONTHLY INSURANCE RATES

Coupled with the change last year revoking the ability of new borrowers to cancel insurance premium payments once they have built up sufficient equity in their homes, FHA mortgages have lost much of their appeal.

FHA financing grew to as high as 28% of the financing market in recent years and filled an important gap in the mortgage financing industry allowing borrowers who could not qualify for a mortgage under conventional underwriting guidelines or did not have down payment amount sufficient enough for a conventional program. Now FHA financing is becoming less popular, and one could argue less affordable, and FHA’s market share is slipping.

Due to skyrocketing mortgage insurance premiums FHA borrowers are encountering the reality of buying a less expensive home in order to keep their monthly payments in line.

The big question is with a sputtering housing market how many potential buyers are being forced to sit on the sidelines and delay a purchase until they can qualify for a conventional program, or worse never becoming a buyer at all?

Wallingford PA Real Estate – Wallingford, PA 19086