“I heard FHA loans have become more expensive. Is that true?”
Answer:
They’ve become both more expensive and cheaper.
How could that be?
Several months ago, HUD (Dept of Housing and Urban Development) changed how they charge the “MIP” or Mortgage Insurance Premium on FHA loans.
The upfront premium due at closing has been trimmed from 2.25% of the loan to just 1%. However the annual premium has gone up from 0.55% of the loan amount to 0.9%.
The net effect is that FHA loans have gotten cheaper if you pay them off (via a sale or refinance) within the first 3.5 years. But after 3.5 years, they become more expensive.
However, due to the low 3.5% down payment and easier qualifying, FHA loans will remain the best option for many borrowers.
