mortgage

FHA changes home mortgage rules

Upfront mortgage insurance premium
Upfront mortgage insurance premium

Old rules: Borrowers were required to make a 3.5 percent down payment, plus a 2.25 percent one-time, upfront insurance premium paid at closing. On a typical $177,000 house (roughly the U.S. median, according to the National Association of Realtors), that equaled $10,178.

New rules: The down payment stays the same, but the one-time fee decreases to 1 percent. So for the same home, you pay $7,965.

These rules take effect with all lender applications made after Oct. 3, says Vicki Bott, HUD deputy assistant secretary for single-family housing.

While the FHA could raise that rate on future borrowers, "in the near future, that's not likely to happen," says Gibran Nicholas, chairman of the Ann Arbor, Mich.-based CMPS Institute, which certifies mortgage professionals.

What you need to know: "Consumers who are using FHA insurance can take advantage of these lower upfront costs to build up their cash reserves in case of unexpected repairs that may be necessary," says Barry Zigas, director of housing policy for the Consumer Federation of America in Washington, D.C.

Owning a home is expensive, so the smart move is "to save the upfront money these changes generate, rather than spending it," he says.

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