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FHA fees on the rise again

By Judy Martel · Bankrate.com
Wednesday, February 29, 2012
Posted: 2 pm ET

Beginning April 1, borrowers will pay more for upfront mortgage insurance from the Federal Housing Administration, or FHA. Fees were last raised in April 2011 and are at the highest in the FHA's history.

Premiums for the insurance will rise from 1 percent to 1.75 percent of the base loan. The FHA estimates the increase will cost new borrowers an average of $5 per month.

In addition to the upfront insurance, borrowers also pay annual premiums for FHA-backed loans. Those fees will also increase on April 1, by 0.1 percent for loans less than $625,500. An increase on the annual premium for loans above that amount, of 0.35 percent, will take effect June 1.

Congress has mandated that the FHA's insurance fund hold 2 percent in reserves and Acting Commissioner Carol Galante says this move will help restore the fund by adding more than $1billion through fiscal year 2013.

The FHA doesn't actually make loans, but backs loans with as little as a 3.5 percent down payment. Approximately a third of mortgages are backed by the FHA. Lacking additional funds, the FHA could run through its reserves this year, and no one wants to see another government bailout.

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