New bill restores cap for FHA mortgages to as high...

New bill restores cap for FHA mortgages to as high as $729,750. Credit: iStock

You’ll pay more to use the Federal Housing Administration’s mortgage programs to buy a home starting this spring.

Beginning April 1, the FHA will increase its annual mortgage insurance premium by 0.10% for loans of $625,000 or less. Starting June 1, the annual insurance premium for loans above $625,500 will rise by 0.35%.

FHA also charges borrowers an up-front insurance premium, a one-time payment that home buyers either pay at closing or add to their mortgage. This is the big disadvantage to FHA financing.

That fee will rise from the current 1% to 1.75% starting April 1.

The fee hikes will add about $24 a month to the cost of a $200,000 mortgage, if you finance the one-time, up-front mortgage insurance premium into a 30-year loan, said Matt Perillie, a senior loan officer at Campbell Mortgage in West Haven, Conn.

That’s not enough to deter people from using the FHA program, he said.

"A small percentage of buyers will end up taking a Fannie Mae or Freddie Mac loan because the monthly payment is going to be lower," he said.

Homeowners who refinance an existing FHA mortgage won’t pay the higher fees -- designed to boost the agency's reserve funds, which have taken a hit during the foreclosure crisis -- nor will borrowers taking out HUD reverse loans called Home Equity Conversion Mortgages.

But many buyers will stick with FHA, including:

-- Buyers who want to finance needed renovations into their loan. They will still use the FHA 203(k) program.

-- Consumers with lower credit scores who face extra charges by Fannie Mae and Freddie Mac. FHA will be a lower-cost option for them.

-- Former homeowners with excellent credit who sold a prior residence through a short sale. They can get a loan from FHA in three years but have to wait five years for Fannie Mae and Freddie Mac.

Before you decide, check out our advice on who should turn to an FHA loan.

FHA loans are designed to help home buyers who have more debt, lower credit scores and less cash for a down payment than traditional mortgages require.

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