If you’re house-hunting with a loan backed by the Federal Housing Administration (FHA), you may be on the hook for higher costs.
Right now, sellers can pay 6% of the buyers’ closing costs. That helps first-time home buyers who often struggle to come up with enough cash for a down payment plus closing costs. Sellers use closing costs as a way to get buyers to buy their home. FHA is proposing 3% or $6,000, whichever is greater. FHA thinks having buyers put up more cash at closing will make them less likely to default later on their mortgages. The problem is that making home buyers pay more at closing could slow down the real estate market recovery.
The closing cost proposal comes on the heels of an increase in FHA mortgage insurance premiums that took effect April 9: The up-front mortgage insurance premium for most FHA borrowers increased to 1.75% of the loan from 1%. FHA also raised its annual mortgage insurance premium for loans under $625,000 to 1.25% from 1.15%. Home owners with FHA loans exceeding $625,000 will see their mortgage insurance premiums rise to 1.5%. Approximately 40% of all new mortgages for home purchases in 2011 were backed by the FHA. The long and short of it is….it is becoming more expensive for consumers to buy homes. And as the last few years have shown, when home prices fall, the private sector money flees the mortgage market. (Houselogic 4/16/12)