For the first time in its history, the FHA changed its funding fees and mortgage insurance structure this week.  FHA-insured home loans are now subject to a risk-based pricing adjustment, as shown by the table above. 

Because of risk-based pricing, FHA home loans are now more expensive for borrowers with less-than-ideal credit profiles, and less expensive borrowers with perfect ones.

Prior to the changes, most FHA borrowers paid an up-front fee of 1.500 percent, plus on-going annual mortgage insurance payments equal to one-half-percent on the amount borrowed.

FHA-insured mortgages have grown in popularity this year because, while the guidelines of other mortgage products have tightened, FHA program guidelines have remained loose.  FHA allows 3 percent downpayments on purchases, for example, and allows “cash out” refinances to 95 percent.

Fannie Mae and Freddie Mac do not.

(Image courtesy: FHA.gov)

Related posts:

• Fannie Mae Increases Its Mandatory Loan Fees For All Borrowers
• FHA Makes Homeownership More Affordable — But Not Until October 1, 2008
• Mandatory Loan Fees Keep Borrowers From Getting Their Absolute Lowest Rate
• FHA Home Loans Emerge As A Cheap Alternative For Low-Credit Score Homeowners
• Get Your FHA Mortgage Application Started — Fees Increase 1/2 Percent Starting Monday, April 5, 2010

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