Pennies on the DollarMany Phoenix home buyers took advantage of the Federal Housing Administration’s (FHA) assistance in previous years that made homeownership possible for first-time buyers. Low- to middle-income families were able to realize the “American Dream,” as were people with subpar credit scores. But after the mortgage industry nearly fell apart, the FHA has made it more difficult to take advantage of FHA loans.

Part and parcel of this is the higher mortgage insurance requirements that borrowers must now adhere to in order to qualify for an FHA loan. Popular for their low down payments, FHA loans have become more expensive in recent years, and starting April 1 and again on June 3, mortgage insurance premiums will go up again.

New requirements specify that FHA borrowers must carry mortgage insurance for the life of their loan. This marks a major change from current rules that allow premiums to be dropped once the loan has been paid down to a certain amount. According to FHA Commissioner Carol Galante, these new rules are an attempt to right the financial industry’s ship without looking to the government for a bailout. They also hope this will encourage private lenders to return to the market.

In an address to the Financial Services Full Committee, Texas Congressman Randy Neugebauer said, “FHA’s insatiable desire to ‘grow out of the problem’ has led to an aggressive push that could have devastating consequences for the very people FHA is intended to help.” But FHA officials say their financial position is already abysmal, and it’s getting worse. The reserve ratio was far below the 2% mandated by Congress at the end of 2012, totalling a $16.3 billion shortfall.

This year’s changes will be the fifth time the FHA has increased its insurance premiums since 2009. It’s expected that more borrowers will seek private lending, however, with stricter requirements like a 5% down payment, many buyers might find themselves right back where they started unless they can meet the requirements.

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