Costlier FHA Loans Discouraging First-Time Home Buyers


The low inventory and the tighter credit requirements are among the main factors preventing prospect home buyers from entering the market. However, more and more experts place the major share of the blame on the more expensive FHA loans. They leave a growing number of first-time home buyers out of the market.

At present, the monthly insurance fees on FHA loans account for 1.3% of the loan’s outstanding balance. Back in 2010, these fees accounted for just 0.5% of the loan’s balance. The fees are nearly 3 times higher and this leads to much larger monthly payments. This is the major factor discouraging home buyers from using FHA loans. At the same time, for many households it is impossible to accumulate sufficient savings for making a down payment of 10% or 20% and using a conventional mortgage loan. This is how they are left out of the market and cannot afford home ownership.

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Traditionally, the FHA loans which are backed directly by the government have always been riskier compared to the conventional mortgaged backed by Freddie Mac and Fannie Mae. This is because they have a much lower down payment of 3.5% and require a lower credit score for qualifying. In order to offset the risk, the Federal Housing Administration began to increase the fees for insuring FHA loans in 2010. This policy was designed to prevent another crisis like the one from 2007. So far it has had a major negative impact on home buyers.

A recent report made by the Realtors group indicates that the rising insurance fees on FHA loans prevented prospect home buyers from making some 375,000 house purchases in 2013. The figure for 2014 is expected to be even higher. During the first quarter of 2014, the number of applications for FHA loans was around 32% lower compared to their level in the first quarter of 2013.

If FHA loans continue to become more expensive, more and more prospect buyers will be shut out of the housing market.



Christian Calvin mortgage Christian is a contributing writer for He is a graduate from the University of Tennessee with a degree in Communications and a concentration in Broadcasting. Christian has served as vice-president for a privately-held company for more than 20 years. Additionally, he has also applied his writing and business knowledge to various websites with a focus on business and sports news . . . both of which are passions. Christian enjoys playing golf and spending time with his family and friends.


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