FHA Mortgages are considered one of the best ways for first time home buyers to purchase a home. The minimum required 3.5% down payment is smaller than that of conventional loans, and the credit and income requirements are slightly looser than conventional financing. The rates are usually slightly better and it’s a great way to get into a property. That being said, the lower down payment is riskier for lenders since the smaller down payment means less vested interest in the property by the buyer. Just think about it this way…wouldn’t a buyer who put 20% down towards their home purchase be more likely to make their payments than someone who put down only 3.5%??

This is why FHA financing has mortgage insurance, which is insurance on the loan to make sure that the buyer will continue to make their payments. Starting April 1, this insurance amount is about to increase, and FHA mortgages will be more expensive to use.

The up front mortgage insurance will increase from 1.0% of the purchase price to 1.75% of the purchase price. This can be rolled into the mortgage over the life of the loan, but will add more to the monthly payment. The monthly mortgage insurance is increasing from 1.15% to 1.25%. This will also add costs to the monthly payment. Both of these additions will make it more difficult for buyers to qualify for as much of a mortgage as they would have prior to April 1. It may very well be time to consider conventional financing….

For more information, check out a great article on CNN located here.