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Home Buyers

Information and news for home buyers, especially first time homebuyers

Deal breakers after a pre-purchase home inspection

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St Paul, MN:  It is that time of year – and the spring housing market is off to a great start. Good inventory is low , so if you put your home up for sale, you might find that it is quickly scooped up by an eager buyer. As a home buyer, you might have to settle for a great home that doesn’t match all of your wish list items, and even then, may be in a multiple bid situation with other house-hungry buyers.

HORNot every home is perfect – and most buyers will do a home inspection BEFORE finalizing a purchase agreement. So what on an inspection is a deal breaker?

Common Deal Breakers

No home is perfect, but certain types of problems are serious enough to send buyers packing and force a seller who thinks he has a deal to renegotiate the selling price.

  • Foundation problems. The home may show a few minor cracks after settling but larger cracks may mean expensive trouble.
  • Wiring issues. Old wiring such as knob and tube or aluminum may present a fire hazard, while the fuse box or circuit box may show the wiring is inadequate for modern appliances.
  • Roof. Roofs have a lifespan that can be expanded by patching, up to a point. If the roof is past its prime, or if the flashing is in poor condition (or nonexistent), the roof can leak or admit water that causes damage before you even know you have a problem.
  • HVAC problems. A inspection can uncover ineffective and dangerous heating and cooling units.

Assessing What’s A Deal Breaker

Most of the repairs mentioned can cost a few thousand dollars – enough to make a buyer reassess whether to continue with the sale. While remodeling an outdated bathroom or upgrading the flooring does not have to be done immediately, the new owner must have serious problems fixed immediately to make the house safe for occupancy.

Some mortgage loan programs, particularly FHA, may not be willing to fund the loan if certain defects are not fixed BEFORE you can buy the house.

Handling Deal Breakers If You’re A Buyer Or A Seller

For buyers, finding problems like this on a home inspection means that unless you can negotiate repair costs with the seller, you will have to make repairs out-of-pocket if you stick with the deal. Many buyers, especially first-time buyers, cannot absorb a hit of several thousand dollars after buying a home. Even if you love the home and are feeling pressured to move, financial realities may make you reconsider whether you can afford a particular house, no matter how much you love it. House love can turn to hate very quickly if your dream home turns out to be a money pit. Before finalizing your home purchase, always be sure to have a home inspection done

For sellers, the possibility of unknown costly defects underscores the importance of having your home inspected before the house goes on the market. If the inspector finds a major flaw, you must disclose it, but you can list the house. “as-is” if you are unable to make repairs. Upgrading the electrical system or fixing other costly issues may net you a better selling price, but in any case, a pre-listing inspection will save you the grief of having to make repairs or lower the price after the buyer’s home inspection is complete.

Lack of quality homes for sale causing problems

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Minneapolis, MN:  Who would have thought we would be saying this, but strong demand for housing is now running into supply problems, according to the National Association of Realtors® (NAR), and what I see and hear from my mortgage clients everyday.
real1Homes For Sale:
The lack of quality supply in homes for sale, especially in the under $150,000 price range in the Minneapolis / St Paul area if very evident with the number of clients unable to find a home that doesn’t need a lot of repair.  Any home in good condition, and priced right for today’s market is selling very fast, with multiple offers, and within just days of being put on the market. Home buyers need to be pre-approved, and ready to immediately offer full price.
Nationally, signed purchase agreements  in February and NAR’s Pending Home Sales Index slipped 0.4 percent from the previous month.

The Index, an indicator of future home sales, dropped to 104.8 from a revised 105.2 in January, but is still at a recent high, second only to April 2010 when it reached 110.9 shortly before the end a government home buyer tax credit program.  The index was 8.4 percent higher than a year earlier when it was 96.6 and February marked the 22nd month that contract activity increased on an annual basis.

On a regional basis the Index declined 2.5 percent in the Northeast but was 6.8 percent higher than a year earlier at 82.8.  The Midwest was up 0.4 percent month over month to 103.6 and 13.2 percent year over year.  Pending home sales in the South slipped 0.3 percent to an index of 118.8 in February but are 12.1 percent above February 2012.  In the West the index increased 0.1 percent in February to 101.4 but is 0.8 percent below a year ago.

The National Association of Realtors expects existing-home sales to rise about 7 percent in 2013 to approximately 5 million sales, which is near the current level of activity.  The volume of home sales appears to be leveling off with the quality inventory problems, and the leveling of the index means little change is likely in the pace of sales over the next couple months.

Because of limited inventory of quality homes,  NAR also expects the median existing home price to increase about 7 percent, while they expect mortgage nterest rates to slowly move up to closer to 4% by the end of the year.

First time home buyer tip

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Minneapolis, MN:  As we start to enter the spring home buying season here in Minnesota, I have one big tip for first time home buyers.

welcome2_FTHB_1Buying now makes sense. If you have OK credit, a little bit of money for down payment, and you’ve been successfully renting for a year or two, you are ready to buy now. With the combination of affordable housing prices and low mortgage rates, there has never been a better time to become a home owner.

First Time Home Buyer Tip: Talk to a Loan Officer FIRST.

Most people do it wrong. They start looking at homes on the internet. Then they contact a Real Estate Agent and start looking at homes. Seems logical, but wouldn’t it make more sense to know if you can even get a loan, how much you can afford, what down payment is required, and what purchase prices you can qualify for first?

With that knowledge in hand, now you can start looking for homes you know you can afford, and what the payments, and loan programs would look like for you.

I feel bad when people have already found a dream home, only to be told for various reasons they cannot buy it. Don’t let this happen to you.  Get pre-approved with a local mortgage broker BEFORE talking to a Realtor.

Not only does it make sense, but your Real Estate Agent will appreciate that fact you are pre-approved so they can immediately focus on providing the best service to you without slowing things down while you get approved. Or, worse yet, having to completely refocus the search because of newly discovered information from a mortgage lender.

De-Bunking 3 Mortgage Myths

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I hear things all the time, that as a Minnesota Based Mortgage Loan Officer, drive me crazy.  Here are a few things that seem to be high on the need to be de-bunked list.

Myth #1 – Banks are not lending.
NOT TRUE:  We are very busy! Mortgage companies continue to see a record number of home buyers applying and qualifying for mortgage loans, and refinance loans are still popular with our current low mortgage rates.  BAD credit loans are not available, so I suppose if you are a bad credit customer, yes, banks are not lending to you.

qualifyMyth #2 – APR & Interest Rates are the same thing / Shop by APR
NOT TRUE: The interest rate is the price you pay to borrow money. APR (annual percentage rate) includes other fees that you may have financed into your mortgage loan, like closing costs and mortgage insurance. Don’t be fooled when shopping for a mortgage. When the rate is below everyone else, you are likely paying higher closing costs and discount points to “buy” that rate. Paying discount points is a personal decision based current cash flow,  time in the property, loan-to-value, and more. Talk to your Minnesota mortgage lender to determine what financing options are best for your specific situation.

Myth #3 – You can be pre-approved for a mortgage without submitting documents.
NOTE TRUE: If you’ve been told you that are pre-approved for a mortgage loan, but you never sent W2’s, pay stubs, bank statements, etc to the lender, YOU ARE NOT PRE-APPROVED, regardless of what they tell you.

First Time Home Buyers, Get Pre-Approved BEFORE you talk to a Realtor
First Time Home Buyers, Get Pre-Approved BEFORE you talk to a Realtor

Disputed Items on Credit report Killing your Mortgage Application

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Minneapolis, MN:  It is a fairly common practice recently, and people with credit report issues are told to do it on a regular basis, but disputing an item on your credit report may just end up getting your mortgage application denied!

fico_graphDisputing bad credit really is the the heart of credit repair, but mortgage underwriting system have been improved and upgraded to deal with this issue.  All mortgage loans start out by being run thought an automated underwriting system (AUS). The AUS looks at your overall application and your credit report to make a lending decision.

Having disputed items on your credit report will prevent an automatic approval, and force your loan to be down graded to an manual underwrite. It doesn’t matter if your score is acceptable.

A manual underwrite on your mortgage application is DRAMATICALLY more restrictive in guidelines than an automatic underwrite. You will be required to pay off collections, supply more documentation, and the whole process will take longer!

A good example would be debt-to-income ratios.  On a computer approval, you may be approved with a 45% debt ratio.  But if it a manual underwrite, it is 41% of bust.

I just had this occur to one of my clients (which is why I am writing this post).  The client has an old car repo on his credit report with a $10,000 deficiency balance.  With the computer approve, he would NOT have to pay the old item off to buy his house.  Unfortunately, he tried disputing the repo and hoped it would magically go away.  Well, it didn’t – and shouldn’t.  So the dispute on the credit report turned his application into an manual underwrite, and under the manual underwrite guidelines, he MUST PAY IT OFF in order to buy his house.  Ouch…

New FHA Rules – 3 major changes coming soon

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Minneapolis, MN: If you are a first-time home buyer, you may already be leaning towards an FHA-backed mortgage to finance your Minnesota or Wisconsin home. Recently, the Federal Housing Administration announced changes to their mortgage guidelines, which are being made to stem the losses from all the foreclosures the past few years.

updateFHA does not provide loans, rather FHA is a government entity that insures mortgage loans made by banks and non bank lenders. Needless to say, if a lender can get an FHA guarantee on a portion of a loan, they are much more willing to provide a loan to someone.

Without the FHA, home buying would be a bit tougher for many home buyers buyers who cannot meet the slightly higher down payment and credit score requirements of a conventional loan. After the collapse of subprime lending in 2008, and the tightening of credit that followed, FHA-backed mortgages became the only game in town for many first-time home buyers.

FHA guidelines are a little more forgiving when it comes to credit history, making it the only practical option for some  home buyers who had a prior bankruptcy, foreclosure, or short sale in the past few years.

Here are 3 major FHA rule changes slated for 2013, and how they may affect you:

1. All FHA loans initially require mortgage insurance.  Just like conventional loans, mortgage insurance could be dropped below 80% loan-to-value.  After June 3rd 2013, this is no longer the case. Mortgage insurance on FHA loans will be on your mortgage payments for the life of the loan.

2. The cost of monthly mortgage premiums is going up slightly on April1, 2013. While it is  a relatively small amount; it would add an extra $20 a month to a $200,000 mortgage.  This will only effect new loans.

3. Few lenders allow for score below 640, but for those lender who do offer very poor credit score FHA loans (580-620 range) home buyers will face stricter debt-to-income ratios in 2013. In other words, the less debt you have, the better.

The good news is, these changes shouldn’t derail anyone’s plans to buy a home in MN, WI, or the rest of the country. Even with the new changes in 2013, FHA-backed mortgages remain attractive for many at least for the first 10-years or so of home ownership.

Finally, if you are buying a home, remember to get pre-approved by a local Minnesota or Wisconsin mortgage lender first…  You need to know what loan programs you qualify for, down payment options, FHA mortgage interest rates and how they will effect you, and an acceptable price search range to be looking at BEFORE you spend any time with a Realtor.

Getting a VA Home Loan in MN or WI

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Minneapolis, MN: VA Home Loans In MN and WI are probably the coolest mortgage loan lenders offer. VA Home Loans in MN and WIIt is available both while serving our country and after they are discharged.

Upon a veterans return,  hey usually are looking to re-establish themselves the the communities that they will be returning to. This means that many of them will be looking to purchase a home that they can settle in and raise their families.  A VA Mortgage can assist our Veterans in making that transition.

VA Mortgages provide our Veterans with two major advantages that other Mortgage programs do not have.

VA Loans require no down payment, and have no mortgage insurance, plus you can roll all your closing costs into the loan. This makes for one heck of a great first-time home buyer deal for military veterans wanting to buy a home! The country appreciates your service. This is one way we pay you back. Today mortgage rates on VA loans are very low, making homes even more affordable.

VA Mortgage benefits for a Veteran:

A VA Streamline Refinance is similar to the FHA Streamline Refinance. It is officially known as a IRRRL loan (interest rate reduction refinance loan) because of the money you can save by lowering your monthly interest rates. It was created by the VA in an effort help our veterans secure the lowest interest rate possible. This VA loan process is done quickly, with minimal hassle so our veterans can save immediately.

Those who are eligible:

  • Honorably discharged
  • Widow/widower of eligible service member or spouse of an MIA or POW
  • Wartime service – a minimum of 90 days active duty
  • Peacetime periods – 181 days of continuous active duty
  • Actively in service or a valid VA Form DD214
  • Have certificate of eligibility (I can usually get this for you)

Popular FHA Loans to become more expensive

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updateMinneapolis, MN: The popular FHA loans, requiring just 3.5% down payment are about to become more expensive.

Starting on April 1, 2013, the mortgage insurance premium will go up by .1% to 1.35%. While this is small, this is the most expensive mortgage insurance of all loans available in the market! This is also on top of the more than doubling of FHA mortgage insurance two-years ago. These staggering increases in mortgage insurance is highly expected to continue the decreased use of FHA loans.

To add insult to injury, on June 3, 2013, FHA mortgage insurance, which currently goes away when your loan-to-value drops to 78%, will be changed to “life of loan”.  Another words, it will NEVER go away, regardless of down payment or loan-to-value. This will only be one NEW loans. Existing FHA loans will not change.

Example: Purchase Price $175,000 3.5% down payment at 4% mortgage rate on 30yr.  Currently, that mortgage insurance would end at 78%, and cost someone $20,838.  Under the new rule, the mortgage insurance would be on the loan forever, and cost someone $42,447 – MORE THAN DOUBLE the cost.

There are buyers that qualify on income and credit who may not have the necessary additional down payment required for the 5%, or 10% down conventional loans. The 3.5% FHA program has provided a great vehicle to get into a home with a minimum amount of cash.

The average time for FHA mortgage insurance to go away is about 9.5 years. So for homeowners who anticipate staying in their home for ten years or less, the new changes might not have much financial impact. However, homeowners who expect to be in their home longer should seriously consider going with a 5% down conventional loan if at all possible.

For buyers currently in the market, you can avoid these increases by acting now.

Home values expected to rise 21% by 2016

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Minneapolis, MN:  Homes values have certainly seen a roller-coaster ride.  The big run up in from 2000 to 2006, then the crash.

The big question in everyones mind, is what will happen to values in the future?  Looking at the chart below, you can see an anticipated rise of 21% in values by 2016.

This is great news all around.  Those with existing homes who have lost value should regain a lot.  Those buying at today’s rock bottom home prices, and rock bottom low interest rates should see nice appreciation.

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What clients and Real Estate Agents Don’t Understand about Appraiser Independence

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What clients and Real Estate Agents Don’t Understand About Appraiser Independence

Minneapolis, MN:  Real Estate Agents constantly call our mortgage office to ask if an Appraisal was ordered, or if it is completed yet.

appThe first question is pretty silly…  Of course it was.  The second question is tougher to answer until the completed appraisal physically shows up on the lenders desk.

Recent lender rules require what is known as “Appraiser Independence”.  This is a double down on the old rules that no one is allowed to influence or pressure the appraiser to obtain any pre-determined value on the home. The rules also means that no one who will be compensated on the file can have anything to do with picking the appraiser.  It has to be totally blind and randomly assigned.  This is very different from years past where the client or the Loan Officer could pick any appraiser they wanted.

Once the appraisal has been ordered, there are varying degrees of what the Loan Officer may or may not know about the status of the appraisal.  Most mortgage companies use a middle company, known as an AMC, or Appraisal Management Company, to handle all aspects of the appraisal. This easily means the lender will meet the “independence” guidelines. Some AMC’s are better than others in letting the lender know the status, giving them the expected date the appraiser will visit the property, and the expected appraisal completion date. With many others, the lender is completely in the blind. In the vast majority of cases, I don’t even know who the appraiser is until the appraisal is completed.

To further complicate the issue, while it is technically possible for a Loan Officer to speak to an appraiser on a very limited number of questions, the vast majority of lenders completely forbid this contact to avoid even the remote likelihood of influence complicity.  It is much easier to respond to regulators that “our loan officers are forbidden”, then to claim they didn’t do anything wrong.

As a mortgage lender, it is very frustrating when real estate agents constantly bombard me with appraisal question.  If I know, I will tell you.  Do not yell at the Loan Officer if they don’t know the answer or say they can not talk to the appraiser.

Why Mortgage Pre-Approval is Important

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Successful house hunting starts with mortgage pre-approval – Not talking to a Real Estate Agent.

What Is Mortgage Pre-Approval

Minneapolis, MN:  Mortgage pre-approval is what happens when you talk to a Loan Officer and find out how much house you can afford. It’s an important step because it helps your real estate agent zero in like a laser beam on the correct house price for you. Your mortgage consultant will ask questions about your financial situation, including job, income, assets, debts, and more. Then you’ll talk to them about your comfort level when it comes to a monthly mortgage payment. It’s important to know this, in order to avoid buying a home you really can’t afford.

 

FHA Mortgage Loan Expert in MN and WI
FHA Mortgage Loan Expert in MN and WI

At this point, you are NOT pre-approved.  The next step to full pre-approval is submitting all your documents to the lender. Common items include; photo ID, pay stubs, W2’s, and bank statements. Once the mortgage company reviews these documents, THEN you will be pre-approved!

Here’s a look at some of the benefits to getting pre-approved before you house hunt:

  • Powerful Buyer. Sellers often give preferential treatment to pre-approved buyers since they know for sure that you can finance the purchase. If you get into a bidding war with another buyer, the seller might look at your offer in a better light than someone who hasn’t talked to a mortgage consultant.
  • Interest Rates. As interest rates go up and down, you can get in on a locked rate before they go up again. You can lock in an interest rate if you are pre-approved, as soon as you have a signed purchase contract. A lower interest rate will save a lot of money over the life of that mortgage.
  • Credit Surprises. Mortgage pre-approval reduces credit surprises.  If you wait until the last minute to secure financing and find that you have a few issues that need to be resolved with your credit, you could miss an opportunity to purchase your dream home.  Getting pre-approved will help you head-off surprises so you can go look for the perfect home.

Mortgage pre-approval is as close as anyone can get to insuring you’ll be able to obtain a mortgage loan in advance of finding a home.  Pre-approval gives MN and WI first time home buyers a definite idea of what they can afford and shows sellers that they are dealing with a serious buyer.

Why you need renters insurance

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Why you need renters insurance?

Everyone hates paying for insurance… but be it car insurance, health insurance, home owners insurance, life insurance,  or renters insurance.  You are sure happy you have it when you need it.

Renters tend to be younger and make less money than homeowners, and they don’t always think about the need for renters insurance.

Get a FREE Rental Insurance Quote

Many people focus simply on their contents, thinking they don’t have that much stuff. If all this stuff disappeared tomorrow,  they could easily replace it.  But there’s more to renters insurance than protecting your belongings. Here’s what you should think about when you consider a renters policy.

Fire, smoke, and water damage are usually the other events that we think of when we talk about renter’s insurance. But be sure to ask your agent what is and is not included in your coverage. It is important to note that the tenant is NEVER covered under the property owner’s policy.

What does Renter’s Insurance Cover?

You will be protected if your apartment burns down, or the upstairs tenants water heater leaks and drains into you unit, or if you are robbed of those expensive gadgets that you possess. Many policies cover medical expenses if someone is hurt inside your property and liability insurance can help protect your assets too. If the loss forces you to move out of the unit, the coverage includes increased living expenses. If you live in a flood plain, flooding will not be covered.

How much coverage do I need?

This will be determined by the value of the things that you have. If you have a lot of expensive things, (jewelry, electronics, furnishing) you can expect to have a larger policy. The cost will vary in proportion to the coverage. Be sure to ask about the limitation of the policy. Many policies limit the amount of coverage on electronics and assets used for working at home may require separate coverage.

What does Renter’s Insurance cost?

On average, most people spend about $150 a year, depending on the amount covered, and where you live. If you have expensive things, your costs will be higher. High risk areas can boost the premium as well. If you are considering whether or not to get insurance, remember that a fire caused by a smoker who falls asleep with a burning cigarette next door could cost you everything but the cloths on your back.

Three underserved groups – Are you one of these?

There are three groups that seem to be lacking insurance coverage.

College student – Fresh off to school, not really thinking about losing their belongings, college students are finding that theft, vandalism, and fire can quickly take away their possessions.

Elderly – This group may have been long time home owners but the loss of a loved one has forced them to rent a more affordable home or apartment. The idea of renter’s insurance is being overlooked.

Those transitioning from foreclosure to rental – This group are rather large; many have lost their home to foreclosure and are now renting for the first time in a long time. As homeowners, they probably had homeowners insurance but just haven’t considered getting renter’s insurance.

If you are a renter, consider finding a rental insurance agent near you. The cost really isn’t all that great, and will protect you in the event of a loss. Be sure to ask a lot of questions about the policy; what is included, exceptions and exclusions, and cost all need to be talk about before signing the agreement.

Have a small side business? Disclose it to your Loan Officer

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Have a small side business? Disclose it to your Loan Officer

St Paul, MN:  It is a pretty well know that when buying a home and applying for a home mortgage loan these days, mortgage companies are asking for more information from the applicants.

Standard items include photo ID, last 30-days of pay stubs, last two years W2’s, and your last two months of bank statements. What is less known are some of the additional requirements that can quickly derail your pre-approval.

When taking your application, your Mortgage Loan Officer will ask details about your employment.  If your job is paid hourly or salary, the lender does NOT need a copy of your Federal Tax Returns, so of course they would not ask you to provide them.

If you are self-employed, get tips, or commission income – your last two years of tax returns ARE required, so the Loan Officer will ask you to provide them right away.

But what if you have a small side business?  It is likely you didn’t mention it. How about the spouse?  Do they have a small side business.  Mary Kay, Tupperware, or maybe Lia Sofia?

The 4506T: All mortgage applications now require the applicant to sign an IRS 4506T. This document allows the mortgage lender to obtain a copy of your Federal Tax Returns.

They are looking for any discrepancies between what you told the lender and what you reported to the IRS.

Deal Killers: I recently Pre-Approved a couple. Only the husband and his salary job were listed on the application, but the loan was denied a week before closing when we discovered the wife reported a $15,000 loss on their joint tax return for her jewelry business.

Any side business losses will by underwriting be assumed to continue. Therefore in this case, I was forced to reduce the husbands income by $15,000 a year, which caused them to exceed debt-to-income ratios and have thier mortgage loan application denied.

This particular couple lost the dream house they were trying to buy. In the end, they were able to buy and close on a slightly less expensive home, based on their actual situation. Had this business loss been known in the beginning, they could have focused their home search on the correctly priced home, and saved a lot of time and headache.

The Bottom Line: If it is on your tax return, the lender is going to know it . Disclosed everything up front to your Loan Officer, no matter how trivial it may sound to you.

 

 

 

FHA Mortgage Insurance soon to be for life of loan

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FHA Mortgage Insurance soon may be for life of loan

Minneapolis, MN:  The Federal Housing Administration (FHA) has announced that sometime in 2013, all new FHA insured mortgage loans will now require the monthly mortgage insurance be on the loan for the entire LIFE OF LOAN.

The proposed rule is NOT official — Yet.

Currently, FHA mortgage insurance premiums drop from FHA insured loans once the loan balance reaches 78% of the original balance and the home owner has had the loan at least 5-years.

FHA has not giving an official starting date yet, but it will be on all NEW loans going forward, and WILL NOT effect existing FHA insured home loans. Any existing FHA insured loan will still be able to drop mortgage insurance (PMI).

Most NEW FHA insured loans are just 3.5% down payment – therefore the mortgage insurance is currently 1.25% of the loan amount monthly. FHA has also announced that in 2013, the cost of the insurance will increase to 1.35% monthly.

As an example, on a $100,000 FHA insured loan, the homeowner will pay $112.50 in mortgage insurance every month for the entire 30-year loan.

For those capable, meeting both the higher credit score and underwriting guidelines, moving to a conventional loan with 5% down is going to result in very significant savings over an FHA mortgage loan going forward.

FHA has indicated they are making this move to increase their capital reserves after suffering major losses due to foreclosures and the mortgage market meltdown. The vast majority of the losses are attributed to loans written from 2007 – 2009 as lenders moved marginal home buyers into FHA loans after sub-prime loans disappeared from the market in 2007.

 FHA home mortgage loans will still remain a great option for many buyers, but clearly FHA has indicated they do not want to be the loan for everyone.

 

 

FHA Announces Loan Fee Increases

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Minneapolis, MN: Thinking of getting an FHA home loan?  The Federal Housing Administration, commonly known as FHA just announced increases to mortgage insurance fees it charges homes owners by 10 basis points, or 0.10%.  This is on top of the massive fee increase from last year, which effectively doubled the cost of FHA mortgage insurance.

Swamped with a record $70 billion of claims from lenders on loans originated from 2007- 2009, the Federal Housing Administration Friday said it had no choice but to hike monthly mortgage insurance.

With the fee increase, the typical FHA borrower will now pay 1.35% of their loan amount per year in mortgage insurance. For example, a home with a $100,000 mortgage will now pay $112.50 a month in PMI. FHA said the fee increase will average $13.00 a month. Two years ago, the same $100,000 home would have only paid $45.83  a month.

The increase is designed to fix a reported a 16.3 billion deficiency in the FHA insurance fund as a result of defaulted loans insured during the housing crisis. While the mutual mortgage insurance fund shortage was projected at $13.48, this estimate is still well below the 2011 estimate of $14.67 billion.

FHA does actually do home loans, they insure the loans, which means lenders are more likely to do the loans knowing they have insurance on the loans against any losses. The increase insurance will greatly lessen the chances that the FHA will require a Government bailout to cover losses.

The Federal Housing Administration, currently insures about 16% of all home mortgages.