SALT LAKE CITY — The Federal Housing Administration is changing their current home loan program, which will have a significant impact on future homebuyers and those looking to refinance their current home.

In an effort to "strengthen" the Mutual Mortgage Insurance Fund — insurance that protects the lender from mortgage default — the FHA is adopting new policies that would raise the annual mortgage insurance premium.

"These are essential and appropriate measures to manage and protect FHA's single-family insurance programs," said FHA Commissioner Carol Galante in a written statement. "In addition to protecting the MMI Fund, these changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American homebuyers."

Beginning April 1, the annual premium for new loans will increase by 0.1 percent. So, a $200,000 loan on a home will cost approximately $200 more each year in mortgage insurance. For jumbo loans, which are defined as $625,000 or higher, the annual premium will increase by 0.05 percent.

Additionally, homebuyers will be forced to pay the mortgage insurance premium for the life of the loan. Under current law, a borrower could cancel the annual premium when the loan's outstanding principal reached 78 percent of the original amount borrowed.

"Even if they pay their balance down to 78 percent of the original, they still can't get rid of it ever," said Kathy Sater, a loan officer with Republic Mortgage. "It's less favorable than it was, but it's still a good loan; it's still good to buy a home; it's still worth it to get into a home."

Although the new regulations take effect on April 1, the mortgage insurance premium for the life of the loan will not take effect until June 3.

Sater said most buyers are unaware of the new premiums that were announced Jan. 30. She said many potential homebuyers are trying to act before the new regulations take effect.

"It doesn't seem like they've been aware of this," she said. "Usually, when they're talking to me, I tell them about it, and then they get more anxious to see if they can find a home before it changes."

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Borrowers with FICO credit scores below 620 and a total debt-to-income ratio of more than 43 percent will not be eligible to qualify, and will be forced to either put down a larger down payment or meet other requirements outlined by the agency. To qualify for an FHA loan, borrowers are required to put down at least 3.5 percent.

For potential homebuyers, there are other options, but it generally means putting more down. Conventional loans require good credit and 5 percent down and generally do not have mortgage insurance premiums. Talk to your lender about different options. Rates remain near all-time lows.

"You have to individually look at their situation," Sater said.

The FHA was forced to make changes to FHA loans because of losses on loans insured between Fiscal Years 2007 and 2009. The expected cost of those loans was more than $15 billion. The agency reported a $16.3 billion deficit in a report to Congress in November, which led to speculation that the agency would need a bailout for the first time in its 78-year history.

The new regulation will apply to all FHA loans assigned after April 1. Homeowners with current FHA loans will not be affected unless the borrower refinances the loan.

Contributing: Jed Boal

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