FHA loans spur higher purchase activity

More buyers are seeking mortgages insured by the Federal Housing Administration, a trend that's led to an increase in mortgage application volume.

While total mortgage applications decreased 0.2 percent for the week ending October 1, relocating families sought purchase mortgages at a rate 9.3 percent higher than the previous week, according to the Mortgage Bankers Association. Purchase applications reached their highest level recorded in the MBA's weekly application survey since May 7.

On the other hand, applications to refinance one's mortgage slipped again, this time falling 2.5 percent from the previous week.

"The increase in purchase activity was led by a 17.2 percent increase in FHA applications, while conventional purchase applications also increased by 3.6 percent," said Jay Brinkmann, the MBA's chief economist. "One possible driver of last week's big increase in FHA applications was a desire by borrowers to get applications in before new FHA requirements took effect October 4, which included somewhat higher credit score and down payment requirements."

The new FHA requirements that Brinkmann referred to also required higher annual premiums for FHA mortgage insurance. The changes make FHA mortgages cheaper initially by requiring less cash upfront, but after a few years, the higher monthly payments begin to outweigh the initial savings.
 

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