FHA Places New Premium On Condo, Rehab Loans.

Washington -- The Federal Housing Administration has directed its lenders to start charging upfront insurance premiums on condominium loans and 203(k) purchase/renovation loans next year.

All condo and 203(k) loans closed on or after Jan. 1 are subject to the 1.5% upfront premium, according to a FHA mortgagee letter.

Congress imposed the upfront premium so these loan products would be self-sufficient and not subject to temporary shutdowns that have plagued the FHA program in recent years. The upfront premiums can be financed into the loan.

Even with the upfront premium, FHA 203(k) loans are "still the best buy in town," said Jane King, vice president of renovation lending at Irwin Mortgage Corp.

"You can't get renovation loans at first mortgage rates, except with 203(k)," she said. Ms. King works out of Irwin's Clifton Park, N.Y., office.

A bigger problem for the FHA is that originations of these loans have declined precipitously over the past few years. While the condominium market has been red hot in many areas, FHA endorsements are down 51% as of Sept. 15 - with two weeks to go in the 2005 fiscal year.

Department of Housing and Urban Development data show that the FHA endorsed 27,842 condo loans in FY 2005, compared to 56,964 during the same period in FY 2004.