01/31/2013 10:59 am ET Updated Apr 02, 2013

New FHA Rules Make Home Loans More Expensive For Most Borrowers

Since the housing market collapsed more than five years ago, would-be homebuyers with low or moderate incomes, or with less-than-stellar credit scores have had really just one financing option: a mortgage backed by the Federal Housing Administration, or FHA.

Now, those mortgages are about to get a bit more expensive. As CNN Money reports, the FHA announced that it will raise the cost of insurance premiums by 0.1 percent.

Translation: A borrower opting for a 30-year, fixed-rate mortgage who puts 5% or more down will now pay an annual insurance premium of 1.3% of their outstanding balance. And someone who puts less than 5% down will pay a premium of 1.35%.

Of possibly even more consequence, most buyers will also now have to carry these premiums for the life of the loan. Previously, borrowers could cancel premiums once their debt -- what they owe -- fell below 78 percent of the principal balance.

Last year, the FHA raised premium prices and also increased the cost of mortgages. The moves come as the agency, which backs $1.1 trillion in mortgages, faces questions about the solvency of its insurance fund. As the New York Times reported in December, the value of that fund plunged from $1.2 billion to negative $13.48 billion in just a year -- suggesting that the agency was paying out far more in claims than it was taking in.

Unfortunately, the bill for more expensive loans will be paid by those least able to afford it. As I reported in September, even though mortgage interest rates are near all-time lows, many borrowers can't take advantage. That's because Fannie Mae and Freddie Mac, which dominate the secondary mortgage market, have largely shoved aside their traditional mandate to make home ownership affordable for middle-class and low-income Americans in favor of a strategy geared to making only the very safest possible loans.

The average Fannie Mae borrower credit score from 2001 to 2004 was 718, a few points less than the median credit score of all U.S. consumers. By 2011, the average score had soared to 762, which is at the very top end of the range, and is considered "excellent" by the rating services.

For everyone else, a more-costly FHA loan is pretty much the only option.