How Will the New FHA Requirements Affect You
January 23, 2010
The FHA has decided to change some of their lending requirements. The is due to falling below their required reserves. The changes the Federal Housing Authority are making will not affect most borrowers. Only borrowers with the lowest credit scores are going to be affected and the changes should help build the FHA’s capital cushion.
Just a few years ago, the government agency was just insuring around 3% of loans. With lending practices still much more liberal than conventional loans, the agency is insuring over 30% of loans today. FHA lending practices allowed borrowers to finance home purchases with as little as 3.5% down while conventional mortgage without the government backing costs a buyer from 10%-20%. With the rising number of FHA loans in default, the agency’s reserves have falling below the requirements set by congress.
One of the steps taken to increase the FHA reserves is that the upfront mortgage insurance premium has been raised from 1.75% to 2.25%. The won’t affect most borrowers since the upfront MIP is frequently rolled into the mortgage amount. On a median prices home, this will increase a borrower’s payment by less than $10 per month. They have also asked permission to increase the annual premium which is currently as high as is allowed by law.
The second step taken is to raise down payment requirements. The really isn’t going to affect most buyer’s. The increase is only for those borrowers whose credit score is below 580. Anyone below a 580 will now be required to make at least a 10% down payment. Anyone with a score above this will still be able to get an FHA backed loan with the normal 3.5% down payment. With the average credit score of conventional borrowers currently being in the mid 700′s, this is still a great program for most borrowers. One thing to keep in mind with the increased down payment requirement is that most banks are not currently loaning money to borrowers with credit scores under a 600. So the change to the down payment requirement really won’t affect current lending practices.
The final step taken that directly affects borrowers is that the seller concessions allowed has been reduced from 6% to 3% of the sales price. This will affect how much of the closing costs a seller can pay for the buyer.
Other steps that the FHA is taking is to monitor its approved lenders more closely to make sure they are following the agency’s guidelines. The FHA will start including lender scores on its website in February. Some congressional leaders are still pushing to tighten the FHA’s lending requirements even further. However, most feel that the changes that have already been made are a great step for the agency to secure its finances without impacting the housing market adversely.
With the changed the FHA has made to the 90 flip rule and their move to make sure they have the finances to continue insuring mortgages, the future looks great for the long term. Many analysts believe we have seen the bottom of the current housing market crisis. We are still in a great buyers market and rates are still at or near all time lows.
Scridb filter
