It's going to be harder to get a government-backed mortgage from now on.
Looking to shore up its weakening finances, the Federal Housing Administration is set to announce stricter standards on Wednesday.
What the new rules mean
The agency will increase its up-front mortgage insurance premium to 2.25%, from 1.75%. This if adapted, will be huge. For example, on a $100,000 loan, now the premium is $1750.00, with the new rule it will be $2,250.00. It will also be big since FHA will be lowering from 6% to 3%, same as conventional financing now, the amount the seller can help pay for closings for the buyer. Also a biggie.
Many FHA loans work only because the seller can help pay the closing costs up to 6%, now, by lowering this to 3%, many buyers will have to come up with more cash to close.
It will also ask Congress for the right to hike its ongoing premium, currently between .5% and .55% monthly.
The FHA will also require borrowers to have at least a credit score of 580 to qualify for the agency's 3.5% downpayment program. Those with lower scores will have to pay at least 10%. However, this rule may have little practical effect since Stevens recently said the average borrower score is 693.
The new policy also will reduce the amount of money sellers can provide to homebuyers at closing to 3%, down from 6%, of the home's price. That change will bring the agency in line with industry standards and remove the incentive to inflate appraisals.
Finally, officials plan to clamp down on lenders offering FHA mortgages. It will more closely monitor their performance and compliance with agency rules, as well as seek legislative authority to require mortgage firms to assume liability for all loans they originate and underwrite.
One thing the agency did not do is to broadly increase the downpayment requirement. Many industry observers said such a step is necessary to reduce the risk the FHA faces.
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