While it is not official yet, it looks like the FHA is about to make several major changes that will affect borrowers in Brevard County, Florida and the rest of the country. The talked about changes will affect the cost of mortgage insurance, the down payment, the amount of seller paid closing costs, and also some steps towards being able to better oversee and regulate lenders originating FHA loans.
The FHA does not actually lend money; the FHA insures loans made by lenders that meet the guidelines set forth by the FHA. In order to insure these loans, all FHA loans have an up-front mortgage insurance premium that is meant to cover the costs of defaults. Because there are so many defaulting loans, the FHA has to increase the loans up-front cost. It looks like the cost will be raised from 1.75% to 2.25%. The up-front mortgage insurance premium is a cost that is actually financed into the loan, so it is not something that the borrower has to bring to closing.
Currently the FHA has a minimum down payment of 3.5% for all qualified borrowers; it seems as though the FHA will increase the down payment to 10% for those borrowers with a credit score below 580. This is kind of a moot change. The reality is the majority of lenders have a credit score floor of 620; some lenders have even raised their minimum credit score to 640 and higher. Unless lenders plan to lower their minimum credit scores, this should really not be a factor.
The FHA allows the seller to pay up to 6% of the purchase price towards the buyers closing costs and pre-paids. The new rule will only allow the seller to pay up to 3% of the sales price towards those items. As the many of the closing costs are fixed costs, this rule will really impact those lower priced buyers who have enough for a down payment, but who do not have enough funds to cover all of the closing costs.
Lastly, the FHA is looking to better oversee and regulate the current lenders that originate FHA loans. Recently, Taylor Bean and Whitaker, a Florida based operation, was shut down due to originating loans that the FHA said did not comply with the rules. It is likely that we will see more of this in the future.
All in all these changes will most likely continue to make the FHA loan as a viable source for people with challenged credit, less money to close, and many others. These changes only seek to strengthen the FHA, and make sure that it continues to have the ability to ensure loans for years to come.
Joe Harris
Mortgage Professional
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