FHA Mortgage Changes

The Federal Housing Administration (FHA) recently announced some pending changes to their mortgage insurance program. The FHA provides mortgage insurance on loans made by FHA approved lenders throughout the United States. FHA insures mortgages on single family and multifamily homes and is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934. FHA has increased their market share of home loans. With this increase in market share also comes an increase in loan defaults.

In an effort to help balance the risk of loan defaults, the FHA has indicated some changes to its loan structure and loan requirements that may take effect in 2010. Although these changes should support the nation's housing recovery, they are worth understanding since it could affect the "what's needed" at the closing table for your home purchase.

Pending Changes:

Mortgage Insurance Premium (MIP) - Increase in the upfront MIP of 50 basis points from 1.75% to 2.25%. This will help the FHA build up capital reserves and bring back private lending.

Minimum Credit Scores and Down Payments- New borrowers will be required to have a minimum credit score of 580 to qualify for FHA's 3.5% down payment program.  New borrowers with less than a 580 credit score will be required to put down at least 10%. This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.

Seller Concessions - Reduce allowable seller concessions to 3% from 6%. The current 6% level can create risks associated with the appraised value of the home insured by the FHA.  This change will bring FHA into conformity with industry standards on seller concessions.

Again, these changes will not affect all buyers. They are specific to FHA insured loan products but since they may affect the amount of funds needed at closing, it is worth mentioning in case you are considering using an FHA backed loan. Call a Homes & Land REALTOR to learn more about how these changes may affect your purchase.