Coming soon to FHA-backed loans: Higher FICO scores and more cash at closing. The changes are needed to help keep the agency afloat. FHA-backed home loans are about to become more expensive and harder to get.
The details took effect in April: Borrowers will need higher credit scores and more cash at closing to get the lower interest rates and cheaper insurance of FHA-backed mortgages and refinanced loans.
The rules are changing because the Federal Housing Administration is in a financial hole. It's been paying out more to cover defaulted loans than it's taking in from mortgage-insurance premiums. The imbalance has drained agency reserves to 1.5% of the loans it covers which is below the 2% level required by law.
To cure the problem, President Obama's administration has announced it will tighten the screws, making four changes that will hit consumers:
- Increasing the down payment required for an FHA loan.
- Raising the minimum credit score you need to qualify.
- Increasing the cost of mortgage insurance and possibly changing how premiums are collected.
- Decreasing the amount that sellers can pay toward a buyer's closing costs.
FHA is now making changes which are intended to shore up the strength of the FHA insurance fund.
Comments(2)