Mortgage Insurance Premium, Credit Scores, and Seller Contribution Affected
On January 20, 2010, FHA announced major changes to ensure its long-term financial soundness. FHA is trying to balance three fundamental objectives:
- Financial soundness of the FHA insurance fund - ensuring that its capital ratio returns above 2 percent,
- Fulfilling its mission of serving borrowers not adequately served by the private sector and
- Facilitating the recovery of the housing industry and the over-all economy.
FHA has carefully balanced the need to make financial reforms with the need to keep FHA insurance available to a large segment of consumers. This is evident by retaining the 3.5 percent minimum down payment requirement and allowing the up-front mortgage insurance premium to be financed. FHA announced changes in the following areas:
- The upfront mortgage insurance premium (UFMIP) will increase to 2.25 percent up from 1.75 percent. (Effective April 5, 2010)
- Borrowers with a credit score below 580 will be required to have at least a 10 percent down payment. The minimum down payment will remain at 3.5 percent for all other borrowers.
- FHA will seek legislative authority to increase the annual premium (currently capped at .55 percent). Over time, increasing the annual premium may allow FHA to reduce the upfront premium.
- Seller concessions will be reduced to 3 percent from 6 percent.
Buyers are advised to be aware of these potential changes as they prepare to make offers on new purchases, as timing in the contract process is important.
Also, remember, to take advantage of the First Time Homebuyer Tax Credit, contracts must be ratified by April 30, 2010 and settled by June 30, 2010. There is no extension of this program being prepared at this time.
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