FHA Loans - New Rules
The FHA, which currently makes up to 40% of all mortgage loans nationally, has set some new rules in place. In an effort to shore up its capital reserves and to do a better job at managing risk, the agency is tightening its lending requirements.
Last year an independent audit discovered that the FHA's capital reserves had dipped below the 2 percent required by Congress. The changes that are being made now are an effort to increase the quality of its borrowers therefore reducing the number of loans that go into default.
Some of the new FHA rules include:
- Raising the upfront mortgage insurance premium from its current 1.75 percent to 2.25 percent. So, for example, on a loan of $100,000, the mortgage insurance premium would be $2,250 which is up from $1,750.
- An update of the combination of FICO scores and down payments for new borrowers. Borrowers with a FICO score that is lower than 580 will no longer qualify for the 3.5 percent payment program. These borrowers will be required to put at least 10% down on a home.
- A reduction of allowable seller concessions. Seller concessions of only 3% will be allowed as opposed to 6% in the past.
- And, there will also be an enhanced monitoring of lender performance for compliance with FHA guidelines and standards. Publicly reported lender performance rankings will be available on the HUD website.
Borrowers, particularly first-time home buyers, have been increasingly dependent on the FHA for mortgage assistance. Because of this, it is imperative that this institution do all that it can to remain strong and solvent.
Although borrowers will feel the pinch caused by some of this rule tightening, the FHA hopes that these changes will help make it a healthier and more stable institution so that they can continue to provide their much-needed services to home buyers.
Claudette Millette, Broker, Owner, The Buyers' Counsel - a Buyer Broker Since 1992
If you have questions about buying a home in Massachusetts please give me a call at 508-881-6230 or Email Me. It will be my pleasure to talk with you.
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