Starting October 4th, the Federal Housing Administration (FHA) will implement changes to its FHA-backed mortgage which will increase the cost for a buyer to obtain an FHA loan. FHA has experienced an escalated amount of delinquencies during the mortgage recession. In the third quarter 2010, 14.36% of FHA loans were past due, according to the Mortgage Bankers Association. FHA reported that its reserve fund has dropped to 0.53% of its insurance guarantees. This is well below the 2% ratio which is mandated by Congress. The fund covers losses on mortgages the agency insures.
The following changes will be made to compensate the rapidly depleting reserve fund:
1) Up-front mortgage insurance premiums will decrease from 2.25% to 1.00%
2) The 0.55% annual premium will be increased to 0.85% for mortgages with loan-to-value ratios up to and including 95%, and to 0.90% for loan-to-value ratios above 95% (the majority of FHA loans)
3) Borrowers will be required to have a credit score of at least 580 to qualify
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