In October, the F.H.A. set a minimum FICO score of 500 for borrowers who want an F.H.A.-insured loan - the first time a minimum was set. It also introduced a new minimum down payment of 10 percent for borrowers with FICO scores below 580. (Those above 580 still pay a minimum 3.5 percent.)
In addition, new rules that went into effect this month adjust the two types of mortgage insurance paid by consumers for loans insured by the F.H.A.
One change raises the annual insurance premium, paid monthly, setting it at 0.85 percent to 0.9 percent of the loan balance, depending on the down payment or equity owned. The other change lowers the one-time upfront insurance premium that borrowers must pay to 1 percent of the loan balance.
The upfront premium is paid in a lump sum at closing either from borrower funds, or it can be added to the loan balance. The monthly premium is paid over the life of the loan in addition to the interest and principal.
Here is an example provided by HUD of how the changes would affect your payment:
"A borrower puts 3.5 percent down on a $154,000 house with a 30-year fixed-rate mortgage at 5 percent (such a consumer typically earns a gross annual income of $54,000, according to the agency) and who finances the upfront premium into the loan. You would see monthly mortgage payments, including taxes, interest and the two insurance premiums, rise to $1,238 from $1,205. The example is based on median data, including property taxes put at about 2.5 percent of home value. That increase includes the drop in the upfront mortgage insurance, to $1,486 from $3,344 - but also includes the rise in the monthly insurance premium, to $111 from $68."
Last August, President Obama signed into law a bill authorizing the F.H.A. to increase premiums to shore up its insurance funds; the agency had been authorized to raise the annual premium to as much as 1.55 percent, however HUD has not yet implemented this maximum.
FHA borrowers can stop paying the monthly mortgage insurance premium either after five years or when their loan-to-value ratio reaches 78 percent.
It's more important than ever to have a competent lending team on your side FHA or not. If you are looking to purchase in the Bay Area with FHA financing know that the Werdmuller Group has 43 years' experience and is here to help you navigate through the transaction.
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