The Federal Housing Administration(FHA) will start charging upfront mortgage insurance premiums based on the borrower's credit score and down payment starting July 14, according to the Department of Housing and Urban Development. Upfront premiums paid at closing will range from 1.25% to 2.25% under the new pricing schedule that will apply to all FHA loans. Currently all FHA borrowers pay a 1.5% upfront premium regardless of risk. By charging slightly higher premiums based on credit risk, HUD expects to create a more financially sound FHA program and reach more borrowers struggling to keep up with their payments on high-cost subprime mortgages. Risk-based pricing will also be used for refinancing delinquent borrowers under the FHA Secure program starting in July. HUD is expanding the FHA Secure program so that borrowers who have missed two or three payments in the previous 12 months can be refinanced into FHA-insured mortgages. The risk-based pricing notice and a mortgagee letter with the underwriting standards for the expanded FHA Secure program are posted on the FHA website, which can be found at http://www.fha.gov.
I think this a fair proposal from FHA/HUD; a borrower should be rewarded for a better credit rating. In any event, FHA is a great loan nowadays. FHA loans make it possible for first time home buyers to put little to nothing down. By extrapolating the details of a home purchase, the buyer can save thousands too.
Stephen, thanks for your comments. I couldn't agree more. The only thing that bothers me about FHA today is not the actual Department of Housing and Urban Developments' guidelines, but rather the lenders guidelines restricting potential borrowers to have a 580 credit score. FHA was introduced with no credit score requirement because the fact that a credit score is not always accurate of ones ability to pay back money borrowed. For instance, I came across a borrower with a much lower score than 580, but all of it was due to unforeseen medical bills. All of his obligations that he CHOSE to open were paid on time. But because of lenders new minimum 580 credit score this particular borrower has to suffer. HUD should govern that lenders can not turn down borrowers by credit score only.
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