FHA Announces Spring Cleaning
Locking down an FHA mortgage loan is about to get costlier.
The FHA announced a number of policy changes to reduce their overall exposure.
It’ll mean tougher approvals and higher costs to secure a mortgage approval for those of you that wait.
There are three major changes in guidelines outlined in the update.
- Upfront mortgage insurance premiums are increasing to 2.25% from 1.75%
- Minimum 10% down payments for those with less than a 580 FICO
- Seller concessions are being limited to 3%. This is 50% of today’s 6%.
The FHA has additionally appealed to Congress to raise an FHA borrowers’ monthly mortgage insurance premiums.
You can see these FHA interest rate comparions at today’s levels and it explains why FHA is doing 30% of the lending these days.
The FHA is trying to keep home loans affordable, but yet manage the risk.
On top of that they are going to boost the quality of their providers. They’re introducing a “termination clause” to attack the problem where it starts. Should certain lenders represent a disproportionate quantity of the bad loans, they’ll lose their privilege to originate FHA loans.
As a consequence, home buyers should expect harder FHA underwriting in 2010. This won’t be as much because of the guideline changes, but more due to the “termination clause.” For lenders to prevent being the “bad lender,” they will add overlays to insure that they do not have a disproportionately bad portfolio. Degrees of this already exist: The FHA will allow 580 FICO scores, but almost all lenders require a minimum of 620 FICO.
The new guidelines don’t go into effect until spring, but acting now will save the up-front mortgage insurance premium monies plus lock in today’s monthly mortgage insurance payments before those too get higher priced.
With the FHA loan rates recovering, this might be as cheap as it gets.
Stay current on all the FHA home loan approval changes on the site.