{ January 21st, 2010 }
Significant Changes Afoot With FHA Loans
To many, 2009 was the year of the FHA-backed loan. Typically, they make up 3% of all mortgages generated, but some reports pegged the 2009 number at 15% (if you’re curious as to why, read this interesting article on the subject). And like most things that have gone boom recently… well, let’s just say that there was a fear among many that the FHA needed to start instituting stricter guidelines. They had their reasons.
Letterman, in an effort to take attention away from the Jay-Conan imbroglio.
The FHA announced major changes yesterday to how they plan on doing business in the future. If you’re thinking about buying a home with an FHA-backed loan, you’ve only got a few more months before the game changes significantly. FHA loans are going to get more difficult to secure, and more expensive. The major points, below, from Carol Donnelly at iLendGreen.com:
1. The Upfront Mortgage Insurance Premium will be increased from 1.75% of the purchase price to 2.25%. This amount has been allowed to be financed into the borrower’s loan amount and will continue to do so. This change will reduce the buyer’s equity in the property. With a traditional 3.5% down payment, financing in the 1.75% premium ultimately gave them 1.75% equity in the property at the time of the purchase. By financing in the new 2.25% premium, the buyer’s equity will now be 1.25% at the time of the purchase. On a $250,000 purchase price, this reduces the buyer’s equity by approximately $1,250 – effectively wiping out 15% of the buyer’s down payment investment.
2. The seller will no longer be allowed to contribute 6% of the purchase price to the seller’s costs at closing. This amount will now be limited to the current industry standard of 3%. Currently, on a purchase price of $250,000, the seller is allowed to pay up to $15,000 toward the buyer’s costs. This could be used for closing costs, prepaid expenses, escrow deposits, interest rate buy-downs, etc. Typical total costs for closing costs, prepaid expenses and escrow deposits is around $9,500 on a $250,000 purchase price. Under the new caps, the seller will only be able to contribute $7,500 leaving the buyer having to pay the additional $2000 out of pocket. So, where the buyer used to be able to get to closing with only the 3.5% down payment out of pocket ($8,750 in this scenario), they now would need $10,750.
3. The Annual Mortgage Insurance Premium, paid monthly by the borrower, will be increased from it’s existing levels of .50-.55%, pending legislative approval. It may be that some of the upfront mortgage insurance premium (#1 above) will be shifted to the annual premium.
4. The minimum credit score for FHA insured mortgages will now be 580 in order to qualify for the minimum 3.5% down payment option. Borrowers with credit scores below 580 will be required to make a 10% down payment.
5. Increased enforcement on FHA approved Lenders.
Photo Credit: 3 Pounds of Real Estate
