FHA Tightens Its Belt (And Yours)……
Uncategorized
March 9th, 2010
March 13, 2010
The Federal Housing Administration (FHA) functions as an insurer of mortgages for millions of homeowners who might otherwise be squeezed out of the lending market due to insufficient credit, something less than top-notch credit, or both.
In January of this year, FHA announced new, and more restrictive, lending requirements for its insured mortgages. The changes are subtle and shouldn’t eliminate otherwise qualified buyers from the market, but prospective buyers should be aware of the FHA’s moves. Among them include:
- Upfront mortgage insurance premiums will raise to 2.25% from 1.75% of the loan amount;
- The minimum down payment for borrowers with credit scores less than 580 will increase to 10.0% from 3.5%;
- Limit seller credits and concessions to 3.0% of the purchase price, as compared to the current 6.0% level;
- Seek to increase annual mortgage insurance premiums above its current cap of 0.55%, potentially as high as 1.0% of annual loan payments.
None of these changes appear to result in a ‘tipping point’ for the average, or even marginal, borrower. But as with everything, it all adds up. Using a hypothetical $225,000 purchase price with a 3.5% down payment (assuming a credit score above 580), closing costs resulting from upfront mortgage insurance would increase $1,086, and the seller’s allowable concessions would drop another $6,750. The concession amount doesn’t necessarily affect the buyer’s actual cost of the home, as these credits are typically added to the offer amount to compensate the seller, but it once again increases the buyer’s cash requirement at closing.
According to FHA Commissioner David Stevens, these modifications are necessary in order to “strike the right balance between managing the FHA’s risk, continue to provide access to under-served communities, and support the nations’s economic recovery”. Bottom line – FHA is looking to up the buyer’s ante, particularly as it relates to cash at closing.
If you are a first-time homebuyer or relative newcomer to the homebuying market, now is the time to become knowledgeable and aware – not discouraged.
Randall Yelverton
Real Living Real Estate
(530) 224-6716
