Securing an FHA home loan is about to get more costly.
The FHA announced a number of policy changes to scale back their overall liability.
It should mean tougher mortgage approvals and higher expenses to secure a mortgage approval for you if you wait.
FHA is trying to limit their exposure a few areas.
- 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 in addition has appealed to Congress to raise an FHA borrowers’ monthly mortgage insurance premiums.
In our FHA vs. Conventional comparisons, FHA keeps winning because the MI premiums are so low.
They’re in a spot where they need to balance their mission of assisting home ownership and remaining financially solvent.
They are also preparing to improve the standard of their loan providers. They’re introducing a “termination clause” to address the problem where it starts. Should certain lenders represent a disproportionate number of the bad loans, they’ll lose their opportunity to originate FHA loans.
As a result, home buyers should expect harder FHA underwriting in 2010. This won’t be as much due to the guideline changes, but more because of the “termination clause.” For lenders to avoid being the “bad lender,” they will add overlays to insure that they do not have a disproportionately bad portfolio. Examples of this already exist: The FHA will permit 580 FICO scores, but almost all lenders require no less than 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 more expensive.
A nice FHA interest rate rally may have brought down costs right before everything gets more expensive.
Stay current on all the FHA home loan approval changes on the site.
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