Acquiring an FHA mortgage loan is about to become costlier.
The FHA announced a few policy changes to cut back their overall liability.
It’ll mean tougher mortgage approvals and higher costs to secure a home loan approval for those who 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 also 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.
The FHA is trying to keep home loans affordable, but yet manage the risk.
On top of that they are going to strengthen the quality of their lenders. They are introducing a “termination clause” to address the problem where it starts. Should certain lenders represent a disproportionate amount of the bad loans, they will lose their freedom to originate FHA loans.
As a direct result, home buyers can expect tougher FHA underwriting in 2010. This won’t be as much due to the guideline changes, but more as a result of the “termination clause.” For lenders to prevent being the “bad lender,” they’ll add overlays to insure that they do not possess a disproportionately bad portfolio. Degrees of this already exist: The FHA will allow 580 FICO scores, but nearly 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 more costly.
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.
