FHA has announced that they are going to be making some changes to their lending policies in the coming months. Here is a brief explination of what they are and how they will effect you as a home buyer using FHA financing.
1. Increased mortgage insurance. The mortgage insurance premium (referred to as private mortgage insurance by many people) will be increased from 1.75% to 2.25%. This change will add some cost to purchasing a home, but will not overburden consumers since the mortgage insurance is paid over the life of the loan, rather than upfront at closing. This can be rolled into the loan amount so it does not increase the out of pocket amount to the borrower.
2. New down payment and credit score requirements. According to the new policy, home buyers who have a credit score of at least 580 may still be able to purchase a home with 3.5% down, but those with credit scores of less than 580 will be required to put down at least 10%. This change is designed to help the FHA balance its risk, while still providing affordable down payments for consumers with a history of good credit and responsibility.
3. Reduced seller concession. Basically, this change means that the person selling the home will now only be able to offer the home buyer 3% to help defray closing costs, as opposed to 6% under the previous policy.
In addition to these changes, the new policies contain a series of new measures aimed at increasing lender enforcement.
These changes will become effective on April 5, 2010. The bottom line is that the changes will impact some home buyers more than others. But in the end, FHA is still committed to providing affordable home loans and is still a great solution for the right buyer.
Thanks to Dennis Reed at Bank of America for this info, he can be reached at 614-778-8185 or emailed dennis.reed@bankofamerica.com (tell him I sent ya!)
