You may have heard that the Federal Housing Administration (FHA) is changing some key things in their loan insurance package.
For those that don’t know, FHA mortgages are loans that are insured (not originated or funded) by the FHA. They offer 3.5% down payment and competitive interest rates.
Well, a TON of people are using these loans to buy their owner-occupied properties, especially first time home buyers in mn.
FHA is planning a few changes however. Sometime this Spring they will switch their up-front Mortgage Insurance Premium from 1.75% to 2.25%. That’s only a half percent, but it’s another small chunk of money for new homeowners to think about.
FHA is also requiring that buyers have a minimum FICO credit score of 580 in order to qualify for the 3.5% down payment amount. This is really a non-factor because most banks are requiring at least a 620 Credit Score to fund the loan. If you have a somewhat lower credit score, chances are you may not be in a position to be taking out a huge loan for a property anyway.
The biggest change FHA is instituting is lowering the maximum seller paid closing costs from 6% down to 3%. Essentially for a $100,000 house this means the most a seller could legally give the buyer for closing costs and pre-paid items goes from $6,000 to $3,000. This is a big disadvantage for buyers trying to buy a property without a good amount of money saved in the bank. It does guard against artificially inflating the property’s value, simply to roll the closing costs into loan (this is the only legal way to do this right now).
So what’s the big deal? These changes are basically a “tightening” of the rules by the FHA in order to protect themselves from insuring loans to buyers who may be getting in over their heads. The 6% Closing Cost Contribution allowance has been a life-saver for a lot of 1st time home buyers who are purchasing a lower priced home and can afford the down payment, but not all of the closing costs. The new 3% limit brings FHA and Conventional Mortgage standards to the same amount for this term of the contract.
Some of these changes will be made in April 2010. Others will be later in the Spring/Summer of 2010. Keep checking back for the latest news on the FHA loan program.
