OK, there are some interesting changes which will take pace later this year to FHA financed loans. The government has been facing higher defaults with FHA insured loans over the past couple of year’s, in order to build up reserves they are making some changes.
If you are looking to buy a home using FHA financing the window to closing and avoid higher fees is closing quick.
Also, I hear the government is going to adjust the key interest rate at which they loan money to banks this will adjust the interest rate you will be able to get when buying a home. Just a 1% jump in interest rates, is like seeing a 10% increase in the price of a home. My advice would be don’t delay, if you find a home you love and plan on living there for 3+ years you should buy now.
Future changes with FHA:
FHA financing requirements, change from time to time to match the market and the risk of loss. Since the collapse of the financial markets in 07,08 FHA financing has been the primary source for home buyers to obtain a real estate loan with a low down payment. This is the reason for the changes you are about to see.
Imagine the market slips by another 5-10% and the unemployment numbers go about 10%, many borrowers who used FHA financing in the past 3-4 years could find them selves in foreclosure or needing to do a short sale to get out of their home because they have little to no equity in their home. FHA being the #1 source for finding for these low down payment loans could find them selves in a very bad situation. The tax payers could also be facing another bailout. So in order to protect government backed loans and us the tax payers these are the latest rounds of changes.
Initial up-front MIP increase will be raised by.50 to 2.25% will be released in a Mortgagee Letter tomorrow Jan 21 and will go into effect in the spring (example $200,000 loan will now costs the borrower $1,000 more, this is to help cover the losses already seen by FHA)
Borrower will be required to have a min credit score of 580 to qualify for 3.5% down, if score less than 580 must have 10% down this will go into effect in early summer
Seller concessions will be reduced from 6% to 3%, will be posted in February will go into effect in the early summer.
Lender performances, Neighborhood watch will be available on HUD website on February 1
Enhanced monitoring of lender performance, implement credit watch termination through lender underwriting ID in addition to origination ID will be released in Mortgagee Letter tomorrow Jan 21 and is effective immediately
Pursuing authority to increase enforcement on lenders to assume liability for all the loans they originate and underwrite
Legislative authority permitting HUD flexibility to establish areas of review and termination to withdraw originating and underwriting approval for lender nationwide on the basis of the performance of its regional branches.
FHA financing is still the only program that allows a borrower to purchase a home with 3.5% down payment. These changes could effect your ability to qualify for a loan so check with your lender to make sure you will meet the minimum requirements before you make an offer.