FHA Guideline Changes

Locking down a mortgage loan from the FHA is about to become costlier.

The FHA announced a number of policy changes to cut back their overall risk.

It should mean tougher approvals and higher expenses to secure a mortgage approval for individuals who wait.

There are three major changes in guidelines outlined in the update.

1. Upfront mortgage insurance premiums are increasing to 2.25% from 1.75%
2. Minimum 10% down payments for those with less than a 580 FICO
3. Seller credits are being limited to 3%.  The current caps are 3% higher.

The FHA in addition has appealed to Congress to raise an FHA borrowers’ monthly mortgage insurance premiums.

  You can see these FHA interest rate comparions at today’s levels and it explains why FHA is doing 30% of the lending these days. 

The FHA is trying to keep home loans affordable, but yet manage the risk.

On top of that they are planning to strengthen the standard of their providers.  They are introducing a “termination clause” to address the issue where it starts.  Should certain lenders represent a disproportionate number of the bad loans, they will lose their right to originate FHA loans.

As a direct result, home buyers should expect tougher 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 prevent being the “bad lender,” they’ll add overlays to insure that they do not have a disproportionately bad portfolio.  Degrees of this already exist:  The FHA will permit 580 FICO scores, but almost 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 higher priced. 

  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.