February 7, 2010
Sweeping Changes to FHA Home Loan Approval Rules
Securing a home loan from the FHA is about to get costlier.
The FHA announced a few policy changes to cut back their overall exposure.
It should mean tougher mortgage approvals and higher expenses to secure a home loan approval for you if you wait.
FHA is trying to limit their exposure a few areas.
- 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 additionally 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.
They are also going to boost the quality of their lenders. They're introducing a “termination clause” to attack the problem where it starts. Should certain lenders represent a disproportionate number of the bad loans, they will lose their privilege to originate FHA loans.
As a consequence, home buyers can expect tougher FHA underwriting in 2010. This won’t be as much due to the guideline changes, but more due to 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. Examples of this already exist: The FHA will allow 580 FICO scores, but almost all lenders require at least 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 expensive.
With the FHA loan rates recovering, this might be as cheap as it gets.
Stay current on all the FHA home loan approval changes on the site.
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