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SHOPPING FOR AN FHA MORTGAGE? Know the new rules...
So, you are thinking about purchasing a home this Spring, but unsure about the new FHA Loan policies. Well, get a pen and a pencil and jot down the rule changes that I am about to share with you below. Some of these changes are VERY important because they impact the amount$ of $$ a borrower is required to put down as well as the upfront fees charged by FHA.
First let me give you some basic Real Estate jargon that is very important:
Up Front Mortgage Insurance Premium--most FHA programs require the borrower to pay two mortgage insurance premiums (MIP's) once at closing and an annual premium paid monthly.
Down Payment--The amount of cash a purchaser will pay at the time of purchase. Even though down payument usually includes the earnest money deposit, the terms are not synonymous. Earnest money is applied toward the total amount of cash down payment due at the closing.
Example:
A home with a purchase price of $250,000.00 with a 3.5% downpayment means the borrower will need to have $8750.00 for the downpayment. With a 10% downpayment on the same home a borrower will need $25,000.00 for the downpayment. **The downpayment amount in addition to any closing costs or fees required to close**.
UPDATED FHA Guidelines Effective mid-2010
On January 20, Federal Housing Administration (FHA) Commissioner David Stevens announced a set of policy changes to strengthen the FHA's capital reserves and better position the FHA to manage its risk while continuing to support the nation's housing market recovery.
FHA announced changes in the following areas:
• The upfront mortgage insurance premium (UFMIP) will increase to 2.25 percent of the base loan amount up from 1.75 percent. Streamlined FHA refinances (refinancing an FHA underlying mortgage) will increase from 1.5% to 2.25%. The UFMIP is usually financed into the purchase price.
Contrary to reports, FHA will continue to allow the financing of the UFMIP.
• Borrowers with a credit score below 580 will be required to have at least a 10 percent down payment. The minimum down payment will remain at 3.5 percent for all other borrowers.
• FHA will seek legislative authority to increase the annual premium (currently capped at .55 percent). Over time, increasing the annual premium may allow FHA to reduce the upfront premium.
• Seller concessions will be reduced from six percent (6%) down to three percent (3%).
FHA will make the following lender enforcement changes:
• FHA will implement credit watch terminations at lender underwriting.
• Public reporting of lender performance through scorecard system will be implemented.
• FHA will implement, through notice and comment, indemnification against lenders. Indemnification will be expanded beyond fraud and misrepresentation.
• FHA will seek legislative authority to enforce indemnifications against direct endorsed (DE) lenders.
• FHA will seek legislative authority to sanction lenders nationwide based on performance of a local branch.
In October 2009, FHA announced that its capital reserve fund had fallen below the congressionally mandated level of 2 percent. The drop in capital reserves has led Congress and the Administration to call for changes to strengthen FHA.
Talk with your lender about what programs are available and exactly what the requirements are for the program/loan type you are interested in obtaining.
xoxo TMW
