FHA has taken a big hit in recent years, just as many mortgage organizations have. In order to remain healthy, they have decided to implement some changes in the FHA regulations that will make it a little tougher for borrowers.
The change with the biggest impact, in my opinion, is that borrowers with a credit score under 580 will need to have 10% down - which will make it impossible for some borrowers to purchase a home. Anyone with higher than a 580 credit score can still have a 3.5% downpayment.
Another major change is that the upfront PMI payment will increase from 1.75% to 2.25%. Since most borrowers finance this payment, the impact will be fairly small, in my opinion. For example, for a $300,000 contract price, there would be an additional $1500 financed, which would mean that the monthly payment would increase by $8-$9 per month, assuming an interest rate between 5-6%.
Additionally, the maximum seller paid closing costs will be reduced from 6% to 3%. This could have a large impact in some cases because it could increase the amount of upfront cash that the borrower will need. However, for price points that are typical in Northern VA, 3% should cover all of the borrowers closing costs so that they will only need to bring the downpayment to closing. For borrowers whose reserves are very tight, I might recommend waiting and saving heavily.
Overall, I think any changes that lead to stricter guidelines are good. It is not good for real estate sales, but I truly believe it is good in the long run to make sure people with more money, higher credit scores, and higher reserves, are purchasing homes.
Here are some websites with more information about these changes:
HUD Press Release
BTW - I made an earlier post/vent about the no flip rule for FHA loans. Well, this has been lifted for a year - fabulous! Here is the article: HUD No Flip Lift Article
Thursday, February 25, 2010
Upcoming Changes to FHA Loans
Wednesday, October 21, 2009
FHA & Flips
It is becoming very common for investors to buy properties at auction, sight un-seen, renovate the property within about a month, and place the property on the market. If the renovation is done well, this improves property values and neighborhood quality. So what's the problem?
Unfortunately, although we do have a wonderful $8,000 tax credit available to first-time home buyers, these nicely renovated properties are not available to first-time home buyers with less than 10% downpayment (assuming they have to do an FHA loan). This is because of FHA regulations that say a property must be owned by the owner for 90 days before an FHA buyer can even write an offer on that property.
What is the effect of this 90 day FHA rule? The effect is that everyone but the typical first-time home buyer can buy nicely renovated, move-in ready, properties that are not sold As-Is. All the other affordable properties need a fair amount of renovation. It is truly unfortunate. Who is in charge of this FHA rule and why do they think it is in the buyer's best interest?
