FHA, which insures close to 6 million loans in our country, is tightening some standards, while leaving others alone. Several months ago the FHA reserves, which congress has mandated to be 2%, fell lower than .5% due largely to delinquent and defaulted mortgages.
One of the items not being affected is how much down payment a buyer needs to have to get a FHA loan. It has been, and is staying at 3% of the purchase price. A private lender would require anywhere from 15% to 25% down payment making FHA backed loans a very reasonable way to get in a home.
With FHA currently responsible for @40% of all new loan originations, understanding what has been changed is important.
- Seller Contributions: Seller contributions towards the buyer have been cut in half, from a maximum of 6% to 3% of the homes value. Seller contributions frequently occur to help the buyer pay closing costs.
- Credit Score: If a borrower’s FICO score is above 580, they qualify for a 3.5% down payment. Below 580, borrowers will have to put at least 10% down. Previously the credit score of the buyer was not a factor in the loan.
- Loan Insurance: FHA mortgage insurance premium is jumping from 1.75% to 2.25% of the value of the loan. This cost is paid upfront and should not be a deal breaker for most borrowers.
FHA hopes the new standards will help better qualify borrowers while not causing so many changes it would damage the housing market.
Bottom line for borrowers: The cost of getting a FHA loan just went up, but not enough to discourage serious buyers.
The new changes will not go into effect until summer.
With the FHA standards staying the same for several more months and the first time homebuyers $8,000 tax credit, this is a great time to look at buying a Lake Powell Home.
Keep in mind to qualify for the Homebuyers Tax Credit, the home must go under contract by April 30, 2010!