Important for all first time home buyers!
The Federal Housing Administration (FHA) is a division of The Housing and Urban Development (HUD). The main Focus of FHA is to guarantee loans made to first time home buyers or buyers that have never used an FHA loan before. The goal is to help these buyers get into a home by offering lower down payments and “backing” the loan so that lenders take less of a risk loaning to these borrowers.
Typically the first time home buyer does not have much money to put down on a home and also does not have a lot of credit built up, making it tough to get conventional loans for purchasing real estate. FHA has always been a great program helping these borrowers get into their first home, now FHA is tightening the ropes…
Today FHA Commissioner David Stevens announced a set of policy changes to strengthen the FHA’s capital reserves, these changes include
1. Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending
o The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.
2. Update the combination of FICO scores and down payments for new borrowers.
o New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA's 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
3. Reduce allowable seller concessions from 6% to 3%
o The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
4. Increase enforcement on FHA lenders
o Publicly report lender performance rankings to complement currently available Neighborhood Watch data - Will be available on the HUD website on February 1.
So what do these policy changes mean to you?.... If you are thinking about buying a home you better do it sooner than later, these changes are part of many changes that are and will continue to make it tougher to buy a home.
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If you are thinking about buying a home please call me, lets grab a cup of coffee and talk about all your options!