If you are on the fence about whether to buy a home or not the new FHA changes that will be implemented this spring/summer may help you make up your mind.
If you have already decided to buy a home with a FHA loan now is the time to purchase before these changes go into effect. Remember you must be under contract by April 30th and settle by June 30th to also take advantage of the tax credit.
As banks have clamped down on mortgage lending, the FHA program has emerged as one of the few ways people can buy a home. A few years ago only 10% of home buyers utilized FHA insured financing, today that number is 40%. Unfortunately out of a total of 5.8 million loans ($750 billion) that are insured by the FHA more than half a million of the loans are seriously delinquent and heading toward foreclosure. In November the agency said its cash reserves had tumbled to .53% of its insurance guarantees, well below the 2% ratio mandated by Congress and the 3% ratio it had last fall. The fund covers losses on the mortgages the agency insures.
The new standards are meant to shore up the agency’s finances. However the agency also wants to make sure that the new rules don’t disrupt the housing market and don’t hurt FHA’s ability to assist the undeserved.
We think that the new standards are not unduly restrictive and the FHA is doing its best to protect the taxpayer and do the least harm to the credit supply.
- These are the main changes that will affect FHA buyers.
- Upfront mortgage insurance premium (UFMIP) will increase to 2.25% up from 1.75%. Contrary to reports, FHA will continue to allow the financing of the UFMIP.
- Borrowers with credit score below 580 will need at least 10% down.
- Minimum down payment will remain 3.5% for all other borrowers.
- Seller concessions to the buyer (money that seller credits to buyer for closing costs) will be reduced to 3% from 6%.