FHA Announces Changes

The FHA has announced it is to make changes that will provide easier access to home ownership for borrowers and strengthen its reserves, allowing it to better manage risks. The changes are expected to go into effect this spring and early summer. They include:

1. Increase the mortgage insurance premium (MIP). The goal is to bring back private lending, which will offer more choices to borrowers. At first the upfront MIP will be raised to 2.25%, with a request to raise it to maximum levels allowed by the legislature. Upon authorization the MIP premiums will then shift to the annual MIP. The benefit to the consumer will be an increase in capital reserves, as the annual MIP will be paid over the life of the loan in lieu of being paid at closing time.

2. Update the FICO score and down payment requirement for new borrowers. To qualify for the FHA’s 3.5% down payment program a new borrower would have to have a minimum FICO score of 580. A lower score would require a down payment of at least 10%. To put it simply, the riskier the borrower the higher the interest rate and down payment needed to secure a loan. This change would take effect in early summer.

3. Seller concessions would be reduced from 6% to 3%. Doing so will prevent inflated appraisal issues.

4. Increase enforcement of FHA lenders. There are several measures included to keep lenders in compliance.

There will also be a moratorium on the 90 day anti-flipping rule. This rule stated that investors had to wait 90 days after purchase of a property before they could place it for sale on the market. The problem with this rule is that it ended up affecting average home buyers too, who did not have the opportunity to purchase homes bought by investors until the waiting period expired. Investors need to sell these properties quickly. There are some further details involved, so if you would like that information please let me know and I will get it for you.

Michael Mekler of Benchmark Mortgage, who is an FHA lending specialist, says that there is a silver lining in all these changes: “The increase in PMI will offset losses already incurred by HUD, and not decrease the volume of FHA borrowers. The lifting of the 90-day rule gives FHA borrowers a better chance of being able to buy a rehabbed home.” Mekler believes that even with the increases in MIP, FHA loans will still be a popular choice amongst borrowers. For more detailed information on the new rules you can contact Michael at mmekler@fhaexpert.net or call toll-free to 1-888-218-0094.