Saturday, February 6, 2010

What do the New FHA Lending Changes Mean to Buyers?

What do the new FHA lending changes mean to buyers?  The sweeping set of policy changes for FHA announced in late January were designed to strengthen the FHA's capital reserves to support the nation's housing market recovery, says David H. Stevens, US Dept. of HUD.  Included in those changes are:

  1. An increase in the up-front MIP (Mortgage Insurance Premium) and a future increase on the annual MIP.  This will go into effect in the spring.
  2. New borrowers will need a 580 or better credit score in order to only put 3.5% down on their loan.  If lower than 580 they will need a 10% down payment, beginning this summer.   This allows FHA to lower its risk and to be able to continue to provide loans to borrowers who have shown themselves to be good credit risks.
  3. Increased FHA lender enforcement of adhering to FHA guidelines and standards, also going into effect this summer.
  4. Reduction of seller concessions from 6% to 3%.  The current level exposes FHA to excess risk by creating incentives to inflate the appraised value of the home.  This, too, will go into effect this summer.
So what do these changes really mean for future borrowers?  It means a return to the sound business practices lenders used to follow whereby the borrower needed good credit and a substantial down payment before becoming a homeowner. 

The borrowers who benefit from future FHA loans will be more likely to be able to repay those loans and not end up in  foreclosure like many folks today.  Fewer people will be able to purchase homes through the FHA, but those that do, will be able to pay their bills!  And FHA should be financially stable and around many more years to help future home buyers.  It's a good thing.

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