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FHA Raises Borrower Requirements, Increases Fees
It’s an FHA-kinda day here at re:PDX.
In a move to minimize its own insolvency and avoid a bailout, the FHA is refining its lending guidelines and raising fees to borrowers.
In changes expected to occur in the first half of 2010, FHA-insured loans will require:
- Up-front mortgage insurance premiums to be 2.25% (up from 1.75% currently).
- Minimum FICO credit score of 580. Lower credit scores will require a 10% downpayment.
- Sellers limiting credits toward buyer’s closing costs and prepaid expenses to 3% (currently 6%).
From USA Today:
The changes, aimed at strengthening the FHA’s reserves in the face of rising foreclosures, shouldn’t hurt too many borrowers, officials say.
“We don’t expect this to have a significant impact on the housing market,” says FHA Commissioner David Stevens, adding that “the moves are designed to get the reserves back up.”
The FHA is playing a greater role in the mortgage market, insuring about 30% of new loans, up from 3% in 2007. Growing defaults have cut its reserves below the level mandated by Congress, leading to fears that it might need a taxpayer bailout.
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2 Responses to “FHA Raises Borrower Requirements, Increases Fees”
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The key in these changes is really the increase in the upfront MI load. That MI is really an additional “cost of financing” so FHA loans are basically getting a bit more expensive. The seller credit decrease is significant, but less so as most costs and taxes usually shake out to around 3%. The credit score thing is an absolute zero effect as virtually every bank has increased their minimum fico scores to 620. So even though HUD is changing the rule, the banks changed this rule about a year ago.
Thanks for the perspective James.