FHA announced changes - how will it effect me as a buyer?
OK, what I'll do is try and explain the 'new rules' for an FHA mortgage ~
- The upfront mortgage insurance premium (UFMIP) will increase to 2.25 percent up from 1.75 percent. Contrary to reports, FHA will continue to allow the financing of the UFMIP.
Buyers will now be charged more for mortgage insurance in case of default. It will now cost $4500 on a $200,000 home. ($4500 vs. $3500 = $1000 difference) In actuality, it will not make much of a difference in your monthly payment. In certain circumstances, it can be added to your loan amount.
- Borrowers with a credit score below 580 will be required to have at least a 10 percent down payment. The minimum down payment will remain at 3.5 percent for all other borrowers.
It's been commonplace for interest rates to be geared to your FICO score for a few years now especially with conventional loans. Now with this minimum credit score, buyers know what it will take minimally to quality for an FHA loan. From a lenders perspective, the lower your FICO score the higher the likelihood of default. The higher the credit score, the more credit stable the buyer is.
- Seller concessions will be reduced to 3 percent from 6 percent.
This is a real bummer for buyers. Sellers can only pay closing costs or contribute up to 3% of the purchase price for your sale. Obviously they felt that the 6% amount was too high. Lenders want to be sure the buyer has enough of their own funds 'or skin' in the game.
These changes are for loans initiated with a case number after April 5th, 2010.
This has been a long time coming. Thanks for the info! Good for the consumer to hear. Time to act is now Lyn!
Better get out there and get your FHA loan before more things change! And don't forget about the tax credit too!
Good interpretations of the impact of the changes on home buyers, Lyn!
Cheers,
Robin
Robin: Get the new changes out to buyers and I'm afraid that will change the option for some that could purchase a home this year.