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Big Changes On The Horizon For FHA Borrowers In Benicia & Vallejo

January 21st, 2010 categories: Loans / Financing

FHA ChangesIf you’re planning to buy a home soon and will be using an FHA loan to finance that purchase, you may want to pay very close attention to this post.

Either that or make sure you get into contract in the next few months.

That’s because the Dept. of Housing & Urban Development (HUD),  announced a series of proposed policy changes yesterday (one of which was made official today) that are all designed to help strengthen FHA’s reserves and limit its future losses.

As a result, there will be higher up-front mortgage insurance premiums, lower allowable seller concessions, and even 10% minimum down payments for some borrowers. Plus, HUD is expected to petition Congress to allow it to also increase the monthly mortgage premium.

So if  you’re planning to buy a home in Benicia, Vallejo or anywhere else in Solano (or the rest of the U.S. for that matter), here’s a brief recap of what FHA has in store for you:

HIGHER UP-FRONT MORTGAGE PREMIUMS

Currently, FHA borrowers pay both an up-front mortgage insurance premium (”MIP”) and a monthly mortgage insurance payment. Today, HUD announced that the up-front premium is going to be increased from 1.75% of the base loan amount to 2.25%.

In dollars and cents, that means it will cost borrowers an extra $500 up front for every $100,000 they borrow.

However, since most borrowers finance the up-front MIP instead of paying for it in one lump sum, for most buyers it will simply mean a slightly higher loan amount ($1,000 extra on a $200,000 loan). Or, put another way, maybe an extra $5-6/month on your payment.

That new requirement goes into effect for all new FHA loans that are originated beginning Apr. 5.

SMALLER ALLOWABLE CLOSING COST CREDITS

Presently, FHA borrowers are allowed to use up to a 6% seller credit to offset closing costs. Soon, though, FHA anticipates reducing allowable seller concessions to a maximum of 3% of the purchase price.

Unlike the up-front MIP policy, there is no official start date for this new policy. Though, HUD’s press release announcing the proposed changes says that this change is expected to go into effect in early summer.

Once it does, if  you’re strapped for cash and are planning to negotiate a sale where the seller pays some or all of your closing costs, it will be important to know that you’ll be limited to 3%.

So if you’re buying a $200,000 home, the most the seller would be allowed to contribute would be $6,000 (under the current policy, the cap would be $12,000).

10% MINIMUM DOWN PAYMENT FOR SOME

FHA toyed with the idea of increasing the minimum down payment from its present 3.5% up to 5%. Instead, it decided to keep it at 3.5% for those borrowers with good credit but increase it to 10% for the riskiest borrowers.

So if your credit score is 580 or higher, your down payment remains 3.5%. But if it’s 579 or lower, then you need to come up with a full 10% down payment.

That’s an extra $6,500 up front for every $100,000 you borrow. Or, on a $200,000 home, you’d need at least $20,000 down PLUS closing costs.

The premise should be pretty obvious — those with the lowest credit scores are much likelier to default on their loans than those with stellar credit. So by requiring more “skin” in the game initially, FHA expects to weed out the riskiest potential borrowers or at least insulate itself a little better.

This change, too, would also take effect in early summer.

AND, IF CONGRESS AGREES…

As I mentioned earlier, FHA borrowers pay both up-front MIP as well as a monthly mortgage insurance premium. Even though HUD already announced the MIP increase as of Apr. 5, it would also like to increase the monthly premium, too.

Right now, the monthly premium works out to about $46/mo. for each $100,000 you borrow — so $92/mo. on a $200,000 loan.

From what I’ve read and heard, it sounds like HUD expects to go to Congress and request increasing that monthly premium. Though it hasn’t yet indicated how much of an increase it wants.

Interested in finding homes that qualify for FHA financing in Benicia, Vallejo or the rest of our Solano/Central Contra Costa market area, call or email us. Or check out our Free Home Search.

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This entry was posted on Thursday, January 21st, 2010 at 10:28 pm and is filed under Loans / Financing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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