There are some changes coming in the FHA requirements that are worth noting. The Federal Housing Administration has been under pressure recently due to higher defaults and falling reserves. To be clear, you should know that the FHA doesn’t actually lend money to home buyers, but insures lenders against default of loans that meet FHA requirements.
To help shore up their reserves, FHA is increasing its upfront insurance premium fee to 2.25% (up from 1.75%). It has also asked congress to increase the annual insurance fee it receives from borrowers. These changes will take effect this spring.
To guard against defaults, the FHA will be raising the minimum down payment on borrowers with credit scores less than 580 to 10% of the purchase price (currently 3.5%). This won’t effect the majority of FHA borrowers as fewer than 1% of those borrowers last year had a credit score under 580 (according to LPS Applied Analytics).
Also, the amount of seller paid closing costs will be reduced from 6% to 3% of the purchase price.
Both the 10% down payment and the seller paid closing cost cap will go into effect this summer.
While all of these new provisions will make it a tad more difficult for lenders to push some new borrowers through underwriting, the majority of buyers will be unaffected by everything except for the higher insurance premium.
As always, leave any questions or observations in the comments below.
