FHA CHANGES COMING THIS SPRING

CHANGES COMING TO FHA GUIDELINES

As lending requirements tightened up over the last two years, more and more buyers have turned to loans through the Federal Housing Administration. FHA insured almost 30 percent of all purchase loansand 20 percent of total refinances during the 12 months ending Sept. 30. First-time homebuyers accounted for nearly 80 percent of FHA-backed purchase loans in the second quarter of 2009. Now FHA lending requirements are tightening too.

Beginning early this summer, however, borrowers with credit scores below 580 will be required to make downpayments of at least 10 percent in order to participate in FHA’s mortgage insurance program rather
than the current 3.5% which FHA buyers put down now. If your FICO score is 580 or better, you can rest easy that the pending changes won’t affect you. Another major change scheduled for this spring will
affect all FHA buyers: the upfront mortgage insurance premiums paid by all FHA borrowers will increase to 2.25 percent, up from 1.75 percent now. The increase — some of which may later be shifted to annual
premium payments — is intended to build FHA capital reserves back to statutory minimums and bring back private lending. (The Bush Administration had increased the upfront mortgage insurance premiumsfrom 1.5 percent to the current 1.75 percent.) Enforcement of FHA lenders also will be stepped up, and allowable seller concessions will be reduced from 6 percent to 3 percent early this summer.

There has been some concern that any tightening of FHA underwriting standards or increase in fees would come around the same time as two other events that could also have an impact on home sales. The
Federal Reserve will wind down a $1.25 trillion program at the end of March that’s helped keep mortgage rates low, and the recently expanded homebuyer tax credit expires for buyers not under contract by April 30 and closing by June 30.

If you are planning on buying or selling a home and need more information about the FHA guidelines, please call Lise Howe, Coldwell Banker Chevy Chase, Washington DC, at 240-401-5577. Lise is a local real estate expert in the Washington DC area, an associate broker and attorney.