FHA Financing in 2010

Financing 2010: FHA lending requirements revised again!

It's in the news today, that HUD Commissioner David Stevens announced 4 specific areas of change which will create more stringent lending requirements and raising the fees to borrowers, which is its hope to cushion against defaults and stave off a taxpayer bailout of the agency.

1. Front end MIP (Mortgage Insurance Premium) will be increased from 1.75% to 2.25%.  This is the second increase in the past 2 years. Congress enacted a requirement that the agency must maintain a 2% capital- reserve ratio. The FHA reserves cover losses has falled to $3.6 billion, which is why they will be increasing the rate. It is hopeful that this will boost the reserves by more than $1 billion.The Wall Street Journal also indicated that the FHA will ask Congress to set up a separate insurance fee that borrowers will pay annually,in hopes not to as Congress for some needed money.

 2.  Update the combination of FICO scores and LTV maximum. FICO (credit scores) less than 580 will  see down payment requirements increase to 10%. Most conventional lenders are harder on the scores requiring a 640 or better.

 3. Reduce seller contributions for closing costs from 6% of sale price to 3% to conform to the conventional market. It is believed that the sellers "heavily marked up the purchase price" to cover the closing costs for buyers.

 4. Increase enforcements and guidelines on FHA Lenders by announcing a series of measures keep FHA in the loop.

 
Some background information: FHA doesn't lend money, rather they insure lenders against default on loans that meet their (FHA) requirements. In exhange for that backing, borrowers must pay an upfront insurance premium on the total loan amount, which can be rolled into the loan. FHA has taken a major role in the housing market during the economic downturn. Currently, FHA is backing about 50% of all new loans in certain markets throughout the U.S., and with reserves falling, the agency is walking a very thin line between protecting taxpayer dollars and helping to facilitate the housing recovery.

What does this mean to you? It's going to cost the buyer a little more using FHA financing in the near future. At that, these proposals are set for the Spring of 2010, which is also when the expectation is that interest rates will increase.

So the handwriting is on the wall---Costs to purchase will move up in the spring, Interest rates are expected to rise, and prices are at an all time low. Rumor has it, that by Fall, prices should be stabilizing. Buyers who are waiting to purchase, might regret it later!

If you are looking for your first home, Call me! I'd love to shop with you and show you the opportunities in the market.