FHA Rules Changes Coming
Not that many years ago, buyers with less than 20 per cent down, including those with zero cash, had numerous options for getting home loans. The mortgage meltdown has changed all that.
Today, for these low down payment loans, the only game in town is a Federal Housing Administration (FHA) loan, with a minimum 3.5 per cent down payment. The FHA doesn’t make loans; it insures them against default if they meet their standards. Over one-third of new home loans are insured by the FHA.
Sadly, FHA has lost mega-millions, to the point that it is seriously underfunded. Although it has a federal mandate to maintain at least two per cent in reserve funds, its current reserves were only at .53 per cent, as of November.
As a result, FHA loans will be more expensive and more difficult to obtain beginning this spring and summer. To help supplement its cash reserves, up-front mortgage insurance premiums will be raised from the current 1.75 per cent to 2.25 per cent. Other changes include a decrease from six to three per cent as the maximum closing cost credit from seller to buyer and an increase in minimum acceptable credit scores.
To learn more, see “FHA Sets Tighter Lending Requirements.”