As we warned last year, the guidelines for getting an FHA mortgage will be tougher – effective early this year. The announcement with specific changes will be published this week. Perhaps as early as January 22, we will have the new Mortgagee Letter in hand. (Mortgagee Letters are used by HUD to inform everyone of changes affecting the FHA program.) When exactly will the changes take affect? We do not yet know. But no doubt soon.
Here is how we anticipate FHA will change with the revised guidelines:
- FHA charges and collects “upfront” mortgage insurance premiums (UFMIP) on new loans. This fee is currently 1.75% of the amount borrowed. The new fee will be 2.25%. So, if a home buyer is getting a loan for $250,000, the final loan amount will increase from $254,375 to $255,625 – assuming the UFMIP is financed in the new mortgage.
- Maximum seller contributions will decrease from 6% of the purchase price to 3% of the purchase price. Anyone needing that extra 3% can count that out. On a $250,000 purchase, that’s a loss of $7,500.
- The minimum credit score set by FHA will be 580. This is really a meaningless change since the huge majority of lenders have stopped approving loans with scores that low back in 2008.
Though not clear just yet, it is quite possible FHA might also increase the “monthly” premiums paid for mortgage insurance. These are the payments for mortgage insurance that are calculated and paid as part of your mortgage payment. If an increase occurs here, this is where the big increase in the monthly payment will happen. On a $250,000 loan, monthly mortgage insurance could increase about $50.00.
Until the economy is closer to a true recovery, these changes will continue to occur. It may seem contradictory that guidelines would make it more difficult to buy a home if the overall economic goal is to spur the sale of property. On the surface, it may seem contradictory, but FHA and lenders must still minimize risk, cover the risk that does exist, and insure that those who buy homes are qualified.
The clue for prospective buyers is to buy while things are in your favor. If you have been approved for a mortgage, then find a home to buy and get your loan closed. Waiting is NOT going to benefit the buyer.
Don’t forget. FHA is NOT just for first-time homebuyers.
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