Getting an FHA mortgage is about to get a bit more expensive and a bit more difficult.
Faced with increasing losses in a weakened housing market, the FHA is raising the insurance premium it charges borrowers and tightening other requirements as well. Beginning this spring, borrowers taking out an FHA mortgage will pay an upfront insurance premium equal to 2.25 percent of the loan amount, up from 1.75 percent currently.
The maximum amount of seller concessions, closing costs paid by the seller on behalf of the buyer, will be reduced to 3 percent of the property’s assessed value, down from 6 percent currently. The change will bring FHA loans in line with industry standards.
Borrowers will still be able to qualify for an FHA mortgage with as little as 3.5 percent down, but will need a FICO score of at least 580, a fairly low hurdle to clear. Borrowers with scores below 580 will be required to put at least 10 percent down.
“Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important,” said FHA Commissioner David Stevens, in announcing the changes. “When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency’s history.”
The FHA will also increase its monitoring and enforcement actions to ensure lenders are adhering to FHA standards and limit defaults. The Department of Housing and Urban Development (HUD) is also seeking new legislative authority that would allow it to hold lenders directly responsible for mortgages they originate.
Lender performance rankings will also be added to HUD’s online Neighborhood Watch System, which is designed to detect patterns of early defaults, as of Feb. 1. The rest of the new measures will take effect from this spring through summer.
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