Possible Changes in FHA Loans Coming Soon?

The Federal Housing Authority might institue the following changes in as little as the next couple of months.  Another reason, beside the first-time homebuyer tax credit extension, to get into contract on a home as soon as possible.

December 2nd Congressional Hearing

HUD Secretary Donovan and FHA Commissioner testified that they expect FHA to annouce major changes to ensure FHA’s long-term financial soundness.  Some examples are as follows:

1.  Increas the down payment required from 3.5% to 5%

2.  Increase upfront premium from 1.75%  to up to 3%

3.  Eliminate the ability to include the upfront premium into the loan amount

4.  Increase the monthly mortgage insurance premium (MIP) to .55%

5.  Reduce the amount of seller concessions to the buyer from up to 6% to up to 3%

6.  Increase the minimum FICO score of the buyer

7.  Loan to Value (LTV) ratios possibly determined by buyer’s FICO score

8.  Increase accountability of FHA lenders for fraud

One important thing to note:  none of these proposed changes require Congressional approval.  These only require administrative approval and can quickly implemented.

That being said, these changes, and others that might be on the table, could make it more difficult and expensive for borrowers to obtain an FHA loan.  In essence, the number of eligible buyers may, in fact, be greatly decreased.