The Federal Housing Administration or FHA has announced some changes which are geared at strengthening the capital reserves as well as manage risk. These changes will affect borrowers abilities to secure a loan, they are changes that should be reviewed prior to making a loan application. The following is a list of changes:
1. The mortgage insurance premium (MIP) will be increased to 2.25% of the loan amount. In addition, the FHA will seek approval to increase to the maximum annual MIP that the FHA can charge. However, if the maximum is charged then the premium or at lease a portion of the premium will be spread out through the term of the loan versus being paid upfront; this will enable the borrower to feel less upfront impact of the premium while still building the proper capital reserves. The initial MIP increase should go into affect this coming Spring.
2. The credit and down payment requirements for borrowers will also be updated. In order to qualify for a 3.5% down payment they must have a 580 or greater FICO score. Those borrowers with a lower than 580 Fico score will be required to place 10% down payment. This change is being made in an effort to balance the risk factor involved with these loans.
3. Seller concession or contributions will be reduced to an allowable 3% this is down from 6%. This change was made in order to eliminate the tendency to over inflate appraised values.