If you have been listening to the news regarding the housing market, you’ve probably already heard about some lending changes that were announced recently by the Federal Housing Administration (FHA). While many of these news reports were confusing, the bottom line is fairly clear – and fortunately, not as bad as many people have interpreted it to be.

Overall, the measures announced by the FHA are intended to help the organization better manage risk, while strengthening its capital reserves in order to continue to provide relatively low-cost home loans to the nation. The good news, as FHA Commissioner David Stevens stated recently, is that “by continuing to provide affordable, responsible mortgage products, FHA will support the housing market’s recovery” while remaining “the largest source of home purchase financing for underserved communities”.

Here is a summary of the changes:

Increased Mortgage Insurance. The mortgage insurance premium (or MIP, also commonly referred to as private mortgage insurance) will be increased from 1.75% to 2.25%. Although this change will add some cost to purchasing a home, it should not overburden consumers since it is paid over the life of the loan, as opposed to upfront at closing. This change will become effective on April 5, 2010.

New Down Payment and Credit Score requirements. According to the new policy, homebuyers who have a credit score of at least 580 may still be able to purchase a home with 3.5% down. Potential homebuyers with credit scores less than 580 will be required to put down at least 10%. This change is designed to help the FHA balance its risk, while still providing affordable down payments for consumers with a history of good credit and responsible financial habits.

Reduced Seller Concession(s). Basically, this change means that the person selling the home will now only be able to offer the homebuyer up to 3% to assist them with closing costs, as apposed to 6% under the previous policy.

In addition to these changes, the new policies contain a series of new measures aimed at increasing lender enforcement. The bottom line is that the changes will impact some homebuyers more than others – but in the end, the FHA seems to be still committed to providing affordable home loans for a large section of the population.

Are you in the market for an FHA loan? How do you feel about these changes? Leave a comment and share your thoughts!

 

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