25
Jan
10

fha gets tough

FHA has been bleeding red ink for quite some time and they let it be known last year they would institute some serious changes and here they are:
1:  FHA’s Mortgage Insurance Premium, or MIP, will increase from 1.75% to 2.25%, up 50 basis points.  On a $200,000 FHA loan the MIP goes from $3,500 to $4,500.  That’s another $1,000 added to the borrowers loan amount.
The MIP is essentially the insurance policy borrowers purchase at closing and this premium is typically included in the loan amount.

This change is scheduled to be implemented sometime this Spring but so far no exact date.

2:  FHA has never had a credit score requirement, Lenders did that for them (currently 620 for most lenders) but FHA has entered the score arena.  If the credit score is below 580 FHA will ask for a minimum of 10% down.

Lenders have essentially taken care of score rules for FHA by requiring their own credit score minimums.  Even though an FHA loan has an insurance policy (the MIP) to offset mortgage defaults if a lender continues to make bad FHA loans they could ultimately wind up losing the ability to originate and fund FHA deals forever.

I’m sure there will be some lenders that will allow for an FHA loan with a sub-580 credit score but don’t expect any of the “big” players to do so.  We at Land aren’t going anywhere near that number, regardless of FHA policy.

3:  This is the big one.  Seller concessions have been reduced from 6% to 3%.  That’s right, cut in half.
The big benefit with FHA loans is the low down payment requirement (3.5%) and having the seller pay up to 6% of the buyers closing costs. This would most often mean the buyers would have to come into closing with nothing more than their down payment.
Now hold that thought for a moment.
New GFE rules require lenders to include the Owners Title policy in their GFE regardless of who pays for it.  In Texas, that policy can be 1% of the loan amount.  And currently that 1% is considered a seller concession even if it is usual and customary for the seller to pay for the Owners policy in a particular market area (like Texas).
Now, if the lender charges a one percent origination fee or there is a discount point, that’s 2% seller concessions already, leaving only one more available for the buyer to apply towards their closing costs.  Appraisals and lender fees typically add up to around $1,000 leaving little if anything left for other fees.

The 3% cap on concessions can be used up rather quickly.  Listing agents take note and buyers start finding additional sources for cash to close if you’re going to need it.

#2 and #3 is expected to take effect sometime this Summer but no word yet on the exact implementation date.

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