Wednesday, January 27, 2010

New Policy Guidelines for the FHA

Article by Laura Everett

New Policy Guidelines for the FHA

One of our best #AREFchat discussions to date was on the proposed changes to the FHA guidelines. Currently, most first-time home buyers take advantage of the FHA loans because of their low down payment requirements, only 3.5%. Well, to prevent foreclosures, the Federal Housing Administration has decided to become more stringent on the lending requirements for these loans. There were many ideas being thrown around, including raising the down payment minimum to 5%. Well, with most of the market being comprised of first-time home buyers, many real estate professionals were not supportive of the down payment boost.

So, we are happy to report that the Federal Housing Administration has passed new guidelines for FHA loans, but they did not raise the down payment requirements to 5%. Instead, they have raised the insurance premium from 1.75% to 2.25%. The way an FHA loan works is that he Federal Housing Administration insures the lenders against defaults on these loans. The FHA is not actually the lender. Due to the FHA-support, the borrower must pay an upfront insurance premium, which is currently set at 1.75% of the total loan amount.

Now, they will be raising the insurance premium to 2.25%, which is the second increase over the past two years.

While the 3.5% down payment will stay in tact for most borrowers, the FHA will require a 10% down payment from high-risk borrowers (those with a credit score below 580).

The new guidelines also have reduced the amount of money seller can kick in for closing costs. The current level is 6% of the sale price, but with the changes to the FHA policy, sellers will only be able to contribute 3%.

All of these amendments are an attempt to boost the FHA’s reserves, which have been steadily declining over the past year. For more details about the reserves and the policy changes, read this article from the Wall Street Journal.


Post a Comment


blogger templates | Make Money Online