The Federal Housing Administration has announced policy changes to FHA mortgage guidelines. Due to increase of FHA loans over the past couple of years, FHA’s reserves have been depleted below the 2% that is congressionally mandated. Although FHA has changed several criteria in their policies to help strengthen the capital reserves, these changes are expected to have little impact on the housing market.

FHA will increase the “up-front insurance premium” from 1.75% to 2.25% of the loan amount. Because these fees are added into the loan amount without affecting the LTV, the amount of monies that a Buyer needs for the purchase will not be affected.

Under current FHA guidelines, the Seller can contribute up to 6% of the sales price toward the Buyer’s closing costs/pre-paids, etc – this amount will decrease to 3% contribution under the new FHA policies.

To further strengthen and protect insurance reserves, FHA will require a larger down payment for Buyer’s with low credit scores. For borrowers with below a 580 credit score, they will now need a 10% down payment instead of the 3.5% for borrowers with higher credit scores. Since there are few lenders, if any, that will loan to borrowers with a credit score below 580, this is inconsequential to the present housing sales of FHA properties.

These FHA changes will be implemented over the next several months. If you should have any questions, please contact me at FBC Mortgage LLC, stimmerman@fbchomeloans.com.

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