The Regan Team - Petaluma Homes & Mortgage Blog - PetalumaLending.com: January 2010

Today HUD announced FHA changes that will take place this spring and summer.  Dates have not been announced yet, but changes have been.

Here are the highlights:

 -Up front mortgage insurance premium is being increased from 1.75% to 2.25%.  While this is an increased cost; it looks as though borrowers will be able to finance this into the loan, which is great news.  The reason for HUD doing this is they need the cash to build their reserves and the up front premium goes right to HUD when the loan funds.  HUD will also be asking Congress to allow them to increase the monthly mortgage insurance premiums.  If they do get approval, they may tweak the upfront premium; possibly lower. 

-FICO changes.  FHA previously did not have a minimum FICO; they still don't depending on the transaction.  A borrower must have a 580 FICO to put 3.5% down...if they don't, they must put 10% down.  Most banks require a 620 FICO so this shouldn't affect most borrowers.

 -Seller credit reductions from the current 6% to 3%.  FHA is matching the standard conventional loan allowance.  In most cases we aren't seeing 6% seller concessions in today’s market but be aware when writing your offers. 

The good news is that the changes are much less severe than thought.  There were plenty of rumors that FHA was going to increase the down payment to 5%, make borrowers pay the upfront insurance premium out of pocket, etc.  These changes are mild and should not hurt the market, just help FHA build up it's reserves in order to stay in business.