- 1. Raising the upfront Mortgage Insurance Premium – This change doesn’t directly make it more difficult for a buyer to get qualified yet it does provide additional capital for the ailing FHA insurance fund. Higher MIP simply raises the amount of insurance charged (as MIP) and rolled into the loan at the time of purchase. The only time this affects someone qualifying is if they were at the very tip top of the allowable debt to income ratio and the increased total loan amount pushed them over. The change takes the current 1.75% MIP up to 2.25% MIP. A Mortgagee Letter (FHA’s way of making official changes) is set to be released tomorrow making this change effective this coming spring.
- 2. Increasing Down Payment in relation to Minimum Credit Score – FHA is considering creating a relationship between FICO score and down payment. This change may give borrowers with scores below the current 620 limit an option to buy as long as they can put 10% down. Look for specific details in February and look for the changes to take place this summer.
- 3. Reducing the amount a seller can pay for a buyers closing costs – Right now a seller can pay up to 6% for an FHA buyers closing costs. The new rules will likely limit this to 3%. At the end of the day this should have relatively no impact on buyers. The exception being buyers under the $100k mark as sometimes total settlement charges can exceed the 3% of sales price. This effort is aimed at reducing sales price inflation to cover extraordinary closing costs.
All of this comes as no surprise. FHA market share in the hay day of sub prime mortgages in 2006 was a mere 2%. Today that number is up to around 50% (of all new home loans) nationwide. Increased demand/pressure on FHA’s Insurance fund has raised the concern and need for more strict guidelines according to HUD. Loans originated during 2007 and 2008 continue to be a big part of the problem. Their default rate is near 24%
