Nashville Mortgage News- More Changes Coming to FHA Loans
ByNashville Mortgage News
If you are going to be in the market for a Nashville mortgage beginning this spring, you need to be aware of some very important loan program changes coming this spring and summer. FHA, whose capital reserves have run dangerously low over the last couple of years due to loose lending practices as well as a tough economy and jobs market, has decided to implement the following changes to strengthen its ability to remain a viable source of affordable home loans in the U.S:
- The Up-Front Mortgage Insurance Premium (UFMIP) will be increased to build up capital reserves. This premium is a fee that every FHA loan borrower finances into the loan amount. The current fee is 1.75%, and it will be increased to 2.25%. To put this into perspective, this fee would increase by $1000 on a $200,000 loan. Therefore, on a 30 fixed FHA loan, this additional $1000 financed would mean the monthly payment would go up about $5.37/mo.
- Update the combination of FICO scores and down payments for new borrowers. Borrowers must have a minimum credit score of 580 to qualify for the 3.5% down payment program (the normal one). If the score is below 580, FHA will require the borrower to put at least 10% down. The funny thing about this is that virtually ALL lenders who fund FHA loans have a minimum score requirement of 620 already, so this one won’t have much impact on a Nashville mortgage. Effective in the spring.
- Reduce allowable seller concessions from 6% to 3%. This change is supposed to prevent the inflation of appraisal values, and will put FHA more in line with conventional loan guidelines. While this won’t be a big deal on sales prices above $150,000 or higher, when you start trying to get concessions on sub-$100k homes, it will be a lot more difficult to get all of the closing costs covered by them (because there are many fixed costs that are the same regardless of sales price or loan amount). Therefore, this will put more burden on the borrower to come up with some closing cost money in addition to the down payment. Effective early summer.
- Increase enforcement on FHA lenders. HUD will have more powers with which to regulate FHA lenders.
Like most of the loan guideline changes that have occured over the last 2 years, these changes will create some short term pain for borrowers, loan officers, and real estate agents. But over the long-term, it should benefit the housing market, as FHA will continue to be a strong source of mortgage funds. If you are looking this year to buy a home in Nashville, mortgage guidelines will be changing very soon, so you might consider buying before spring to avoid them.
I don’t think the changes in the FHA guidelines are going to be so bad. Most lenders were not lending below 620 anyway. Just another adjustment we will have to make.
You are probably right about that, especially since lenders have already raised their minimum score requirements. The additional .5% of funding fee won’t be felt too badly either, especially since it’s spread out over 30 years rather than the borrower needing to bring it to closing. The biggest thing in my market is for the $100k sales prices, and the cap on seller paid closing costs. It will require them to bring more than the 3.5% down to closing, and might prevent them from being able to purchase. But I think for the long-term viability of FHA, these are necessary changes.
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