FHA Mortgage Changes Now in Effect

If you are looking to get an FHA home loan there are some changes you need to know about that just went into effect on April 5th. The changes are not all bad, fortunately, but the expensive one for borrowers is the cost of upfront mortgage insurance premium.

The upfront mortgage insurance premium has increased from 1.75% to 2.75% at the closing table. That is some serious money when you are buying a home. However, the reality is that borrowers are going to be on the lower end of the credit scale so this makes sense for the government program to add in the extra protection.

FHA has turned into the lender of last resort as the credit market has tightened for many borrowers. But if your credit is dinged and you can make a significant down payment the program is not too bad.

Under the FHA Reform Act of 2010, anyone with a credit score between 500 and 579, and at least a 10% down payment, can probably obtain FHA financing. Additionally, purchasers with 5% or 10% to put down on a home could see lower mortgage insurance premiums. Other changes include decreasing the amount of seller contributions allowed from the current 6% down to 3%, and increasing the down payment amount to a straight 3.5% of the purchase price. When compared to conventional loans, these changes make FHA loans a more expensive loan option.  Even so, many first time home buyers have trouble obtaining the 5% down payment required on conventional loans.  FHA calculations estimated a reduction of 40% in loan originations it they were to implement a 5% down payment option.