October 1, 2010 by MSI
On October 4th, the
FHA (Federal Housing Authority) will
officially implement a new series of changes to its lending standards for
borrowers, making it more costly to secure a FHA loan. Over the past several
years, due to the economic recession, FHA loans continued to grow in popularity
in part because of their low minimum down payment of 3.5%. As the economy fell,
conventional mortgages increased their standards, making it nearly impossible
for an individual without nearly perfect credit and at least a 10 to 20% down
payment to obtain a mortgage with a decent interest rate, which opened the door
for even more FHA mortgages.
The changes are due primarily to the organizations’ shrinking funds and
the increased number of defaults. According to the Mortgage Bankers
Association, over 14% of FHA mortgages were past due in the third quarter.
So, what are the changes? Here are the highlights:
- Upfront mortgage
premiums will decrease from 2.25% to 1.00%
- The .55% annual
premium will increase to .85% for all mortgages with a LTV (loan to value)
ratio of greater than 95%
- Borrowers will
have to have a minimum credit score of 580 to qualify
The changes in FHA and a gradually improving economy are leading to a
comeback for conventional mortgages with MI (private mortgage insurance), but
credit limitations still prevent many from obtaining a loan. As the economy and
real estate market slowly recover, there will be options for qualified borrowers
both in FHA loans and in the conventional mortgage market.
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