FHA changes in 2010

If you have spoken with mortgage lenders recently then by now you are familiar with the term FHA loan. They came around in the depression era to encourage people to buy houses and stablize the market. They have gained popularity in the recent years as it made the loans affordable with lower down payments, flexible guidelines and typically lower credit scores. This economy and all the recovery acts and protection acts have changed the way mortgages are done. It began with the conventional loans and this year FHA jumped in. They announced back in the Spring that there were going to be three changes this year. They have been experiencing rising defaults which sent the cash flow below the mandated levels.  They are hoping that these changes will  give borrowers a stronger equity position making them less likely to default. The #1 change was the increase in credit score. I want to talk about #2 change which covers mortgage insurance premiums.

These mortgage insurance premiums are required to insure the lender against default. There are two types of mortgage insurances that come with FHA loans. The upfront mortgage insurance and the monthly mortgage insurance. The monthly mortgage is required until you have owned the house for 5 years and gained some equity making the loan to value of 78% or less. The upfront mortgage insurance is refundable during the first 5 years of your home loan. You are able to finance the upfront mortgage insurance making your loan amount more giving you higher payments and less equity.

The new policy will  be for all loans taken after October 4, 2010. If you are planning on refinancing and currently have a FHA loan then please speak to a lender today. The changes include a decrease in the upfront mortgage insurance from 2.25% to 1% and the monthly will increase to .90% for Loan to value greater than 95% and .85% for loan to value less than 95%. It is slight changes but could impact your debt to income since the payment will be a little higher.

At this time I haven't heard the effective date for #3 change.... reducing seller concessions from 6%  to 3%.

FHA changes in 2010