FHA Announces Four “Immediate Actions” Which Raise Costs, Lower Defaults – Part II
Minimum Credit Score For New FHA Loans
The Federal Housing Administration has now established a minimum credit requirement of 620 for borrowers whose debt-to-income (DTI) exceeds 43 percent. According to the FHA, this will reduce the number of claims by 20 percent or more and the directive will apply to FHA loans of all types, including FHA Streamline Refinance and the FHA 203k home construction program.
Loans with FICO scores under 620 will remain FHA-eligible, but lenders must show evidence of “compensating factors”; reasons why the loan should be approved even though it fails to meet Federal Housing Administration standards. Common compensating factors include large downpayment or equity position, or higher levels of reserves.
Higher MIP, Bigger Downpayment Standards
The FHA is raising its mortgage insurance premiums effective April 1, 2013. MIP for loans for less than $625,000 will be augmented by 10 basis points per year. Loans above $625,500 will be augmented by 5 basis points per year. The changes apply to 30-year and 15-year loan terms.
In addition, beginning June 3, 2013, the FHA will begin charging 45 basis points of annual MIP for 15-year loans where the loan-to-value is less than or equal to 78%. Currently, there is no MIP assigned to loans with these characteristics.
On this date, the FHA will also change the minimum number of years it will assess annual MIP.
- Loans with LTV of 90% or less : MIP must be paid for 11 years, at minimum
- Loans with LTV above 90% : MIP must be paid for the life of the loan
And, finally, the Federal Housing Administration will make “jumbo lending” expensive.
Currently, the FHA is only federal agency allowed to insure single-family homes for more than $625,500. The FHA now aims to “redirect this business to the private market” which, in plain English, means that group wants to make jumbo FHA loans look ugly as compared to portfolio bank loans and other private money.
To this end, the FHA is raising its minimum downpayment requirements for loans over $625,500 to 5 percent. The agency has already raised its jumbo mortgage insurance premiums to 1.55% annually. The combination of larger downpayments with higher MIP will render jumbo FHA loans, which are available in high-cost areas such as Los Angeles, California; Washington, D.C.; and New York City, New York more expensive.
By comparison, today’s non-jumbo FHA mortgages require just 3.5% down and MIP as low as 1.20%.
Access To An FHA Mortgage After A Foreclosure
Currently, U.S. home buyers can access FHA-insured financed three years after a foreclosure-related event. The agency will change this policy, restricting program access to borrowers who (1) have re-established credit, and (2) can provide a fully-documented loan application.
Furthermore, the group will examine the cause of the foreclosure to determine whether it was a one-time event, such as loss of employment, which may be a predictor of future loan performance.
Notably, the FHA has not ruled out waiving its 3-year foreclosure waiting period.
For How Much Can You Qualify Using FHA Financing
The Federal Housing Administration has raised its mortgage insurance premiums 5 times in five years, all while introducing a series of new guidelines designed to reduce future foreclosures.
FHA loans require more hurdles as compared to last decade, and the FHA is intent on raising those hurdles higher — FHA Commissioner Galante has shown that. The good news, though, is that FHA mortgage rates remain ultra-low nationwide.
If you’re a first-time or move-up buyer, see how much home you can afford with an FHA mortgage. Get today’s mortgage rates and start to build your budget. Or, for households with an existing FHA-insured mortgage, compare your costs to today’s FHA Streamline Refinance mortgage rates. The savings wil likely be large.
This article was provided by Kara’s Guest Blogger: Dan Green (NMLS #227607) is an active loan officer with Waterstone Mortgage