Florida Home Buyers and Investors Blog

I know a lot of you have been hearing about “major” changes coming soon with FHA. I thought I’d send you some info on what exactly is changing and when these changes will take effect. As usual, if you’ve got any questions or concerns or if you want further clarification after reading the info below, please let me know.

CHANGE #1

On September 1, 2010, HUD released Mortgagee Letter 2010-28 regarding changes to FHA mortgage insurance premiums. The letter states that, on August 12, 2010, the President signed into law new legislation which allows HUD to increase the amount of the annual mortgage insurance premiums charged for FHA single family housing mortgage insurance programs. For purchase and refinance transactions, HUD has decided to raise the annual premium which is collected on a monthly basis (the “monthly MI”) and simultaneously lower the upfront mortgage insurance premium (the “MIP” which is typically financed into the loan) “so that FHA is in a better position to address the increased demands of the marketplace and return the Mutual Mortgage Insurance (MMI) fund to congressionally mandated levels without disruption to the housing market.”

Effective for FHA loans with case numbers assigned on or after October 4, 2010, the upfront mortgage insurance premium for purchase and refinance transactions will change from 2.25% to 1.0%. The annual mortgage insurance collected on a monthly basis (the monthly MI) will change to the following:

Let’s look at a scenario and see how this will affect a typical homebuyer. Let’s say a buyer is purchasing a home at a price of $150,000 with maximum FHA financing (meaning they’re only making the minimum 3.5% down payment) and they’re getting a 30-year fixed at 4.25%. Because they are making a 3.5% down payment ($5,250), their base loan amount is $144,750.

So as you can see, the borrower’s payment will be higher with the new changes but my take on it is: in the whole scheme of things, when buying a $150,000 home, it’s not as “major” as some may lead you to believe. Not a HUGE deal when you really look a the numbers.

CHANGE #2

On September 3, 2010, HUD released another mortgage letter (2010-29) and it is regarding minimum credit scores and loan-to-value ratios. The three main changes, also effective for case numbers assigned on or after October 4, 2010, are:

Borrowers with a minimum decision credit score at or above 580 are eligible for maximum financing.

Borrowers with a minimum decision credit score between 500 and 579 are limited to 90 percent LTV.

Borrowers with a minimum decision credit score of less than 500 are not eligible for FHA-insured mortgage financing.

This is not a significant change because we (as most lenders/banks/brokers) are not financing FHA borrowers with less than a 620 credit score anyway. I don’t feel that these changes will affect you or your buyers much at all. Again, nothing too “major”.

Some good news is: we’ve heard nothing else more about the maximum interested party contributions lowering from 6% to 3% since HUD’s mortgagee letter released 01/20/10. In this mortgagee letter, HUD stated that this change will be “posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.” We should all be glad that this hasn’t officially rolled out (yet) because I feel that this change would have a much greater impact on us and our clients than any of the above. If we hear something more about it, I’ll let you know.