If you are currently in the market to purchase a new home and intend on using FHA financing you might want to take note! Consumers looking for home loans backed by the Federal Housing Administration (FHA) will face tougher hurdles and higher costs under new legislation and new rules that could take effect as soon as this month. Below is a list of changes that are anticipated:
1. The biggest impact on borrowers will be the change to the allowable seller contribution amount. Currently FHA allows up to 6% of the purchase price to be paid by the seller to help cover the buyer's closing costs, pre-paid items(mortgage insurance premium, homeowners insurance, and property tax reserves), etc. This contribution amount will change to 3% allowable contribution from the seller. If you are purchasing a home below the $200,000 range this will make a difference to you! Your closing costs for a loan under $200,000 are closer to 5-6% of the purchase price. That would mean that on top of the 3.5% down payment you would need to come up with an additional 1-2% more.
2. The FHA would require borrowers to have at least a 500 score for FHA backing. At 580 and above, borrowers would be eligible for the 3.5% down payment. But those who fall between 500 and 580 would see their down payments jump to 10%. That, however, is still well below scores of 660 to 720 that most lenders already look for to accept only a 10% down payment.
3. FHA-backed loans have looser restrictions than other mortgages on down payments -- now at 3.5% of the home's selling price -- but require borrowers to pay an upfront fee and a monthly fee. The legislation allows the FHA to hike the monthly fee (this is to cover Mortgage Insurance on the loan) to as much as an annualized 1.5% of the loan balance, up from 0.55%, though initially it will go only to 0.9%. The initial fee was increased earlier this year to 2.25% from 1.75%, though the FHA has said it will bring it down to 1% with the higher monthly fee.
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