In the coming months FHA will be implementing changes, and most would say not for the better. First time buyers better get a crackin’ because these changes will most likely be effecting them the most!
In recent year FHA loans have been the primary route to home ownership first time buyers, buyers with little cash for a down payment, and buyers with lower credit scores took to purchase a home. During the great meltdown of ’08 traditional lenders (i.e. banks) tightened there purse strings after taking a beating. Often the only way a buyer could get a loan was with an FHA loan and as a result they took on a huge amount of risk with large pool of buyers they took on. The Federal Housing Administration (FHA) is trying now to better manage there risk and I believe attempting to get banks to start stepping up to the plate and easing their restrictions.
In the past, no matter your down payment you had to pay mortgage insurance for a minimum of 5 years. So everyone went in with the minimum down payment of 3.5%. Effective April 1, 2013 mortgage insurance will be required for the life of the loan no matter what your equity position is! I am sure once homeowners have enough equity they will want to re-finance their home but in 5-10 years I can guarantee they will be looking at higher interest rates.
The other big change coming April 1st (wish this was an April fools joke) FHA will increase the annual insurance premium for most new mortgages by 10 basis points (.10 percent) except for jumbo loans ($625,500+) will stay at 5 basis points. FHA will also require lenders to manually underwrite loans for borrowers with credit scores less than 620 and a total debt-to-income ratio greater than 43%. This means even more documentation than is required now. And for those jumbo loans, no longer will a 3.5% down payment suffice – now you need to put down 5%.
These changes will squeeze some buyers out but I hope it will also get banks to jump in and cover the slack. The Federal Housing Administrations has evolved into a position it never intended to occupy, maybe this well help lessen our dependence on FHA loans…