As I told you last fall, HUD announced it would make some changes to FHA financing in the 1^st and/or 2^nd quarter of 2010.  It appears as though they have hashed out most of the details and they announced this morning FHA Policy Changes that will start to go into effect this Spring.  FHA will officially release a Mortgagee Letter tomorrow with more details on the time-frame of these changes.

FHA borrowers must now look better on paper and may need more cash at closing.

In their announcement this morning, FHA said it is trying to "better position the FHA to manage its risk while continuing to support the nation's housing market".

HUD did not change the minimim down payment which was on the drawing board last fall.  They did however, roll out a number of changes: 

• Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending
  • Increase the Upfron Mortgage Insurance Premium (MIP) from 1.75% to 2.25%.
  • Congressional request to increase monthly MIP
• Reduce allowable seller concessions from 6% to 3%
• Increase enforcement on FHA lenders
• Minimum Credit Score of 580
  • A 10% down is required for those who fall below 580

Now keep in mind, just because FHA allows a 580 score, doesn't mean the Lender will approve the loan.  Many Lenders/Banks have imposed additional "risk layers" in their underwriting of both FHA and Conventional loans due to investor requirements.  Most Lenders/Banks already have minimum scores for FHA loans.  Lenders/Banks use FHA's guidelines as the starting point and then they add additional underwriting rules.  And they have good reason to do so.

HUD is pursuing legislative authority that would require all require all approved mortgagees to assume liability for all of the loans that they originate and underwrite.  And if a Lenders/banks defaults exceeds the mean by a certain number, FHA terminates the Lender/bank. 

This is one of the reasons why someone might not get approved for an FHA loan at one place, but can someplace else.  Guidelines will vary from Lender to Lender. 

If you have any questions or would like to know if you can qualify for an FHA loan, please call me at 509-232-7725.