FHA IS TALKING ABOUT SOME CHANGES

Recently the Federal Housing Administration (FHA) has come under criticism due to the growing losses they are experiencing in their loan cash reserve funds. The main focus of this criticism is that FHA could possibly go the way of Fanny Mae and Freddie Mac in terms of requiring a “bailout” to shore up the reserve funds. Fanny Mae and Freddie Mac purchase loan portfolios and in turn supply the mortgage market with funds to create new mortgages through lending institutions.  FHA, on the other hand guarantees mortgages and when an FHA loan goes bad they experience a loss of funds when they step up to their role as a loan guarantee agency.

In order to “stop the bleeding” FHA is considering several changes that will have a negative impact on many FHA prospective customers.

1. Currently a buyer can qualify for an FHA loan and only make a 3.5% down payment. FHA is considering changing this to a minimum of 5%.

2. At this time a buyer may ask for up to a 6% in closing cost assistance. The 6% can be comprised of seller help, realtor credits, lender credits or grant programs like our CDA program. FHA is considering lowering that limit to 3%.

3. FHA is also considering increasing its minimum credit score for borrowers. It is currently around 580 but could be set at over 620.

Let’s look at what this could mean to today’s buyer of a $300,000 home with 3.5% down and 6% in closing assistance. This buyer can effectively purchase the home today for as little as $10,500 out of pocket upfront cost (not including appraisals and inspections). If all of the proposed changes were to be implemented the same buyer would need at least $24,000 to purchase the same home.

Time is of the essence on this new wrinkle. The faster you get into a contract on your home of choice the less chance you have of being caught up in these possible changes.. Let us know how we can help you.