The Federal Housing Administration (FHA) today outlined future changes that will be coming to the FHA home loan program.

Rising defaults on FHA loans have led to the FHA’s cash reserves falling below federally mandated levels.  FHA officials hope that policy changes will ensure borrowers have a stronger equity position and are less likely to default.

Policy changes include:

• Raising the up-front mortgage insurance premium: The premium will rise to 2.25 percent from its current 1.75 percent.  HUD is expected to release a Mortgagee Letter on Jan. 21 making the premium increase effective in the spring.
• Raising the minimum credit score requirements: New borrowers will be required to have a minimum FICO score of 580 to qualify for the FHA’s 3.5 percent down payment program.  New borrowers with less than a 580 FICO score will be required to put down at least 10 percent.  FHA expects this to take effect in early summer after it goes through the normal regulatory process.
• Reduce allowable seller concessions:  The agency is lowering the maximum permissible level to 3 percent from its current 6 percent limit.  FHA expects this to take effect in early summer after it goes through the normal regulatory process.

If you are considering an FHA loan to purchase a home, you might consider making your purchase before the changes become effective.

If you have specific questions regarding your particular situation, please give me a call and we will discuss it.

Also, if you are a first time home buyer, the $8000 Federal Tax Credit is scheduled to end soon.  You will need to be under contract by April 30, 2010 and your escrow must close by June 30, 2010.