FHA Alert

FHA has instituted some major changes that could affect your pocketbook and your ability to purchase a home.

The FHA up-front mortgage insurance premium has been reduced to 1% of the loan amount instead of the 2.25% that is had been since Spring of 2010. This is a nice reduction, but the up-front mortgage insurance could be rolled back into the loan and financed. Over 30 years, the monthly cost was hardly noticeable.  

At the same time, FHA increased the monthly mortgage insurance premium from .55% of the loan amount to .90% of the loan amount if you put the minimum 3.50% down. This increase is really felt in the pocketbook. As an example: A $200,000 loan with a 3.50% down payment used to have a monthly mortgage insurance premium of $91.66. That same loan today has a monthly mortgage insurance premium of $150.00. That hurts.

FHA used to be the last resort for buyers with less than stellar credit. That, too, has come  to a screaching halt. FHA will be requiring a 10% down payment from buyers with credit scores of less than 580.

One last bit of bad news for those who require a seller to pay closing costs or seller concessions as they are known in the mortgage industry. Sellers will now be able to contribute no more than 3% of the purchase price towards buyers closing costs -- down from 6% -- which means that buyers may have to come up with more money out of pocket in addition to the down payment.