FHA Announces Tougher Guidelines for Loans

Dennis Norman

This week FHA announced policy changes that are going to help them shore up their finances but will make it more difficult and/or costly for a borrower. 

1. Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending
   1. The upfront mortgage insurance fee to the borrower will be increased to 2.25% from 1.75%.
   2. This will go into effect this spring.
2. Update the combination of FICO scores and down payments for new borrowers.
   1. New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
   2. This change will go into effect in the early summer.
3. Reduce allowable seller concessions from 6% to 3%
   1. The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
   2. This change will go into effect in the early summer.
4. Increase enforcement on FHA lenders
   1. Publicly report lender performance rankings to complement currently available Neighborhood Watch data – Will be available on the HUD website on February 1.

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