HUD announced this week several major changes for FHA loans later this year. Some of this items will not go into effect for several months but are worth noting. Overall, HUD is doing the right thing to keep themselves in business and help consumers be able to purchase homes.
1. Up-front MIP will increase to 2.25%, to be announced in a Mortgagee Letter today; this will go into effect sometime in the spring (NOT effective immediately).
How this effects you: Currently up-front MIP is at 1.75% of the base loan amount. Example, on a $100,000 base loan amount, the amount that is currently added to that amount is $1750.00. This makes the total loan amount that is financed as $101,750.00. The monthly payment (assuming a 5.50% rate) would be $577.73. Under the new change the new loan amount would be $102,250.00 ($500.00 more added to the loan balance) and the new monthly payment would increase to $580.56 ($2.83 per month more). Not a huge impact on the consumer but worth noting. The benefit is significant to HUD as it allows them to re-capitalize their insurance fund (which is low due to loan losses over the past several years) and continue to insure home loans will minimal down payments which is a good thing.
2. Borrowers with credit scores less than 580 will be required to put down at least 10%; effective early summer.
How this effects you: Although HUD/FHA has never required a minimum credit score, most investors have required minimum credit scores for quite some time. Most have a minimum of 620 with a few down to 600 and even 580. This is not going to impact much currently as almost no investors/lenders are doing FHA loans with this low of a credit score. However this change might cause some investors/lenders to look at this market segment more seriously because of the significant down payment of 10% possibly opening more opportunities for more borrowers with lower scores and a down payment.
3. Seller contributions to be lowered from 6% to 3%.
How this effects you: This is VERY significant especially lower priced homes. Currently on a $100,000 the seller is allowed to pay up to $6,000.00 (6.0%) in closing costs and pre-paid items (taxes/insurance). This change will reduce this amount to only $3000.00 (3.0%) in this example. If your closing costs and pre-paid items happen to be$4,000.00, then you the borrower would have to pay that difference yourself ($1,000.00) due to maximum being now 3.0 percent. This means that your “funds to close” would be $1,000.00 higher than under the prior guidelines. Not a good thing on a cash strapped buyer.
4. The waiver on anti-flipping requirements is effective 02/01/10, and a preliminary memo was sent out about that on Tuesday.
How this effects you: This is very good news and means that there will be a better inventory of renovated property properties to chose from for buyers. Let’s face it, there are allot of properties out there for sale but many of them are in very rough condition or in short sale situations where it is difficult for a first time buyer to either have to deal with renovations or wait for banks to approve the short sale. This new rule removes the “90 Day hold requirement” by sellers so that properties can be resold more quickly after a purchase. This will help “fix and flip” investors by reducing their hold times on properties and provide more inventory to prospective buyers. One word of caution to buyers, “Beware of properties that were purchased and marked up with little or no renovation being done”. There are specific rules that must be followed in order for these properties to be financed. Contact your qualified real estate professional for specifics.
As always, feel free to use me as a resource for your specific circumstances.
Sr. Loan Originator
Guild Mortgage Company
7951 E. Maplewood Ave. Suite 290
Greeenwood Village, CO 80111
Mortgage Originator License #MB100011854
303-753-9135 or 888-333-6944 office
303-753-8747 or 888-999-3594 fax