New FHA Leanding Rules

The Federal Housing Administration (FHA) has announced a number of major changes to ensure its long-term financial stability.  Amongst these are the requirement that borrowers with credit scores below 580 will need to put down a deposit of at least 10%. The current 3.5% down-payment will still be available to qualified buyers with a credit score above 580.

Upfront mortgage insurance premiums are also slated to increase from 1.75% to 2.25%, while the FHA is also seeking congressional approval to raise the annual mortgage insurance premium above the current 0.55% maximum.

The third major change to affect buyers and sellers will be the FHA requirement that the maximum seller concessions to a buyer be reduced from 6% to 3% of contract price. This later requirement is likely to negatively impact many real estate transactions as rarely do closing costs in an FHA-funded sale fall below this 3% threshold. Additionally, this leaves no room for negotiation for seller concessions for repairs following a detailed home inspection of the property.  Sellers will hence be forced to effect all required and agreed repairs prior to closing.

These changes are scheduled to take effect in stages between February and July 2010. Prospective buyers should consult their respective lenders or mortgage brokers for more details regarding these changes, and home sellers should discuss the potential impact of these changes with their Realtor.