The FHA has made changes to its policies this year in an attempt to increase its capital reserves. As regulators have demanded that the FHA maintain mandated reserve requirements they have had to take action in order to be in compliance. As the FHA announced that the FHA Mutual Mortgage Insurance Fund had a deficit in 2013 of $16.3 billion dollars it is clear why changes were necessary. For consumers this means FHA home loans could ultimately cost more. Even with these changes FHA Streamline Refinances, FHA purchase loans, and traditional FHA refinances are still good options for homeowners.
Some changes have already taken place, going into effect in April of 2013. Home loans closed after June 3rd will be under all of the regulation changes.
New FHA Regulations
• Paying Mortgage Insurance Longer – Borrowers will now have to pay FHA mortgage insurance for either 11 years or the life of the loan, depending on how much they finance. If you want to ensure that you can have the mortgage insurance premium removed you can make a minimum of a 10% down payment. This is a change from before where once your homes value increased, and you had 22% equity in the home, the mortgage insurance premium would be removed.
• Larger Down Payments on Jumbo Loans – Borrowers purchasing homes using an FHA mortgage loan will need to come up with a larger down payment if the mortgage is over $625,000. Prior to June 3rd home buyers could put as little as 3.5% down. Now the FHA requires a minimum of a 5% down payment. This is specifically for larger loan amounts and can make a large difference in whether or not a family can purchase a new home. While the increase may make it cost prohibative for some people, it is still a small down payment requirement compared to other home loan options.
• Mortgage Insurance Premium Rate Increase – The FHA raised their mortgage insurance premiums by 0.1% this year. This small increase will equal around $13 a month but make a large dent in their deficit.
• Credit Score Requirements Tighten – The FHA has changed its policies related to credit scores, making it more difficult for borrowers with less than a 620 score to get approved for a loan. Borrowers with low credit scores will now have to go through a manual underwriting process rather than the automated system.
The changes at the FHA are geared toward ensuring that the organization can continue to offer home buyers the opportunity to pursue the American dream of purchasing a home for years to come. As with any organization it is important that they stay financially solvent in order to continue. Homeowners should not be concerned, but rather confident, that these changes will ensure continued access to affordable home loans.
FHA Streamline refinances are still an easy way to refinance and FHA purchase loans continue to offer low down payment options for homeowners throughout the country. Even if you purchase a home with less than 10% down you can get rid of the mortgage insurance premium in the future by simply refinancing out of FHA. Speak with an experienced mortgage lender to learn more about your purchase and refinance options.