FHA has announced few recent changes in the underwriting guidelines to qualify for a FHA loan and some changes with the FHA PMI (mortgage insurance).
1. Starting April 2010, FHA will require borrowers with credit scores less than 580 to put 10% down to qualify for a FHA loan.
This change will not have a major effect as there are not many FHA loans being approved with scores below 580 at this time anyway. As long as your credit score is above 580, you can still have the minimum FHA loan down payment of 3.5%. The best FHA loan interest rates and easiest/fastest loan process are for those FHA borrowers with credit scores of 620 or higher. If your credit score is below 620, give me a call as I will go over your credit with you and give you analysis as to how you can quickly raise your credit score.
2. Starting April 2010 the FHA loan up front mortgage insurance (UFMI) will increase from 1.75% to 2.25%.
This FHA mortgage insurance is paid to FHA to help insure FHA loans against default. This change affects all FHA borrowers who put down the minimum 3.5%. The FHA UFMI is rolled into the new loan balance so it is not paid out pocket (unless you elect to pay it out of pocket). So for example on a $300,000 loan, the old FHA up front mortgage insurance would have been $5,250, making your new loan balance at close $305,250. Starting April 2010, the FHA mortgage insurance on a $300,000 loan will be $6,750, making your loan balance at close $306,750. Talk to your CPA at close at this entire up front mortgage insurance may be tax deductible for you.
3. Starting April 2010, FHA will reduce the amount a seller can credit the buyer for closing costs in a FHA purchase loan to 3% from 6%.
Often when you purchase a property you can ask the seller to pay some or all of your closing costs. Starting April 2010 the maximum the seller will be able to credit you is 3%. The FHA is adding this rule to prevent sellers from inflating their prices so they can make large credits to buyers.
Some general highlights of FHA loans:
- FHA loans in California (certain counties) can go all the way up to $729,750
- FHA loan credit scores do not have to be perfect
- Conventional loan vs FHA…most conventional loans require 10% down and have much stricter credit score requirements and conventional loans require a 41% debt-to-income ratio with <20% down where FHA loans have a 56% debt-to-income ratio
- FHA loan interest rates are at historic lows STILL!
- You can still get a $8,000 tax credit from the IRS if you sign a contract to purchase by April 31st 2010
- FHA loan down payment is only 3.5% and ALL of that can be a gift from a relative
Give me a call (858-922-7899) or email (homeloan8@gmail.com) if you have any questions at all about getting approved for a FHA Loan.
Warmest Regards,
Rob Chomentowski
Sr. Loan Officer (and FHA specialist)
858-922-7899
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