Still higher FHA costs in the pipeline

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Recent Federal Housing Administration (FHA) steps won’t be enough to restore FHA’s reserve requirements as mandated by Congress.

Last month, the FHA announced an increase in mortgage insurance premiums and plans to prolong mortgage insurance premium payments.

More recently, it extended its anti-flipping waiver for another two years.

Now, the FHA is considering several new proposals that would make qualifying for FHA loans even tougher and more costly.

They include:

• Increasing the down payment
on loan amounts over $625,500 by 1.5 percent – from the current 3.5 percent to a higher 5 percent. FHA is also considering eliminating loan amounts over $625,500 altogether, thus capping the maximum loan limit to $625,500.

The move will impact borrowers in many high-cost areas where the maximum FHA loan limit is more than $625,500.

• Stricter underwriting guidelines
for borrowers who have gone through foreclosure in last seven years. One plan would to increase the minimum down payment to 20 percent.

• Imposing a maximum debt-to-income ratio of 43 percent for borrowers with less than a credit score of 620. Borrowers with a credit score lower than 620 could be disqualified from FHA loans. Most lenders already require a minimum 640 credit score.

• Stopping lump-sum payouts for two years on FHA insured reverse mortgages, also called Home Equity Conversion Mortgages (HECM). Reverse mortgage borrowers should not be able to draw the full loan amount for two years.

All these changes, combined with an increase in mortgage insurance premiums and prolonging the mortgage insurance payment for the life of the loan, will make FHA loans much more expensive.

That could make conventional loans a more attractive option.

If an FHA loan is your best bet to secure a mortgage, get into one as soon as you can.

If you need help understanding your financing options or determining which option is best for you, contact us.

About the author

A DeadlineNews.Com Contributing Writer Shashank Shekhar is a San Jose, CA-based mortgage lender, author, national speaker and blogger. He has been named to National Mortgage Professional Magazine's "Top 25 Most Connected" and "Top 40 Under-40 Most influential" mortgage professionals. Shekhar's work is featured on Homes.com, Examiner.com, Lender411.com, and his own Lending Expert Blog. Local and national media frequently tap him as an expert mortgage industry source. Connect with Shekhar on Facebook. Contact him at Shashank@ArcusLending.com or call 1.408.615.0655.

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