FHA Changes Make FHA Loans More Expensive

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It is no secret that over the last few years, it has become harder to qualify for a mortgage as guidelines for almost all mortgage programs have been tightening. Many loan programs have been eliminated and more and more people find that getting an FHA loan is the best option to finance their home.

But FHA loan guidelines are tightening too – just recently FHA released an announcement that there would be further tightening to the FHA guidelines and left the door open for further tightening.

Highlights of the changes to the FHA loan program:

• Seller concessions are reduced from 6% to 3%
• Down payment requirements raise to 10% from 3.5% for credit scores below 580
• UFMIP (Up Front Mortgage Insurance Premium) requirements are going up from 1.75% to 2.25%

Seller concessions reduced

This change will be posted in the Federal Register sometime during the month of February, and after a notice and comment period, is planned to go into effect in the early summer. This reduction in seller concessions means that sellers will still be able to help buyers with their closing costs, but at a reduced level. In most FHA transactions that I have seen, seller concessions are very common and I expect this one to have perhaps the largest impact when talking about FHA loans becoming more expensive.

Down payments rise to 10% for people with poor credit

Very few lenders (I am not personally aware of any, but maybe there are still a few out there) will lend money to someone for an FHA loan with a 580 mid credit score. But in the event that they will – either now or in the future – the down payment requirements are rising from 3.5% to 10%. While this seems like a big jump – the fact is that people with a 580 credit score aren’t getting FHA loans because lenders won’t currently lend to them, so I don’t know how big of an impact this will make.

UFMIP requirements rise

Over the years, HUD has changed the UFMIP requirements to get a loan on a fairly regular basis. Sometimes it rises, sometimes it falls – but I don’t see it going down anytime soon. FHA has suffered losses and their reserves are down – which means that one of the ways they build them back up is to raise the amount of Up Front Insurance Premium that they collect when insuring a loan. There is still some discussion about moving some of the increase in UFMIP to the annual MIP portion – but it will be announced at a future date. For now, you can expect UFMIP requirements to rise sometime in the spring.

Ok, so FHA loan guidelines are getting tighter. And it is getting more expensive for people to get an FHA loan who can meet the guidelines. That said, I still see FHA loans being one of the most popular loan programs throughout 2010…

FHA loans will just cost a little bit more now.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.