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Best to Buy Before New FHA Guidelines Take Effect
Starting in early summer, the Federal
Housing Administration is tightening
lending standards in an
effort to bolster its dwindling
reserves. The new lending
standards will make it
tougher for some prospective
buyers to purchase a home
by requiring a higher down
payment than the typical 3.5
percent for some borrowers, higher
insurance premiums and reduced seller
concessions.
Securing FHA-insured mortgages are attractive
to borrowers because down payments
are only 3.5 percent. Most conventional
loans now require 20 percent down, keeping
many creditworthy borrowers on the
sidelines.
The new rules — which are temporary and
take effect this summer — come after more
than a year of stringent standards from lenders.
Among them:
Better Credit Score — New borrowers
will have to have a minimum credit
score of 580 to qualify for a 3.5 percent
down payment. Previously, there was
no minimum score. Those with lower
scores will have to make at least a 10
percent down payment. The average
credit score of FHA-insured borrowers
is 693.
Higher Insurance Premiums — Buyers
who get an FHA-insured loan will soon
have to pay a higher initial insurance
premium. The new premium will be
2.25 percent of the value of total loan
amount, up from 1.75 percent now. A
$100,000 mortgage would require a
payment of $2,250, or $500 more. But
buyers can roll the added cost into the
loan amount.
Reduction in Seller Concessions—
Starting this summer, sellers will not be
able to offer as much help to buyers to
pay their closing costs. The maximum
amount of assistance will drop to 3 percent
of the value of the property, from
the current 6 percent.
— by Octavio Nuiry
Starting in early summer, the Federal
Housing Administration is tightening
lending standards in an
effort to bolster its dwindling
reserves. The new lending
standards will make it
tougher for some prospective
buyers to purchase a home
by requiring a higher down
payment than the typical 3.5
percent for some borrowers, higher
insurance premiums and reduced seller
concessions.
Securing FHA-insured mortgages are attractive
to borrowers because down payments
are only 3.5 percent. Most conventional
loans now require 20 percent down, keeping
many creditworthy borrowers on the
sidelines.
The new rules — which are temporary and
take effect this summer — come after more
than a year of stringent standards from lenders.
Among them:
Better Credit Score — New borrowers
will have to have a minimum credit
score of 580 to qualify for a 3.5 percent
down payment. Previously, there was
no minimum score. Those with lower
scores will have to make at least a 10
percent down payment. The average
credit score of FHA-insured borrowers
is 693.
Higher Insurance Premiums — Buyers
who get an FHA-insured loan will soon
have to pay a higher initial insurance
premium. The new premium will be
2.25 percent of the value of total loan
amount, up from 1.75 percent now. A
$100,000 mortgage would require a
payment of $2,250, or $500 more. But
buyers can roll the added cost into the
loan amount.
Reduction in Seller Concessions—
Starting this summer, sellers will not be
able to offer as much help to buyers to
pay their closing costs. The maximum
amount of assistance will drop to 3 percent
of the value of the property, from
the current 6 percent.
— by Octavio Nuiry
