Government Keeps Tweaking the FHA Rules
January 20, 2010
Since the first of this year the federal government has announced some changes to the rules for the purchasing of a home. One change is expected to create additional real estate sales, the other is expected to reduce the number of persons qualifying for FHA loans. The government seems to both encourage and discourage home ownership.
For some time now, HUD had a provision that was intended to deter "flipping" of properties by investors who purchased distressed properties, made some repairs and put them back on the market for a profit. These rules stated that for ninety days after an investor's purchase, a potential buyer could not use FHA financing to purchase that property. Only conventional loans could be used and then only with a 20% down payment. This regulation prohibited many first time homebuyers from purchasing some nicely rehabbed properties. Starting February 1, 2010, this 90 day rule has been suspended for one year. The requirement to have cash to purchase many of these distressed properties at foreclosure auctions, eliminated the first time homebuyer from buying at auction and the 90 day rule meant that these properties remained unavailable to these buyers. It will be interesting to see how the suspension of the rule affects the market.
FHA also announced changes to the mortgage requirements. The upfront mortgage insurance premiums are being raised from 1.75% of the loan amount to 2.25%. Home buyers who want to make the minimum down payment of 3.5% on an FHA insured loan now need a minimum FICO score of 580, raised from the current 500. New borrowers with FICO scores under 580 would have to put down 10%. Interestingly, most lenders already require buyers to have a FICO score of 620 or higher. Another change in FHA rules affects the amount of allowable seller concessions to 3% of the purchase price from the current 6%. These changes are expected to be announced today.
In the past year and a half, FHA loans have been the loan of choice for many first time home buyers. They will still remain popular as other financing generally has much more stringent requirement's.
Since the first of this year the federal government has announced some changes to the rules for the purchasing of a home. One change is expected to create additional real estate sales, the other is expected to reduce the number of persons qualifying for FHA loans. The government seems to both encourage and discourage home ownership.
For some time now, HUD had a provision that was intended to deter "flipping" of properties by investors who purchased distressed properties, made some repairs and put them back on the market for a profit. These rules stated that for ninety days after an investor's purchase, a potential buyer could not use FHA financing to purchase that property. Only conventional loans could be used and then only with a 20% down payment. This regulation prohibited many first time homebuyers from purchasing some nicely rehabbed properties. Starting February 1, 2010, this 90 day rule has been suspended for one year. The requirement to have cash to purchase many of these distressed properties at foreclosure auctions, eliminated the first time homebuyer from buying at auction and the 90 day rule meant that these properties remained unavailable to these buyers. It will be interesting to see how the suspension of the rule affects the market.
FHA also announced changes to the mortgage requirements. The upfront mortgage insurance premiums are being raised from 1.75% of the loan amount to 2.25%. Home buyers who want to make the minimum down payment of 3.5% on an FHA insured loan now need a minimum FICO score of 580, raised from the current 500. New borrowers with FICO scores under 580 would have to put down 10%. Interestingly, most lenders already require buyers to have a FICO score of 620 or higher. Another change in FHA rules affects the amount of allowable seller concessions to 3% of the purchase price from the current 6%. These changes are expected to be announced today.
In the past year and a half, FHA loans have been the loan of choice for many first time home buyers. They will still remain popular as other financing generally has much more stringent requirement's.
posted by shirley harry at 8:06 AM
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