Friday, March 19, 2010

FHA to Tighten Lending Requirements

Real Estate buyers in the Tampa Bay area have been in the driver’s seat for nearly a year with the First-Time Home Buyers Tax Credit, slumping real estate prices and incredibly low mortgage interest rates. If all of those factors were not reason enough to make that long dreamed about real estate purchase, the Federal Housing Administration’s (FHA’s) announcement of impending tightening of lending requirements should get buyers to take action in short order. According to the Realty Times article, Tighter Requirements for FHA Loans Loom, “After notice and comment periods, but beginning this spring, the FHA will raise mortgage insurance fees that borrowers must pay, cap the amount of cash that sellers can contribute for closing costs and require higher down payments for the borrowers with poor credit scores.”

FHA has become more exposed to mortgage defaults as it has become the main avenue to financing for many in this country since the subprime market collapsed. Vice President of RealtyTrac, Rick Sharga said “foreclosures were up 21 percent from a year ago and 120 percent from two years ago and it could get worse.” In an effort to lessen the impact of defaulting borrowers, FHA has made its decision to move forward with its more stringent loan requirements.

So, what does this mean for those home buyers who need to obtain FHA financing to make their real estate purchase?

It will translate to buyers having to pay 2.25 percent for the new upfront mortgage premium, which is currently at 1.75 percent. It will also require borrowers to have a minimum FICO score of 580 in order to qualify for the 3.5 percent down payment program. Those with lower credit scores will be required to put down 10 percent of the home price to obtain FHA financing. Additionally, seller contributions towards closing costs will be capped at 3 percent of the sale price from the current 6 percent.

These moves by the FHA could have a real impact on the recovery of the housing market. Buyers who could count on the FHA’s affordable loan program can now count on that program costing them more in the very near future. The saying “Buy Now” has more meaning than ever. Time is of the essence!

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