FHA Announces Mortgage Program Policy Changes for Texas Homebuyers
FHA this week announced policy changes to FHA-insured mortgages affecting home buyers in Houston, The Woodlands, Spring, Tomball, Conroe, and throughout TX. These changes are designed to address an FHA capital reserve that has fallen below the 2.0% minimum set by Congress. The popularity of these loan programs for first time homebuyers makes these changes particularly significant.
First, FHA will be increasing their up-front mortgage insurance premium to 2.25% on a purchase. This mortgage insurance premium protects lenders against default for borrowers, allowing them to purchase a home with as little as a 3.5% down payment. The premium is typically financed into the borrower’s mortgage, so no additonal closing funds are required, though it will result in a slightly increased mortgage payment. FHA will pursue regulatory authority to shift some of the increase from the up-front premium, to the monthly premium that is also charged on an FHA loan.
Second, FHA is retaining the 3.5% down payment requirement for borrowers with credit scores of 580 or above. Those with lower scores will be required to put 10% down. Previously, FHA had no minimum credit score requirement, however minimums are set by lenders who make FHA loans. Most lenders today require a minimum credit score of 620-640.
Third, FHA will be decreasing the amount a seller may contribute to a buyers closing costs from 6% to 3% to prevent inflated appraisals and other abuses. This change brings FHA in line with other loan programs.
Lastly, FHA will increase monitoring and enforcement of lenders who make FHA loans. Recently, FHA announced a probe into 15 mortgage lenders who displayed unusually high default rates. These stepped-up efforts will help insure that abusive lending practices are identified quickly and prevented.
Most of these changes are not likely to go into effect until the summer, so there is still time to obtain an FHA loan under the current guidelines from an FHA-approved Texas mortgage lender.
