In the last 10 months or so, FHA has announced some proposals and these proposals are now becoming reality for FHA Mortgages. Just last week, FHA increased the monthly mortgage insurance and reduced the upfront mortgage insurance. If you missed this one, you must familiarize yourself with these changes, because it could increase the borrower's monthly mortgage payments from $20 to $120 a month, depending on the purchase price.
The newest change, as of September 3rd, 2010, has officially set credit scores for all FHA loans now. Previously, FHA never had a minimum credit score.
Not to worry though. These new changes in Mortgagee Letter 2010-29 for all FHA mortgagages, in my opinion, will not affect anyone in reality. Why is this? Let's look at the new changes presented in this mortgagee letter.
Borrowers with ......
- credit scores below 500 are not eligible for FHA insured financing. - Okay, not a total loss considering that we know anyone with low 500 credit scores will usually have many credit issues.
- credit scores at 580 or above are allowed maximum financing for FHA loans. - Meaning that you can obtain FHA financing with the minimum 3.5% down. But be very careful of those that promise you FHA loans with credit scores from 580 - 619. They are much more expensive, anywhere from 1% to 1 1/2% higher in rate. And also come with 1 to 2 points more. Why not wait until you can get your credit scores up. They migh woo you with a FHA streamline, but they might make it sound easy, leaving out an important deal. In regards to how the new formula works, you will need to bring closing costs to the closing table. Just be very careful about what some tell you. In many cases, it's to get you in the door...
- credit scores from 500 to 579 are limited to 90% LTV (loan-to-value) - In my opinion, no worries here because I know of no lender even doing FHA mortgages with credit scores below 580 and again, in most cases, even credit scores in the high 500's will need some massaging before that loan could be approved.
- non-traditional credit history or non-sufficient credit are eligible for maximum financing but must meet the underwriting guidance in HUD 4155.1 4.53C. Keep in mind, FHA mortgages still allow for manual underwriting, unlike conventional loans. And you can still do a FHA loan with no credit scores or no credit, but there are some requirements. And keep in mind, many lenders and or investors will not allow this though or are much stricter. At Infinity Home Mortgage, we have taken the stance to underwrite with common sense and that we will still underwrite under the guidelines of FHA loans.
Conclusion : These new changes don't go into effect until October 4th, 2010 with any new FHA case numbers on or after this date.
As I mentioned in this post, HUD seeks public comment on three main issues for FHA loans, FHA wants to change the seller concessions from 6% to 3%, but they are still reviewing this and probably still reading the comments. So out of the 3 major proposals from the start of 2010, FHA has made 2 changes, with the uncertainty of what will happen to the seller concessions.
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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc