FHA Changes Could Make it Harder to Get a Loan
Following are some changes announced at a Congressional hearing on Wednesday:
- You will need to put more money up front. Right now you can put down as little as 3.5 percent, but that will likely rise to about 5%. Private lenders today require between 10% and 20%. Most want 20% unless your credit score is above 750. The FHA has not yet determined what the new down payment requirements will be.
- You will have to pay more in insurance premiums. Right now that premium is 1.75% of the loan value plus 0.5% or 0.55% per year. HUD Secretary Shaun Donovan asked Congress for authority to raise the upfront premium.
- You may will get less help with closing costs. Right now sellers can pay as much as 6% of the home's value in closing costs. The maximum level will be lowered to 3% and may go even lower.
- You will need better credit scores. Right now the score can be as low as 500. While that's the law, lenders don't usually accept scores that low. The FHA is researching what that minimum score. This may not be as noticeable as the other changes because most lenders do expect a higher score, but this change will prevent abusive lenders from lending to unqualified borrowers.
If you are thinking about an FHA loan, be sure to price out non-FHA loans as well. If you have the cash and a high enough credit rating, you will likely find the non-FHA loan cheaper if these changes go into effect. But, if you don't have at least 10% to put down and a credit score over 700, you'll likely need to use an FHA loan to buy a house.
The FHA was created in 1935 to help finance homes for returning veterans, but grew into a popular program that has helped millions of individuals and families buy homes.
Lita Epstein has written more than 25 books including The 250 Questions Everyone Should Ask About Buying Foreclosures.