In a recent press release, HUD has announced several changes coming soon to FHA mortgages. FHA mortgages are popular with home buyers because they allow for lower down payments (currently as low as 3.5%) and FHA mortgages tend to be more flexible with credit scoring and debt-to-income ratios. Another reason why home buyers may lean towards is an FHA mortgage in the greater Seattle area is because the allowed loan amount for a single family dwelling is $567,500 compared to $506,000 with a conforming mortgage.
Upcoming changes to FHA mortgages include:
- FHA annual mortgage insurance (paid in the monthly mortgage payment) will increase by 10 basis points on FHA loans. FHA jumbos (loan amounts of $417,001 to $567,500 in King County) will see an increase of 5 basis points. This is effective with case numbers issued April 1, 2013 and later.
- FHA mortgage insurance to be permanent. FHA mortgage insurance on loans with case numbers issued April 1, 2013 or later will have mortgage insurance on the life of the loan. FHA mortgage insurance on loans with case numbers issued prior to June 3, 2013 will still have their mortgage insurance terminate once it meets 78% loan to value and 60 payments have been made.
- FHA annual mortgage insurance on 15 year amortized mortgages to be 45 basis points effective with case numbers issued June 3, 2013 and later. Currently FHA mortgages with 15 year terms do not have annual mortgage insurance.
- Manual underwriting for borrowers with credit scores below 620 and debt to income ratios exceeding 43%. This basically means that even if the automated underwriting system issues an approval – a borrower meeting this criteria will still need to have a human underwriter review the complete application and decide if she wants to sign their name to it. I believe at our company, our lowest credit score we will accept for an FHA loan is 640. This goes into effect with case numbers issued April 1, 2013 and later.
- Minimum down payment to increase on FHA Jumbo mortgages to 5%. Currently FHA jumbos have a minimum down payment requirement of 3.5%. In King, Snohomish and Pierce Counties, FHA loan amounts between $417,001 and $567,500 are considered to be FHA Jumbo. A mortgagee letter has not been issued yet (as of the publishing of this post) as to when this will happen.
The increases to FHA annual mortgage insurance premiums will not impact FHA streamlined refinances IF the existing underlying FHA mortgage was endorsed by HUD prior to June 1, 2009. These lucky home owners still qualify for reduced FHA mortgage insurance premiums.
These changes are in effort to help bolster FHA’s capital reserves. From HUD’s press release:
“These are essential and appropriate measures to manage and protect FHA’s single-family insurance programs” said Galante. “In addition to protecting the MMI Fund, these changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American homebuyers.”
If you have been considering buying or refinancing using an FHA insured mortgage and have the ability to beat the April 1, 2013 date when many of the changes are taking place, I encourage you to do so! FHA case numbers are issued after a bona fide application is in place. If you are in an FHA transaction during the April 1 date, you will want to confirm with your mortgage professional that you have an FHA case number.