FHA announced a series of changes to their Down Payment, Credit Score, Seller Contribution and Mortgage Insurance guidelines.

Credit Score/DownPayment Guideline Change :

  • New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
  • This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

Effect of this change – This will have minimal to no impact on Bay Area First Time Home Buyers. Almost all the lenders already have a self-imposed 620 minimum credit score guideline. Some even require a 640 minimum score.

Reduce allowable seller concessions from 6% to 3%

  • According to FHA – The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
  • This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

Effect of this change – Because of low inventory and the risk of not getting the property appraised at contract price seller have already reduced their contribution on transactions. In my personal opinion, 3% is still good enough to cover for most of the Buyer’s closing cost, if not all. Again, this rule too will have a minor impact for San Francisco Bay Area First Time Home Buyers who are considering FHA as their loan option.

Read my another post about changes to FHA Mortgage Insurance

If you would like to know how these changes to FHA loan requirements would impact you, feel free to call me at 408.905.6261, 408.905.6261 or email me at shashank@arcuslending.com

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