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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