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Last month FHA announced increase in mortgage insurance premium and prolonging cancellation of mortgage insurance (read the full report here). But looks like those steps are not enough to restore FHA’s reserve requirements as mandated by congress. FHA commissioner and government are proposing/considering several new proposals that would make qualifying for FHA loans tougher and costlier. Let’s look at some of these proposals:
- Down payment on loan amounts over $625,500 to be increased by 1.5%. From 3.5% it would be raised to 5%. FHA is also considering eliminating loan amounts over $625,500 altogether, thus capping the maximum loan limit to $625,500. This will impact borrowers in several California counties where the maximum FHA loan limit is over $625,500.
- Stricter underwriting guidelines for borrowers who have gone through foreclosure in last seven years. One of the requirements would be to increase the minimum downpayment to 20% for such borrowers.
- Impose a maximum debt-to-income ratio of 43% for borrowers with less than 620 credit. There are also talks of disqualifying borrowers with credit score less than 620. This will have very little impact since most of the lenders already have a minimum 640 credit score requirement.
- Stop lump-sum payouts for two years on FHA insured reverse mortgages, also called Home Equity Conversion Mortgage (HECM). So the borrowers who take a reverse mortgage will not be able to draw the full loan amount for two years.
All these changes combined with increase in mortgage insurance premium and prolonging MI payment for the life of the loan will make FHA loans very expensive. That could make conventional loans a more attractive option. But if for any reason, FHA loans are the only ones you can qualify for – it would make sense to get into one as soon as you can. If you need help with understanding your financing options and find out which one makes more sense, contact us.
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