With new regulations about to take effect, what are the changes in store for the new buyer?  There are four primary changes that a prospective buyer should be aware of:

1.       Increased MIP

2.       Higher FICO scores

3.       Down payment requirements

4.       Seller contributions

The FHA mortgage has been the last safety net for borrowers for many years.  Those with limited income, high debt to income ratios and low down payments have been aided by this government backed loan program.  It, like everything else, has been severely tapped by mortgage deficiencies.  Through the collection of MIP (Mortgage Insurance Premium), it has been able to lend money where other conventional lenders were reluctant or unable to do so.  In an effort to boost their self-insured insurance program, the premium set at 1.75% of the borrowed amount will increase to 2.25%.  While seemingly insignificant, it means more ‘out-of-pocket’ money for the buyer.

Defaulting FHA mortgages are the primary reason for the increase in the FICO score –commonly referred to as “credit score”.  New borrowers with less than a 580 FICO score will now be required to have a 10% down payment whereas those with a hearty, healthy FICO score exceeding this amount will still be allowed to qualify with a 3.5% down payment. 

In many new sales transactions, it has been customary to have the Seller contribute closing costs in the form of a dollar amount credit that has been included and factored into the offer price.  By virtue of this additional amount, it has tended to inflate the sales prices of homes whereas the lower, unsubsidized amount would have been reported.  Some believe that this inflation has actually been partially to blame for escalating prices—something all of us have a vested interest in curbing.   Seller contributions will now be limited to 3% of the sales price whereas the current allowance is 6%.  Seller contributions have been an enormous help to bridge the gap that exists when a buyer has either a down payment or closing costs but not both. 

There is no doubt that these changes will limit the ability of some consumers to qualify for a mortgage.  At the current time, the date when these regulations will change has not been formally announced but will occur in the immediate future.  If think you might be one of those affected by these changes, consult us at Goodwin Realty Group so we can assist you in the process and perhaps speed up your purchase to save you money under the current requirements.  

GoodwinRealtyGroup.com