January 8, 2010


FHA “proposed” changes:

HUD is about to make major changes when it comes to the reforms HUD Secretary Donovan has proposed in order to shore up the losses HUD has taken over the past few years.

The changes are dramatic and will directly impact the way homes will be financed. These changes are not yet official so take this information as a warning of what might come.

1.) Raise downpayment from 3.5% currently to 5%

2.) Reduce seller contribution from 6% to 3%

3.) Raise FICO credit scores up to possibly a 680 floor.

4.) Raise up-front MIP from 1.75% currently to 2.25%

5.) Raise annual premiums from .55% currently to .75%

In addition to these program changes, HUD is also leveling their guns at “mom and pop” mortgage shops. They will be doing away with correspondent lending entirely. In short, the lender who orders the FHA case number will have to be the lender who closes the deal. Currently, HUD has 13,800 approved lenders. After these changes there will probably be under 1000 left standing. You may not notice a difference since most of your favorite local lenders are probably on this short list but virtually all of the basement mortgage operations will be history.

To see what this will look like, let’s take a scenario where a first time homebuyer is purchasing a $100K home. Their cash to close will increase by $1500.00 to $2000.00 depending on what their closing costs are due to the increased down payment and capped sellers contributions. Their payment will rise by around $10.00 due to the monthly MIP increase. The big issue will be getting potential homebuyers to start saving their pennies and work on their credit. These weren’t priorities in the days of Nehemiah and 580 credit scores. But it’s a priority now!

As with everything, this too shall pass. Some of these proposed changes will eventually go away while some may stick around for the long term. The additional MIP proposals are designed to inject money quickly into FHA’s coffers. These will be the first to go away. The credit scores may ease off once the market shows sure signs of stabilizing. But as we will soon find out, nothing is ever going to be the same. Remember: Luck Favors The Prepared!

Reprinted with permission from:
Dan Aiken
Sr Loan Officer
SunTrust Mortgage, Inc.
770-683-5381
Cell 404-791-3492
dan.aiken@suntrust.com

My suggestion is to start the loan process EARLY and work with a loan officer to improve your credit score. This can take 90 days or more. Also save as much as possible.
You will always need cash to close.