FHA Loans Going Through Changes

Since stricter qualifications guidelines were imposed on conventional mortgages, more and more borrowers are qualifying for FHA loans. Likely as a result, the Federal Housing Administration decided to raise premiums for these popular government mortgages and additionally changed other qualifications.

Announced on January 30, the FHA’s new standards raise premiums by 10 basis points, or 0.1 percent of the total it insures. Jumbo FHA loans will additionally see premiums go up by five basis points, or 0.05 percent of the total insured. In short, a borrower with a 30-year, fixed-rate FHA loan with a five-percent or greater down payment will see premiums increase by 1.3 percent. Those making lower down payments will see premiums go up by 1.35 percent.

Premiums, the FHA additionally announced, will be required for the life of the loan. Previously, borrowers had the option to drop the premium once paying 78 percent of the outstanding balance.

Falling in line with the stricter Qualified Residential Mortgage rules, which are expected to go into effect in 2014, is more documentation for borrowers with lower credit scores. Making FHA loans easier to qualify for is lower credit; in fact, borrowers with scores as low as 500 can qualify, although higher down payments are expected. New changes, however, will require lenders to manually underwrite mortgages for such borrowers – anyone who has below a 620 credit score and a 43-percent debt-to-income ratio.

A date for the proposed changes to go into effect has not been announced. However, the rest of the qualifications for FHA loans are expected to remain the same. Borrowers interested in this loan should be steadily employed for at least two years; have a valid social security number; be a U.S. resident and of legal age to sign a mortgage; make at least a 3.5 percent down payment; have a 43 percent debt-to-income ratio; and be at least two years out of bankruptcy and three years away from foreclosure with solid credit history.

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