Changes to FHA Program

In an effort to shore up the Federal Housing Administration’s finances and avoid a government bailout, the agency announce some changes to the FHA-backed mortgage program. While the changes will result in some higher costs for home buyers, FHA mortgages remain one of the best options for many purchasers, especially first-time buyers who may not have stellar credit and/or a large cash reserve saved for a downpayment.

Changes include an increase to the upfront mortgage insurance premium, which is paid by the borrower when the loan is made, from 1.75 percent to 2.25 percent. For a loan of $100,000, the mortgage insurance premium would be $2,250, up from the current $1,750. The FHA also said it was cutting the amount of aid sellers could provide buyers (often referred to as “sellers concessions”) from 6 percent to 3 percent of the purchase price.

The FHA is raising its minimum credit score for a 3.5 percent down payment to 580 while scores below that level would be required to have 10 percent down. But most FHA lenders won’t lend to anyone below 620 so it’s unclear how many borrowers would really be affected by the down payment change.

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