New FHA Guidelines Will Make Loans More Costly

Securing an FHA mortgage is about to get more expensive when buying a home in indianapolis. In a statement issued Wednesday, the Federal Housing Authority outlined policy changes to its mortgage assistance program. The shift is meant to both reduce the government group’s portfolio risk while strengthening its overall financials. FHA has announced new guidelines for financing to be in effect this spring. In an effort to beef up the reserves for FHA, new costs will be associated with an FHA loan.

• For homebuyers with a credit score less than 580, the minimum downpayment will be 10%. For credit scores above 580, the downpayment is still 3.5%
• Upfront mortgage insurance premiums will be increased from 1.75% to 2.25% for all FHA borrowers.
• Seller concessions will be capped at 3%, instead of 6%. Withe the premium increasing and seller concessions reduced, buyers will need to bring some money to the closing table.

Furthermore, FHA has appealed Congress to raise an FHA borrowers’ monthly mortgage insurance premiums. To read the FHA’s statement, it’s clear what the group is trying to balance.  On one side, the FHA wants to provide affordable financing to families that need it.

That’s its mission statement.

On the other side, though, the FHA must manage the risk that comes with insuring lesser-quality loans. To that end, FHA is stepping up its enforcement of “bad lenders” in hopes of stopping problems where they start. Also in its new policies, the FHA is introducing a “termination clause”. If banks or loan officers that produce more than their fair share of bad loans, they lose their right to originate FHA mortgages. The changes will effect the initial cost of all FHA financed homes and will be costlier for those with a lower credit score.

We'll keep you posted of the effective date. Until then, the old rules are in effect. If you plan on buying an Indianapolis home this year, now may be the time to consider your options.