Starting early this summer, the Federal Housing Administration (FHA) is tightening lending standards in an effort to bolster its dwindling reserves. The new lending standards will make it tougher for prospective FHA buyers to purchase a home by requiring a higher down payment than the typical 3.5 percent, higher insurance premiums and reduced seller concessions.
The new rules - which are temporary and take effect this summer - come after more than a year of stringent standards from lenders. Among them:
- New borrowers will have to have a minimum credit score of 580 to qualify for a 3.5 percent down payment. Those with lower scores will have to make at least a 10 percent down payment. The average credit score of FHA-insured borrowers is 693.
- Allowable seller concessions will be reduced from 6 percent to 3 percent of the sale price. The change is intended to discourage inflated appraisals.
- Buyers will have to pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount, up from 1.75 percent now. A $150,000 mortgage would require a payment of $3,375, or $750 more.
Another FHA rule change could help foreclosure-plagued markets in Florida and make it easier for investors to "flip" houses to buyers who use FHA-insured loans.
Effective Feb. 1, the federal government will waive for one year an FHA anti-flipping rule that prohibits insuring a mortgage on a home owned by the seller for less than 90 days.
The new rule lets investors buy today and re-sell as quickly as possible. The move is to allow REO homes purchased by investors to resell as quickly as possible, helping stabilize real estate prices and revitalize neighborhoods after the U.S. housing market collapse.
This new rule will open up a new pool of homes to buyers. Waiving the 90-day flip rule is being heralded by many real estate investors as a boon to their ability to buy, rehab and resell foreclosed homes on a more efficient time line.
Steve Eckhardt, Broker
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