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FHA Changes Rules for Buyers

Planning to get an FHA loan? Then you need to be aware of some upcoming changes that may make your FHA loan more costly.

In January, the Federal Housing Administration announced a set of policy changes intended to strengthen its capital reserves. While the changes help FHA better manage its risk, they also have the effect of making FHA mortgages more expensive. That may make it more difficult for some buyers to afford a home.

The announced changes are:

• Mortgage insurance premiums will be increased to 2.25%. This will go into effect in the spring.

• New borrowers will need a FICO score of 580 to qualify for FHA’s 3.5% down payment program. Borrowers with less than a 580 will have to put down at least 10%. This will go into effect in the early summer.

• Allowable seller concessions will be reduced from 6% to 3%, effective in the early summer.

“The FHA’s delinquency rate has been spiraling higher, and they’re trying to take some steps to tighten qualifying standards,” says Mike Larson, a real estate analyst with Weiss Research. “For a buyer at the margin, it will make it tougher to qualify for an FHA loan. You may have to have a better credit score or come up with more money.”

Since FHA loans are particularly popular with first-time buyers due to their low down payment, buyers need to be acutely aware of these impending changes and take appropriate steps to ensure they will qualify.

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