In an attempt to balance risk and still helping first time home buyers in today’s real estate market the Federal Housing Administration (FHA) announced a set of policy changes to reduce some risk and to strengthen the FHA’s capital reserves, while enabling the agency to continue to fulfill its mission to provide access to home ownership.

The three big changes are:

1.  Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending
   1. The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.
   2. This has already gone into effect.
2.  Update the combination of FICO scores and down payments for new borrowers.
   1. New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
   2. This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
   3. This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.
3. Reduce allowable seller concessions from 6% to 3%
   1. The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
   2. This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

Even with these changes FHA will remain a fantastic loan option for first time home buyers.  The program allows “gift funds” from family, friends &/or employers.  It also allows participation in state  home buyer assistance programs.

Keep in mind that FHA is only one option for home buyers.  If you are thinking of buying a home talk with a knowledgeable real estate professional and a local lender to explore your options and be sure it makes sense for you.

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