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During the housing boom you could get an FHA loan with a FICO score below 500. The government has been steadily raising the limit since mortgage lending has contracted.

The cost to you: Higher mortgage insurance premiums will increase your monthly payments. And if you're not allowed to finance the upfront insurance premium, you'll have to produce the entire amount in cash at closing. (Your monthly payments would drop a bit, though, if you couldn't roll the lump sum into your loan.)

An increase appears certain on at least the monthly charges, based on recent remarks to Congress by Housing and Urban Development Secretary Shaun Donovan.

The cost to you: Some in Congress want to raise the minimum down payment on an FHA-backed loan to 5% of the purchase price. That means you'd have to come up with $12,500 to buy a $250,000 home -- $3,750 more cash than today. (Read "The end of the 0% down payment" and "How to come up with a down payment" to learn how down payments work.)

Sellers sometimes agree to help pay a buyer's closing costs. It's a way to help a cash-poor buyer make a purchase. Currently, the FHA lets sellers contribute as much as 6% of the house price. The administration is considering reducing that to 3%.

 

Donovan told Congress that the administration intends to raise the minimum FHA requirement "for the time being" to weed out risky borrowers. He didn't say by how much. Speculation ranges from 620 to 640. It's possible that the new requirements will be multilayered, letting borrowers balance a lower credit score with, say, a bigger down payment.

 Why the FHA mortgage insurance exists

That's likely to increase, too. The idea would be to raise a borrower's stake in the investment, reducing the chances you'd default.

FHA Mortgage applicants pay two kinds of premiums for FHA mortgage insurance: an upfront lump sum that's due when the loan closes (currently 1.75% and usually rolled into the loan amount and financed) and monthly payments (0.5% or 0.55% of the loan amount, depending on your down payment).

Raising FHA's minimum score changes the playing field, says Stern. While private lenders usually do require higher credit scores, they can drop their limits quickly when lending safety has improved. A higher minimum FHA requirement means lost flexibility for retail lenders and their homebuying customers.

The cost to you: Buyers with FICO scores under the new minimum, be it 620 or 640, will be shut out of loans. The rules probably will become more rigid than they are today.

The FHA agency was created during the Depression to put builders and contractors back to work, keep the mortgage industry going and help keep homeownership affordable.

Here are the changes being discussed and what they could mean to FHA mortgage applicants:

Other FHA Mortgage loan Advantages Include:

 

The details will be revealed in late January. But this much already is clear: FHA Mortgage applicants will need higher credit scores and more cash at closing to get the lower interest rates and cheaper insurance of FHA mortgage loans and refinanced loans.

 

3. FHA LOW FICO  Scores

To cure the FHA insurance deficit President Barack Obama's administration has announced it will tighten the FHA Loan requirements, making four changes that will hit consumers making it tougher to qualify:

Another big attraction of FHA loans is the low down payment requirement. You can get into an FHA-insured mortgage with as little as 3.5% down -- that's $8,750 on a $250,000 home.

"Of all these things, that will have the biggest impact, because there are so many borrowers who fall below the 620 score," says Dale Vermillion, author of "Navigating the Mortgage Maze: The Simple Truth About Financing Your Home." "Today, a lot of people have had credit issues, and their credit scores have gone down. When you combine the two (insurance and down-payment increases), it's certainly going to have an impact on purchases." (If your credit score is low, see "Raise your credit score to 740.")

The cost to you: Probably nothing. In practice, a reduction to 3% probably won't matter to most FHA buyers, at least today, Bergman says. Closing costs are based in part on loan amounts and interest rates, and they were considerably higher several years ago, when home prices and interest rates were higher. Today, closing costs average just $2,732 nationally on a $200,000 loan (they vary from state to state), according to a study by Bankrate.com.

2. FHA Down payment

 The history of the FHA

'Still the best mortgage for Florida homebuyers out there'

If you were buying a home for $210,000, borrowing $200,000 and your closing costs were $4,000, currently the seller could pay up to $12,600 (6% of the home's price) toward your closing costs -- more than enough to cover the whole bill. If the seller's allowed "concession," as it's called, dropped to 3%, your seller could pitch in up to $6,300 -- still plenty.

Lowest costing FHA home loan.

As the housing bubble expanded, FHA mortgage loans took a back seat to cheap, quick, subprime loans, dropping to about 4% of market share in 2005 through 2007 for new mortgages and refinances combined. But once subprime products disappeared in the housing collapse, the FHA mortgage market share grew, to 21% in September 2009.

 The history of the FHA mortgage

1. FHA Mortgage insurance premiums

 

Stern says that financing option is "one of the primary benefits of FHA."

When mortgages became hard to get a couple of years ago, the FHA "helped when no one else would, when everyone else buried their head in the sand"It's fair to say the very survival of the housing sector in 2007-08 is thanks to FHA."

Here's what you'd pay now in FHA mortgage insurance premiums on a $250,000 loan:

FHA mortgage loans are about to become more expensive and harder to get for Florida FHA loan applicants.

Easier Debt Ratio & Job Requirement Guidelines such as:

The rules are changing because the Federal Housing Administration is in a financial hole. It's been paying out more to cover defaulted FHA mortgage loans than it's taking in from mortgage-insurance premiums. The imbalance has drained agency reserves to 1.5% of the FHA mortgages  it covers -- below the 2% level required by law.

Easier Credit Qualifying Guidelines such as:

4. HomeSeller contributions to closing costs

Today, you need a minimum 600 FICO score to qualify for an FHA-backed loan. (Get a free credit score estimate here.) For many borrowers, that's not really an issue, because their lenders require even higher scores. But a few lenders resell their loans directly to the FHA, not to loan aggregators or other banks. These lenders, for a price, will lend to borrowers with the FHA minimum FICO score, which means that today it's still possible to get an FHA-insured loan with a FICO score of 600. That's about to end.

Minimal Down Payment and Closing Costs.

There's also speculation, says Lenders One's Stern, that the FHA might require the upfront fee to be paid in cash and close off the option of rolling it into the loan.

Coming soon to FHA-mortgage loans will require Higher FICO scores and more cash at closing. The changes are needed to help keep the agency afloat.

But, FHA still has the lowest down payment in the industry, still has unbelievably low interest rates and still is doing fixed-rate 30-year amortization mortgages. It's still the best mortgage loan out there.

Taken together, the upcoming changes will make buying a Florida home harder for individual consumers, no question about it. And the FHA administration says it intends to back out of its expanded role once FHA mortgage lenders start making more loans again.

"Three percent is what conventional loans allow, industrywide," says Chad Bergman, a mortgage banker with Frost Mortgage in Littleton, Colo.

 Serving These Fine Florida Communities:

Arcadia :: Boca Raton :: Boynton Beach :: Bradenton :: Brandon :: Cape Coral :: Clearwater :: Clewiston
Crestview :: Daytona Beach :: Deerfield Beach :: Deland :: Delray Beach :: Deltona :: Destin :: Englewood
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Volusia :: Wakulla :: Walton :: Washington

FHA mortgage insurance doesn't make loans; it insures them. Anytime a mortgage applicants has  a down payment smaller than 20%, lenders require mortgage insurance. FHA's mortgage insurance is low-cost, and the agency will insure borrowers that private industry often won't touch. Essentially, FHA mortgage insurance lets borrowers -- especially first-time homebuyers -- get homes with low down payments.  

Have home prices hit bottom? (The Sarasota Herald-Tribune)
By MICHAEL BRAGA Market watchers are seeing signs that the decline that began more than four years ago is ending.

Real estate briefs (Naples Daily News)
Real estate briefs

Region's housing sales up (The Sarasota Herald-Tribune)
BY TOM BAYLES and AARON KESSLER Staff Writers Prices dip again but show signs of stabilizing, analysts say

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