Thursday, February 21, 2013

FHA's New Regulations Will Hurt New Home Buyers


For decades, mortgages backed by the Federal Housing Administration have made the “American Dream” possible for first-time home buyers, low-to middle-income families and those with mediocre (or subpar) credit scores.

But FHA loans — most popular for their low-down-payments — have been getting more expensive in recent years, namely that pesky mortgage insurance required of its borrowers.

Starting April 1 and again on June 3, those mortgage insurance premiums will go up and FHA loans will be harder to qualify for. Additionally, FHA borrowers will have to carry mortgage insurance for the life of the loan — a drastic change from today’s rules that allow premiums to be dropped once the loan is paid down by a certain amount.

The premium hikes and tighter qualifications will likely push more borrowers to instead seek private lending — the very market in which they may have already been turned away from, unable to meet its less-forgiving demands.

New FHA regs will lock buyers out of the "American Dream"
The one change that has many up-in-arms is the fact that, starting June 3, an FHA borrower in most cases will be required to carry mortgage insurance for the life of the loan. Today, borrowers can drop the premiums when they’re outstanding loan balance reaches 78 percent of the original loan amount.

Other coming changes for June 3 include a mandatory “manual” underwriting — meaning when underwriters evaluate the loan file manually and determine the borrower’s qualifications sans computer automation — for borrowers with credit scores below 620 and a total household debt-to-income ratio (percentage of one’s monthly gross income that goes toward paying debts) of more than 43 percent.

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