Buyers and investors looking to purchase a property using FHA financing have some good news and bad news to consider. FHA commissioner David Stevens outlined the agency’s new policy guidelines last week. Included in his announcement were changes to “seller concession” ceilings and new FICO score related down payment requirements that went into effect immediately. Changes to the 90 day “anti-flipping rule” go into effect today. And finally, proposed changes to the “upfront” mortgage insurance premium and the “annual” mortgage insurance premium that are slated to go before Congress for approval shortly and should be in place no later than mid-year at the latest.
Here’s a synopsis of the changes to HUD’s guidelines:
- HUD is suspending its 90 day waiting period anti-flipping rule. Under the new guidelines, the process will require strict adherence to arms length transaction rules (no identity of interests between buyer and seller) and a 20% (general limit) in the increase in selling price. In addition, extensive documentation will be required to justify the improvements and their impact on the property’s new valuation. However, before investors start jumping for joy, they should be aware individual lenders have the right to set up their own more strict guidelines regarding “flips,” so all buyers should due their investigation and get approvals prior to writing a flipper contract.
- Seller concessions – contributions at settlement from the seller to the buyer to help cover loan fees and closing costs – have been lowered from a 6% ceiling to a 3% maximum of the purchase price.
- Borrowers with FICO scores below 580 will now have to make down payments of at least 10%. However, like with the anti-flipping rule above, lenders have the right to set their own stricter guidelines. The vast majority have a FICO score limit of 620 for FHA loans, so this guideline is not likely to have much of an impact at all.
- Under the proposed new guidance for mortgage insurance premiums, HUD is asking Congress to allow the upfront mortgage insurance premium to be raised to 2.25% from the current 1.75% of the loan amount. According to the FHA commissioner, this move is being done to try and help alleviate the FHA’s insurance fund capital reserves having fallen below its mandated 2% threshold. And, once FHA gets Congress’s okay, Stevens said he “expects to boost the annual premiums (currently 0.55%) and reduce the upfront insurance premiums. Accordingly, that will lower the cash borrowers need to bring to the table, and stretch out the higher premium charges over multiple years.”
A final bit of good news, especially for first time home buyers, is that FHA “will not” be raising its minimum cash down payment requirement to 5%. According to Commissioner Stevens, the current 3.5% down payment will remain the FHA standard.
While all this sounds good and may make for great headlines, we don’t see that it is going to have much of a real impact or change on the FHA loan marketplace at all.
Gulf Coast Associates, Realtors
Bonita Springs, Florida