Changes are taking place in the mortgage lending arena with FHA loans

							Changes are taking place in the mortgage lending arena with FHA loans.
The FHA loans have become the “go to” loan program in the last year, since
the demise of the sub-prime loans. This is because FHA still offers no cash
out of pocket financing with down payment assistance and also because
FHA is still very flexible where credit issues are concerned. Pricing on FHA
loans are low and until July 14, 2008, the Mortgage Insurance Premium
(MIP) will be low. As of July 14th, FHA will assess MIP to a borrower
based on the quality of his credit and amount of down payment. Personally, I
regret HUD will be taking this route, but they have chosen to do so. More
than ever a borrower’s credit score is critical to the pricing and interest rate
offered. All lenders providing FHA loans will have this mandate. Certainly
it is not a terrible scenario, but it does mean those with lower credit scores
must pay higher premiums. The good news is for borrowers with good
credit, but there is not a significant difference in the MIP assessment, either
way.
    Congress is as of this writing still trying to hammer out a plan as to
whether or not FHA down payment assistance will continue. For months we
have been hearing the DPA programs are going away, but this still is
undecided. As someone working daily with homebuyers, I really hope it
stays in place. Proponents of DPA see that it is wonderful for those trying to
buy a home, especially their first home. Others feel DPA causes risk to the
marketplace resulting in foreclosure. I’ve seen foreclosures happen to those
with 10% down, so just because a borrower has zero money invested does
not mean he will walk from his obligation. In fact, the vast majority of my
borrowers use the FHA down payment assistance program and few have
ended in foreclosure. The sub-prime loans resulted in most of the
foreclosures nationwide though many of my own borrowers on sub-prime
loans have done quite well as homeowners.
    FHA loans are here to stay and they are going to be the mainstay of the
residential lending industry for the foreseeable future. Some lenders have
instituted a policy of no loan approvals for borrowers with credit scores
under 580. Many lenders will turn away an applicant who is not approved
through the automated underwriting software. So far, many of us well
versed in FHA loans are still approving and closing those with middle credit
scores in the low 500s. Anyone planning for a home would be wise to
prepare in advance for financing before shopping for a home. There have
been changes in financing, but still, the market is good and it is a great time
to buy a home.