Changes are taking place in the mortgage lending arena with FHA loans
Shared by: arnold2
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.