FHA Loans Projected to Tighten Up

CA house1 Heads Up to home owners seeking the low down payment FHA loan: the longer you wait, the more difficult it gets.

FHA loans have been popular with first-time home buyers who need a low down payment. FHA requires only 3.5 percent down rather than 5 percent down for a conventional loan.

FHA loans are also popular for folks who don’t have a 740+ credit score preferred for a conventional loan, but who still want the same low interest rate.

But beware, the FHA guidelines are slated to tighten up.

New, Stricter Requirements for an FHA Loan

Senator Bob Corker, R-Tenn, has asked the commissioner to impose stricter rules for FHA, as follows:

1) Higher credit score requirement.

Minimum middle credit score of 620. Currently, some lenders will go down to 580 or even lower, but charge a higher interest rate for the additional risk.

2) Longer wait for people who had a foreclosure in the past.

A down payment requirement of 20 percent for those who had a foreclosure within the past seven years. Currently, many lenders allow 3.5 percent down with a wait period of four years after a foreclosure, if there were extenuating circumstances.

3) Lower loan limit.

Drop to $625,500 maximum loan. Currently, the limit is $729,259 in areas of the U.S. where the median value of homes is higher.

What Will Happen

We don’t know what changes the Senate will pass, but we can count on negotiations over these issues; and most likely, a tightening of requirements for the FHA loan. Senate Banking Committee Chairman Tim Johnson prefers to pass a bill by unanimous consent. So if you have an opinion about these issues, it would be wise to contact your state Senate representative now. And if you know someone who is a candidate for an FHA loan this year, you might want to pass this information on to them, as well.

Loan Limits For Conventional Loans

CA house1Good news for people buying a home in an area where home prices are typically higher than the national average:

Fannie Mae and Freddie Mac have announced they will continue the higher loan limits through 2013. Fannie and Freddie are government-owned companies that provide money to banks and mortgage lenders. Accordingly, they set certain rules and guidelines, such as the maximum loan amounts.

Loan Limits are as follows:

$417,000: Maximum loan in areas that do not have a median home price higher than average.

$625,500: Maximum loan in the most costly counties of the country.

By contrast, FHA offers a higher max. loan for the most costly counties: $729,750. Last year, Congress raised FHA loan limits after being urged by the real estate industry to do so.

$506,000: Maximum loan for higher priced counties (King, Pierce, Snohomish) in WA state where I reside.

To find out what the limit is in your county, contact your local loan officer. If you know you’re not in a high-priced area, then you can count on $417,000 as the limit for a conventional loan.

For borrowers who require a larger loan, there are jumbo loan programs available. Typically, these require a higher interest rate and possibly a larger down payment. Pricing and guidelines vary.