Before the conventional mortgage loan market collapsed, approximately 10% of home buyers utilized FHA financing. Conventional loans were king. Borrowers who had less than perfect credit and little money down could utilize the FHA programs to purchase a home. FHA required 3 percent down and the seller could contribute up to 6 percent in seller paid closing costs. A buyer who purchased a $200,000 home with the seller paying 6% in seller paid closing costs needed only $6,000 in down payment and about $1,000 in additional cash to cover buyer paid closing costs.
Today approximately 41% of all loans originated by mortgage banks are issued and insured by FHA. The reason for the sudden use of FHA insured loans is due to the stringent conventional mortgage guidelines and lack of insurability of conventional loans where the buyer does not have 20% for down payment. Today a buyer who wants to use a conventional loan to purchase a home needs a 680 credit score and the combined housing and credit debt ratio cannot exceed 41 percent of the buyers gross income.
FHA will in some instances allow a higher debt ratio if the borrower has good quality risk factors such as great credit, cash reserves in the bank and job stability. FHA now requires borrowers to be on their current job at least 6 months.
Due to the number of defaults on loans in the past year FHA loans are changing. Today FHA requires only 3.5% down however this will be changing. FHA will require 5% to 10% down when utilizing an FHA loan. They are taking away the ability for a seller to contribute 6% to assist the buyer to pay closing costs. The seller will be able to contribute up to 3.5%, the same as a conventional loan. Also the upfront mortgage premium is going to be increased from 1.75% to 2.25%.
If you are a home buyer and utilizing FHA now is the time to purchase that home before these changes go into effect! Remember you must be under contract by April 30, 2010 and settle by June 30th, 2010 to also take advantage of the tax credit!
Ryan Collins
Lone Star Financing
13812 N Hwy 183, Ste B4
Austin, TX 78750
Phone – 800-585-6886
