The Smooth Loan Process #2010-07

Changes Coming to FHA Financing FHA financing for home loans has been the bright spot in the Real Estate market for the past few years. In 2005, less than one percent of the loans we closed were FHA. Today it's about 40 percent of the loans we close. This is due in part to the rise in FHA loan limits coupled with the decline in property values. In 2005, the FHA loan limit for Maricopa County, AZ was $273,500 but the median home price in my zip code was $350,000 (according to azcentral.com). Today, our County's FHA loan limit is $346,250 and the median home price is $275,000. That's a good combination for buyers. Another reason for the rise of FHA is the fall of the three Russian Sisters. SISA, NIVA and NINA. Stated Income Stated Assets, No Income Verified Asset and the biggest of the sisters, No Income No Asset. We'll talk about them in another episode. The increase in FHA loan volume also comes with an increase in problems for FHA so HUD is making changes to reduce their risk.

• -The Upfront MIP will increase from 1.75% to 2.25%. The upfront MIP is charged on every FHA loan. This is part of where HUD gets the money to pay claims to the banks that have FHA loans that have defaulted. The charge is a percentage of the loan amount and is usually financed back in to the loan. The Upfront MIP can vary depending on loan purpose and loan to value. A credit score requirement of 580 will be required. This is a big change for FHA but it kind of doesn't matter. Up to now, FHA had no minimum credit score requirement. In today's world, if the borrowers credit score is below 620, the loan would not have been approved anyway. Realistically, at least a 640 score is ideal. FHA borrower with less than 580 will be required to put 10% down. Again, FHA will allow it but finding a bank to fund that loan will be challenging.
• -Seller contributions for closing costs will reduce from 6% to 3% of the sales price.
• -FHA appraisals must be HVCC compliant beginning February 15, 2010. We'll no longer have direct contact with the appraiser. The appraisal will be ordered through a third party management company that will assign an appraiser to the transaction. The appraisal process will be completely independent of the Lenders and the Realtors. We're getting used to this on the Conventional side of things. The transition should not be too bad for FHA Except for the appraisals, these changes have not gone into affect yet but they are coming soon.

Overall, these changes are not too bad either. If we remember back several years, this is how FHA used to be. Who should take an FHA loan? The typical FHA borrower has some are all of these characteristics: -Down payment of less than 20% of the sales price -Getting help for down payment from family -Needs a co-signer to help with income -Limited or short credit history -Loan amounts less than $346,250 -Refinances with loan to value over 80% -Bankruptcy discharged more than two years or currently in Chapter 13 Bankruptcy.
The Smooth Loan Process lesson for today: FHA loans are good. Just be sure to keep up with the changes.

Harold Perkins
Galaxy Lending Group
602-595-1233
Harold@HaroldPerkins.com