Best to buy before new FHA guidelines take effect

Starting in early summer, the Federal Housing Administration  is tightening lending standards in an effort to bolster its dwindling reserves.  The new lending standards will make it tougher for some prospective buyers to  purchase a home by requiring a higher down payment than the typical 3.5 percent  for some borrowers, higher insurance premiums and reduced seller concessions.

Securing FHA-insured mortgages are attractive to borrowers  because down payments are only 3.5 percent. Most conventional loans now require  20 percent down, keeping many creditworthy borrowers on the sidelines.

New Guidelines
The new rules — which are temporary and take effect this  summer — come after more than a year of stringent standards from lenders. Among  them: 

  • Better  Credit Scores — New borrowers will have to have a minimum credit score of  580 to qualify for a 3.5 percent down payment. Previously, there was no minimum  score. Those with lower scores will have to make at least a 10 percent down  payment. The average credit score of FHA-insured borrowers is 693.

  • Higher  Insurance Premiums — Buyers who get an FHA-insured loan will soon have to  pay a higher initial insurance premium. The new premium will be 2.25 percent of  the value of total loan amount, up from 1.75 percent now. A $100,000 mortgage  would require a payment of $2,250, or $500 more. But buyers can roll the added  cost into the loan amount.

  • Reduction  in Seller Concessions — Starting this summer, sellers will not be able to  offer as much help to buyers to pay their closing costs. The maximum amount of  assistance will drop to 3 percent of the value of the property, from the  current 6 percent.

FHA removes  anti-flipping rules
Another FHA rule change could help  foreclosure-plagued markets like Las Vegas, Phoenix, Miami, Detroit and Los    Angeles, making it easier for investors to “flip”  houses to buyers who use FHA-insured loans.

Effective Feb. 1, the federal  government will waive for one year an FHA anti-flipping rule that prohibits  insuring a mortgage on a home owned by the seller for less than 90 days.

The new rule lets investors buy  today and re-sell as quickly as possible. The move is to allow REO homes  purchased by investors to resell as quickly as possible, helping stabilize real  estate prices and revitalize neighborhoods after the U.S. housing market collapse.

This new rule will open up a new  pool of homes to buyers. Waiving the 90-day flip rule is being heralded by many  real estate investors as a boon to their ability to buy, rehab and resell  foreclosed homes on a more efficient time line.

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