Oct
06

New Rules for FHA Mortgage Loans

October 06, 2010

The FHA has made some changes that could affect Chicago home buyers.

The Federal Housing Administration, known as the FHA, provides mortgage insurance on loans made by FHA-approved lenders. It is the largest insurer of mortgages in the world.

FHA logoStarting October 4:

*Borrowers with a credit score below 500 will no longer be eligible for FHA-insured mortgage financing.

*Borrowers with credit scores between 500 and 579 will have to now put down 10 percent on their loans instead of the 3.5 percent that a credit score over 580 allows.

The FHA was created in 1934, a time when America was primarily full of renters. Only four in 10 households owned homes, it was difficult for home buyers to secure mortgages, and mortgage loan terms were limited to 50 percent of the home’s market value with a repayment schedule of three to five years.

In 1965, the FHA became a part of the Department of Housing and Urban Development (HUD). Together, FHA and HUD have insured more than 34 million home mortgages.

President Barack Obama signed a bill in August that gives HUD the flexibility to increase its mortgage insurance premiums.

*The annual mortgage insurance premium for FHA loans increases from .50 percent to 1.5 percent for mortgages with a loan-to-value (LTV) ratio of 95 percent or lower.

*For mortgages with a LTV greater than 95 percent, the annual premium increases from .55 to 1.55 percent.

“Although the law authorized HUD to go up to these amounts, HUD is not doing so at this time,” said HUD officials.

Good to know.

For more information on the FHA changes, call (800) CALLFHA (225-5342) or visit www.fha.com.

Categories: Mortgages
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