Local community and real estate information for Cheshire CT by your Cheshire Real Estate Experts, Sally Bowman Real Estate

FHA Update: A Quick Lesson

Monday, February 01, 2010

by Sally Bowman Real Estate

You may have been hearing a lot about the FHA guideline changes. "The standards are tightening!" or "Hurry up and get your condo before the FHA changes the game!" If you're new to buying a home, you may not know exactly what FHA is all about to begin with. Here is a little background for the newbies...

FHA loans were created long before subprime loans became widely available to help borrowers who couldn't get conventional home loans because they had low credit scores or limited resources. As you can imagine, this type of loan became very popular for a lot of people who never thought they would be eligible to be a homeowner. After the market bust, those new homeowners were unable to pay their mortgages, the FHA was responsible for paying the banks and the result was a severe drop in its reserve fund.

The FHA now has no choice but to make changes to their rules and regulations to improve their financial position.

The new guidelines for FHA backed mortgages require:

Higher insurance premiums. Mortgage insurance costs under the new guidelines have been increased from 1.75 to 2.25 percent of the loan.

A minimum credit score of 580 to obtain a 3.5% down payment. Borrowers with a lower score will be required to put down at least 10 percent.

A reduction on how much the seller can help the buyer, from 6 percent to 3 percent. This change will give borrowers a greater financial stake in their home purchases.

If you're curious about Cheshire's lending limits, take a look at the FHA's requirements for Connecticut. If you have any questions about how this may affect you, please email me at Sally.Bowman@gmail.com.

These changes should not dramatically affect a new homeowner's chances of getting a loan. The changes are just a step in the right direction in order for the housing market to get back on track. If anything, it will force homeowners to be more financially responsible and help the FHA continue to offer affordable mortgages to new homeowners who need them.

Don't let it deter you from investing in one of the most rewarding purchases you will ever make. I am always here if you have any questions about the FHA guidelines, or even just a general question about Cheshire Real Estate. Keep that American dream alive.