New FHA Guidelines: Tightening the Belt

Before the market bust, it seemed that just about anybody could qualify for a home loan. Young couples and the like were realizing the American dream sooner than they ever thought possible. All they had to do was get an FHA loan on their home. Well starting next Wednesday, Uncle Sam is not going to be so welcoming.

To give you a little background, 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 backstopping the banks and the result was a severe drop in its reserve fund. Now, they have no choice but to tighten their belts to get themselves back on track...

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.

These restrictions are not as bad as they sound, nor are they necessarily a bad thing. They are more of a wake up call for future homeowners to be financially responsible. Of course the FHA still wants to help buyers with financing and buying homes - they are just taking a closer look at the lender's ability to repay their debt. This shouldn't affect people's desire to want to purchase their first home and keep believing in that American dream. I would be more than happy to offer my advice and help keep that dream alive.

If you're curious about Loudoun County's lending limits, take a look at the FHA's requirements for Virginia. If you have any questions about how this may affect you, please give me a call.

Helena Talbot
Broker/Owner
Exit Realty Talbot and Company 

Phone: 703-574-3800

Email: Helena@mris.com
www.loudouncountyonline.com

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