FHA Tightens up loan costs--even though $8000 tax credit still in place

Yes the $8,000 tax credit is still in place but look closely at the details.
KEEP THIS IN MIND
• The FHA is federally mandated to maintain reserve funds at 2 percent or greater. As of November,
the agency reported that its fund had declined to .53 percent. The funding is used to cover losses on
mortgages insured by the FHA that go into default.
• Loans insured by the FHA generally are less expensive to borrowers because of the lower down
payment requirements. However, these loans also have fees, such as up-front mortgage insurance.
To help the agency raise its cash reserves, the FHA is increasing the up-front mortgage insurance
premium from its current 1.75 percent to 2.25 percent. HUD released a Mortgagee Letter today
making the premium increase effective in the spring.
• The agency also is raising the minimum credit score requirements. Currently, borrowers with FICO
scores as low as 500 have been approved for FHA-insured loans. Under the policy changes, new
borrowers will be required to have a minimum FICO score of 580 to qualify for the FHA’s 3.5 percent
down payment program. New borrowers with less than a 580 FICO score will be required to put down
at least 10 percent. FHA expects this to take effect in early summer once it passes the normal
regulatory process.
• The new policy also will reduce the amount of money sellers can provide to home buyers at closing to
3 percent, down from its current 6 percent, of the home’s price. The change brings the agency in line
with industry standards and removes the incentive to inflate appraisals. The FHA expects this to take
effect in early summer after it passes the normal regulatory process source cnn money and fha web site.