FHA Guideline Updates

Posted on November 19, 2008. Filed under: Guidelines | Tags: , , , |


fha-mortgage-insurance-update-picture1FHA backed mortgages have some important guideline changes for 2009 that realtors, lenders and consumers need know.  Recently released changes to the 2009 loan limits (625,650 for “high cost” areas) are getting all the press but it is the subtle down payment rules that need publicity.  The changes require more out of pocket cash if using an FHA backed mortgage to purchase a home.

Old FHA guildelines required 3% (it actually worked out to be 2.25% in high cost areas such as DC).  So the borrower needed to verify that at least 3% of their own funds were in the transaction.    The new guidelines for 2009 have increased to 3.5%.  So in a high cost area (old 2.5%), purchasing a home worth $300,000, the amount of cash required by the purchaser went up by $3750 (from $6750 to $10,500).   The new guidelines discard “high cost” consideration so 3.5% is uniform across the country.  Another change that could add to the net out of pocket relates to closing cost.  Closing cost is no longer considered as an acceptable use of funds to satisfy the 3.5%.  Borrowers must now put 3.5% as a down payment PLUS cover closing cost (unless the seller or other acceptable party agrees to pay).  New FHA guidelines that relate to FHA refinancing have not yet been released.

The lesson – make sure borrowers that struggle with funds have at least enough money to cover 3.5% of the negotiated sale price.  Also be aware of the closing cost requirement and make sure closing cost contributions are negotiated as part of the contract price (fairly standard, but less so on foreclosures because the entire transaction is so price sensitive).   

Please contact me with any questions and check back here for updates to guidelines.

michael.pfeffer@pncmortgage.com

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