For decades, mortgages backed by the Federal Housing
Administration have made the “American Dream” possible for first-time home
buyers, low-to middle-income families and those with mediocre (or subpar)
credit scores.
But FHA loans — most popular for their low-down-payments —
have been getting more expensive in recent years, namely that pesky mortgage
insurance required of its borrowers.
Starting April 1 and again on June 3, those mortgage
insurance premiums will go up and FHA loans will be harder to qualify for.
Additionally, FHA borrowers will have to carry mortgage insurance for the life
of the loan — a drastic change from today’s rules that allow premiums to be
dropped once the loan is paid down by a certain amount.
The premium hikes and tighter qualifications will likely
push more borrowers to instead seek private lending — the very market in which
they may have already been turned away from, unable to meet its less-forgiving
demands.
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| New FHA regs will lock buyers out of the “American Dream” |
The one change that has many up-in-arms is the fact that,
starting June 3, an FHA borrower in most cases will be required to carry
mortgage insurance for the life of the loan. Today, borrowers can drop the
premiums when they’re outstanding loan balance reaches 78 percent of the
original loan amount.
Other coming changes for June 3 include a mandatory “manual”
underwriting — meaning when underwriters evaluate the loan file manually and
determine the borrower’s qualifications sans computer automation — for
borrowers with credit scores below 620 and a total household debt-to-income
ratio (percentage of one’s monthly gross income that goes toward paying debts)
of more than 43 percent.
