New rules for FHA loans in 2010

If you want to buy yourself a home on loan and think you cannot get conventional mortgage loans, you can opt to take out an FHA mortgage. Prior to applying to get an FHA home loan, you should know some new rules that have been applied in the year 2010.

New changes for FHA loans

  • After April 5, 2010, there has been a substantial increase in the upfront insurance premium for FHA mortgage loans. The new premium percentage has increased from 1.75% to 2.25%. For every $100,000, you have borrowed; you need to pay an additional fee of $500 towards closing costs or you can pay a total of $2,250. The amount will become double if the loan amount taken by you is $200,000.

    • Another important change in FHA loan is that, the seller contribution percentage has been cut down to half from 6% to 3%. It means that the seller can at maximum contribute 3% of the total loan amount towards closing costs, assessments and other fees related to home buying process. The seller can either contribute 3% of the total amount or $3,000 per $100,000 of purchase price.

  • Due to the recession of 2007, the subprime mortgage market has collapsed. As a result, the lenders are not willing to give loans if you have a poor credit score. So, more people are opting for FHA loans, as it will still make you eligible for a loan by putting a low percentage of down payment and with poor credit score. If you want to take advantage of 3.5% down payment, the minimum credit score you need to have is 580. However, the minimum score required varies from lender to lender and many may demand your minimum score, to get eligible for the loan is 620.

    • In comparison to the traditional loans, though the loans insured by FHA need minimum down payment percentage, the interest rate remains more or less same. But, for an FHA loan insurance premium you have to pay more upfront charges. You will also need to pay an additional annual insurance premium that will be equivalent to 0.55% of the outstanding loan balance. But, if you can make a down payment of 10% for a 15-year mortgage or 20% or more for a 30-year loan, you do not need to pay for the extra annual insurance. However, if make regular monthly payments and your loan-to-value ratio exceeds 78%, you do not have to pay for this insurance.

    You should keep in mind that, though the FHA has set some minimum protocol to get eligible for mortgage loans, the criteria may vary from one lender to another. If, your loan application gets rejected by one lender, you should not lose heart and apply to other ones, to get the loan required by you and proceed towards buying your dream home.

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