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FHA is changing certain guidelines in an effort to reduce losses. Some of the changes become effective with FHA case numbers issued on and after April 5. Here's what you need to know.

FHA Guidelines: Change Is Coming

The Federal Housing Administration (FHA) is changing some of its mortgage lending requirements effective with case numbers issued next week. Here are highlights of changing FHA guidelines and how they can impact your efforts to buy a home or refinance:

  • Upfront mortgage insurance premium (UFMIP) increasing: FHA charges borrowers mortgage insurance in two stages; the UFMIP is being increased from 1.75% of the base mortgage amount (before closing costs or mortgage insurance is rolled into the loan amount) to 2.25%. This means that the UFMIP for a $200,000 mortgage will increase from $3500. to $4500. The UFMIP can be paid at closing, but is typically rolled into the mortgage.
  • Potential increase to monthly mortgage insurance premiums (MMI): FHA is asking Congress to approve an increase in the MMI portion of mortgage insurance premiums paid by FHA borrowers. The thinking behind the change is to reduce the UFMIP and add to the MMI portion, which is pro-rated and added to monthly mortgage payments. The FHA needs to have the MMI limit raised before it can transfer any portion of the UFMIP to the MMI portion. How or if this change will occur has yet to be seen.
  • Reducing seller contributions from 6% to 3%: This change addresses concerns that FHA borrowers don't contribute enough cash to their mortgages, and brings FHA requirements into line with conventional lending requirements limiting sellers contributions to closing costs.
  • Minimum credit score required for 3.5% down: In response to concerns about its increasing default rate, FHA is requiring a credit score of 580 or more to qualify for the minimum down payment of 3.5%. Borrowers with lower credit scores must make a minimum down payment of 10%.

Although FHA-approved lenders use FHA guidelines as a starting point, they may also impose additional loan approval criteria, a practice known as "investor overlay." When shopping for an FHA home loan, getting multiple mortgage quotes is useful for comparing mortgage rates and loan terms.


Karen Lawson
Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.