Low Credit Scores Force Change in FHA Backing Provisions

Individuals who favor FHA loans over mortgages issued by private lenders should brace themselves for paying a bit more. Senate just passed a vote allowing the Federal Housing Administration (FHA) to increase the fees associated with the guaranteed backed loans. President Obama must first sign the legislation before it can go into effect.

The move is being made to help offset some of the deficits created by the problems in the real estate industry. The approval should help the FHA generate a $3.6 billion per year revenue stream. Although the FHA does not make loans, the agency does provide insurance against default on those mortgages.

Traditionally, those interested in purchasing a home were required to put down a substantial deposit of 20 percent. However, consumers who opted for FHA backed Home Loans Houston Texas instead were able to cut that number down to a more manageable 3 percent down payment. Two fees need to be paid to qualify for the privilege of a FHA loan, a loan original fee and an annual fee. The additional monies due are usually absorbed into the overall mortgage expenses.

Currently the annual fees due are.55 percent of the total loan. The new legislation will allow that limit to be raised to a maximum limit 1.55 percent, although, according to the  it is expected that the initial increase will be a more conservative.9 percent.

Some other changes to the FHA loan process made in direct correlation to the mortgage meltdown include:

The FHA is increasing the fees associated with the mortgage insurance premiums. An increase by about half a percentage point has raised the origination fee to 2.25. Currently the agency now wants to lower that rate to 1 percent.

Larger down payments may become the new norm for FHA loans. First time mortgage applicants with Fair Isaac Corporation (FICO) scores of 580 or less will be required to put down a minimum of 10 percent to get a FHA backed loan. Prior to the change the average down payment amount was 3.5 percent.

The new changes also reduce the amount of ‘concessions” a seller can tempt a buyer with. That percentage has been reduced from 6 percent to 3 percent of the total home purchase price.

The FHA has a history tracing back to the National Housing Act of 1934. The Act was created as a way to help correct the economy after the Great Depression made the national economy crumble. At that time, the role of the FHA was The FHA to calculated property appraisal value. The system was made up of eight criteria including “Relative Economic Stability,” and “Protection from adverse influences.” The FHA became a division of the Department of Housing and Urban Development in 1965.

Since the being the FHA has helped more than 34 million become property owners. It has been the continued evolution of the FHA that has allowed the country to change from a society of renters to homeowners. Prior to the conversion, only four out of every 10 households owned their homes.

Historically speaking, FHA loans have been some of the easiest types of mortgage lender san antonio for consumers to get. Since the loans have government-backed insurance, there is more flexibility for those with less-than-perfect credit ratings. However, these types of mortgages may not work for everyone as they may not provide enough money to finance the purchase of a property and the ongoing payments can actually cost more than private mortgage insurance. If you are interested in financing the purchase of your home with either an FHA loan or a private lender mortgage, it is important to do a comparison first to ensure you get the best value for your home buying buck.