Many changes being proposed for FHA home mortgages in San Diego
It won’t come as much surprise that the majority of lower priced home sales in San Diego County are FHA loans. Lower prices, combined with low interest rates and tax incentitives have brought out those first time buyers that thought they would never be able to afford a home in San Diego.
The Federal Housing Authority (FHA) is proposing raising minimum credit scores for borrowers that receive FHA backed mortgages, increasing down payment requirements, and limiting the amount of money that a seller can credit a buyer towards closing costs. These proposed changes are in reaction to the increasing defaults in its mortgage insurance program.
FHA does not actually make any mortgage loans, they just guarantee lenders against default. Currently FHA guarantees approximately 30 percents of all homes loans and 20 percent of refinances. FHA has historically resisted making any changes to the existing program because they don’t want to be shutting out qualified buyers. According to an article on Voice of San Diego that number is even higher in San Diego at 38.3 percent in October according to MDA-Data Quick.
Changes like requiring the buyer to bring more money in for a downpayment will make them less likely to default. Currently, buyer’s need to bring in around 3.5 percent. One lawmaker is proposing raising that to 5%. Other proposed changes would require the buyer to bring in more cash to the closing.
Another discussion is in regards to the 6 percent a seller can credit a buyer in an FHA sale right now. Secretary of Housing and Urban Development (HUD), Shaun Donovan, has been on record saying he would like to see it at 3% which is in-line with industry norms.
One change that is coming soon is the FHA raising the minimum credit score which is currently as low as 500 FICO. The new requirements have yet to be determined at this date.
Source: The Washington Post. Photo courtesy of Flickr – Craig Dennis.
Jeff, don't be surprised if those minimum Fico requirements for FHA insured loans goes to 680 on the minimum down-payment product. Considering the average score in the Country is right around that, it would make sense to at least require that someone borrowing hundreds and thousands of tax-payer insured dollars to have “average” credit scores.
Derrick Evens
http://sandiegocreditguy.com/
Derrick, makes perfect sense as FHA defaults are on the rise. Thanks for the comment and as always the good credit advice – looking forward to your quest post which should be up tomorrow.
Jeff, don't be surprised if those minimum Fico requirements for FHA insured loans goes to 680 on the minimum down-payment product. Considering the average score in the Country is right around that, it would make sense to at least require that someone borrowing hundreds and thousands of tax-payer insured dollars to have “average” credit scores.
Derrick Evens
http://sandiegocreditguy.com/
Derrick, makes perfect sense as FHA defaults are on the rise. Thanks for the comment and as always the good credit advice – looking forward to your quest post which should be up tomorrow.