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Mortgage borrowers take note: FHA's loan policies set to change

If you're considering a loan modification in Florida or a new loan using FHA's services, you may first want to consider new polices and fee hikes that the Federal Housing Administration will be putting into effect over the next few months. FHA loans have been traditionally popular for people with credit problems or lower down payments and have for years been considered ideal for first-time buyers with modest incomes.

Because of the many losses it sustained during the years after the housing market crash, FHA has decided to change some of its policies. Starting on April 1, mortgage insurance premiums are set to increase. Additionally, in June, potential borrowers with credit scores below 620 or debt-to-income ratios over 43 percent will be required to have manual underwriting with their applications. A 5 percent minimum down payment for loans above $625,500 will be required for FHA loans in high-cost areas.

Also, after June, FHA will continue charging borrowers their mortgage insurance premiums for the life of the loan, rather than giving borrowers the option to cancel these charges once the loan balance is reduced to 78 percent of its original amount.

Mortgage lender experts are cautioning potential home buyers that these upcoming FHA changes may make home loans more expensive for those with good credit. While FHA has helped millions of first-time home buyers in Florida for decades -- and may still be a good option for those who can't pay the average 5 to 20 percent down payment required by many commercial lenders -- these upcoming changes may convince some potential customers with higher credit to look elsewhere for a loan.

Source: Tampa Bay Times, "The Nation's Housing: FHA fees pack a bite," Kenneth R. Harney, Feb. 9, 2013

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