FHA Changes - What You Need to Do

Think you qualify for an FHA loan?  You may have to think again!  Effective April 1, 2012, all potential borrowers with ongoing credit disputes totaling more than $1,000 will not be able to get a mortgage insured by the Federal Housing Administration (FHA) (excluding accounts from more than two years ago and those related to theft).  Prior to this date, there was no requirement that disputed credit accounts need to be resolved – that decision was left to the discretion of the underwriter.   

A quick primer on the FHA:  The program originated during the Great Depression in the 1930s, when the rates of foreclosures and defaults rose sharply.  The program was intended to provide lenders with sufficient insurance to cover default.  Some FHA programs were subsidized by the government, but the goal was to make it self-supporting, based on insurance premiums paid by borrowers. Over time, private mortgage insurance (PMI) companies came to be, and now FHA primarily serves people who may not be able to  afford a conventional down payment or otherwise do not qualify for PMI. 

An FHA insured loan is a mortgage loan that is backed by the Federal Housing Administration and is provided by an FHA-approved lender. FHA insured loans are helpful because they allow lower income Americans to borrow money for the purchase of a home that they might not otherwise be able to afford. To obtain mortgage insurance from the Federal Housing Administration, a mortgage insurance premium (MIP) equal to 1 percent of the loan amount at closing is required, and is normally financed by the lender and paid to FHA on the borrower's behalf. Depending on the loan-to-value ratio, there may be a monthly premium as well.

So, what does this change mean for today's homebuyer?  Well, if you’ve already gotten your FHA loan before Apri1 1, you’re OK.  If you’ve been approved for an FHA loan previously, but have not finalized it yet, this change will affect you.  The first thing you need to do immediately is check your credit & FICO scores.  There are a number of different agencies, online sites & ways to do this.  However, the easiest, cheapest, and most reliable way is to talk to a mortgage professional.  For example, your first reaction might be to run out and sign an agreement to pay off any outstanding debt, but that might not be the best action because the debt itself may still remain on your record (crazy, huh?)  I’ve been told that, just because a debt has been paid may not mean that it has been expunged from the record. 

You really need to know where you stand now and what action you must take to get to where you want to be.  I can recommend several great mortgage experts who have helped my clients.  They would be happy to meet with you – confidentially and at no cost.  They will have some action steps you can do to improve your situation, if needed.  You need to do this now because it may take several months.  You will be happy you did when you find that perfect home. 

Things are still changing and evolving -- more than ever you now need the help and advice of experts, so give me a call.  I'm your Real Estate Resource.

Here’s the link to the notice from the FHA:

http://portal.hud.gov/hudportal/documents/huddoc?id=12-03ml.pdf