Tuesday, April 27, 2010

As FHA tightens requirements, Private mortgage insurance companies return to market

Beginning this month, down payment requirements on FHA-insured loans have been increased. Although borrowers with credit scores of 580 or above will still be able to make the traditional 3.5% down payment, those with lower scores will need 10% down.

In addition, the upfront mortgage insurance premium has been raised from 1.75% to 2.25%. The premium can be financed as part of the mortgage.

FHA has asked Congress for authority to increase the maximum monthly insurance fee from the current 0.5% level. The agency is seeking permission to hike the monthly charge to 1.55%, but has said it needs to raise it to only 0.9% at this time.

FHA is reducing permissible seller concessions from 6% of the loan amount to 3%. This change conforms to industry standards, and means that even if a seller were to agree to pay all of the borrower's closing costs, the borrower could count only that portion equal to up to 3% of the loan amount as if it were his own money.

Meanwhile, several private mortgage insurers have returned to backing 5% down payment loans to borrowers anywhere in the country.

Today, while FHA loans are generally considered to be the less expensive alternative, that's not always the case. Savvy borrowers would be wise to consider both before jumping to a decision.

Generally, PMI pricing is more affordable for borrowers making a down payment of 10% or more.

Source: Lew Sichelman, United Feature Syndicate 4/25/2010

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