Lately it seems like every week we are seeing more changes with FHA mortgages!
Over the last three years, we have been able to refinance FHA loans up to 97.75% for the first mortgage and have a second mortgage with an unlimited combined loan to value – in other words you could have subordinated a second mortgage for more than the home was currently worth. That has ended as of September 7, 2010. Now the maximum loan to value for rate term refinances (no cash out) is 97.75% and that includes the value of the second mortgage. If you are doing a cash out refinance, the maximum combined loan to value is 85%.
If you currently have an FHA mortgage, you can do a streamline refinance with or without an appraisal and the combined loan to value is limited to 125%. I have had clients where we are concerned about the value, so we have done streamlined refinances and used the interest rates to pay the closing costs. That way we do not need an appraisal and the borrower doesn't need to pay all the closing costs out of pocket.
FHA mortgages will now have minimum credit scores and loan to value requirements. Effective October 4, 201o, you must have a 580 score or higher for maximum financing. Borrowers with a 500-579 score will need a minimum of 10% down. Many lenders will not allow FHA mortgages for those borrowers with credit scores below 620. FHA sets minimum standards and lenders have the right to create additional guidelines and that is what many lenders have done regarding credit scores. FHA streamline refinances usually require a 640 score by many lenders.
FHA mortgage insurance premiums change on October 4, 2010. The new rules for maximum financing will be 1.0% of the mortgage amount for the upfront mortgage premium and .90% of the mortgage amount for the monthly premium. So a $200,000 mortgage will require a $2000 upfront MIP and a $150 monthly premium.
There is also a possibility that the allowable seller paid closing costs will be lowered from 6% to 3% in October. The rule was published in July and gave time for public comment, now they are reviewing the comments and will soon publish the final ruling. This has been expected for some time but nothing has been said about it until recently.
I'm sure we will see more changes, but for now….that might be most of the changes!
