The government mortgage rules are changing for FHA refinance and home purchase programs.  The Federal Housing Administration announced tightening of FHA lending requirements to reduce risk and improve its reserves. The new FHA guideline changes include:

• Borrowers must pay an increased upfront mortgage insurance premium (MIP) of 2.25 % of the loan amount (increased by 50 basis points from 1.75 %). FHA has also requested legislative authority to increase the maximum annual MIP so it can reduce upfront costs for prospective home buyers.

• For borrowers with poor credit (credit score of below 580), they must make a minimum down payment of 10 % (up from 3.5 %).

• Seller credits for closing costs are cut by 50 % and cannot exceed 3 % of the purchase price.

• FHA will continue to increase enforcement on FHA-approved lenders, and will publicly report lender performance rankings to improve transparency and accountability.

With the current recessionary economic state, constricting mortgage availability, and general credit crunch, FHA loans have exploded, with projections of hitting $400 Billion in 2010. FHA loans, featuring low down payments, competitive interest rates, and more forgiving credit requirements, have proven the loan of choice for many first time home buyers and those with marginal credit scores.

FHA announced new changes to FHA loan guidelines in an effort to improve its depleted cash reserves.  A few days ago, HUD announced tighter FHA guidelines with multiple changes to FHA underwriting.  A recent article revealed that FHA requirements may actually penalize borrowers with poor credit.  The FHA Mortgage Lending Blog believes that the Federal Housing Administration will expand mortgage refinance guidelines later this year.

FHA will enable borrowers to continue financing the upfront MIP. The agency also will pursue legislative authority to allow flexibility to bring the annual premium, which borrowers pay on a monthly basis, higher. Also, seller concessions will be reduced to 3% from 6%. Frank Black, who managed a Wells Fargo branch in California said, “After reviewing the changes to the FHA requirements, I believe FHA lenders will agree that the new rules make sense and are needed to keep the government financing alive. A few years ago, many brokers and lenders took advantage of FHA underwriting by pushing the envelope with risky home loans.”

Visit the FHA Mortgage Lending Blog and read the original article > FHA Mortgage Guidelines 10% Down for Low FICOs.

Many FHA loan experts are predicting the Fed will begin increasing the rates in 2010.  How will that affect the FHA mortgage rates?  They will rise just like the conventional and second mortgage rates.  FHA guidelines have already seen some changes this year and its no secret the FHA requirements will get more difficult for homebuyers and homeowners looking for refinance loans.

Ending the Federal Reserve’s mortgage-buying program will likely cause mortgage rates to increase by as much as three-quarters of a percentage point, Boston Fed President Eric Rosengren told The Hartford Courant Friday. “Actually, I’ve been surprised that we haven’t seen higher mortgage rates already,” Rosengren told the paper. “You maybe would have thought you would have seen interest rates move up more quickly than they have, but nonetheless, that is a concern.”

The Fed is scheduled to retire its $1.25 trillion mortgage-backed securities purchase program at the end of March. Described by the Courant as an “inflation dove,” Rosengren also commented that the target federal funds rate will remain low in the near term, commensurate with the low threat of inflation about 1.5%.

The Federal Housing Administration was formed in 1934 to ensure American borrowers would experience fair lending for mortgage refinancing and purchase loans regardless of their job type or skin color.  Over the years FHA refinance loans have become a popular option because the FHA mortgage rates are low and the credit guidelines are more forgiving than conventional mortgage lending guidelines.  In the last 3 years, FHA refinancing has actually taken the lead for mortgage market-share nationally.

There are several types of FHA home loans for refinancing:

• Cash out refinancing for raising capital or debt consolidation
• FHA streamline loans for refinancing existing FHA loans
• FHA refinance loans up to 97% Loan to Value
• FHA 203k loans for home rehabilitation.

In these situations homeowners must have some equity in their home to be able to qualify for FHA loan programs. FHA guidelines also stipulate that FHA loans may only be used to borrow against the home of their primary residence. 

FHA home refinancing ensures low fixed mortgage rates and no pre-payment penalties. FHA refinance loans are underwritten differently than traditional conforming mortgage refinance loans.  A person’s income and credit will be viewed more leniently or not at all with an FHA refinance.   FHA loans require mortgage insurance, but less equity is needed to qualify.  FHA streamline refinance does not offer the option of getting cash back and you must presently have a FHA mortgage with no late payments in the last year.  FHA 203K loans provide funds for home rehabilitation and major home improvements.