My Real Estate Blog

It's about to get tougher to qualify for an FHA mortgage. . . . . . . . .

Beginning this spring, the FHA will raise mortgage insurance fees that borrowers must pay, cap the amount of cash that sellers can contribute for closing costs and require higher down payments for the borrowers with poor credit scores.

The new upfront mortgage premium will cost borrowers 2.25 percent of the loan amount, up from the current 1.75 percent and the second increase in the past two years. The upfront premium can be rolled into the loan. 

New borrowers must have a minimum credit score of 580 to qualify for FHA's 3.5 percent down payment loan, otherwise the borrower must put 10 percent down. Most lenders require a minimum credit score of about 620.

Sellers will only be able to contribute closing costs that amount to 3 percent of the sale price, half the current 6 percent. Experts say the higher maximum encouraged borrowers to mark up the price to compensate for their concession.

Late last year FHA proposed stiffer rules for lenders to also reduce its risk -- that lenders to have a net worth of at least $1 million in the first year and $2.5 million within three years, up from the original requirement of $250,000. The federal agency also wants tighter approval requirements and greater liability for lenders and mortgage brokers who want to originate, underwrite or service FHA.

Even more reasons for buyers to get out there NOW!