The mortgage industry has been going through some rapid changes due to the impacts of COVID-19. We have witnessed extremely volatile interest rate movements, along with many loan program changes in recent weeks. In this post, we will discuss some recent FHA changes and there impact on buyers looking to purchase a home.
FHA Credit Score Requirments Increase:
As the mortgage industry tries to adapt to the recent economic changes, many lenders are tightening their internal requirements to ensure they can stay in business. Many are making significant changes to government loans that include FHA, VA and USDA loans. These changes could make mortgages unavailable for many buyers who qualified just days earlier.
In the past, many lenders would offer FHA financing up to 96.5% to borrowers with credit scores as low as 580. However, many are raising this requirement to 640, and even 680 with some lenders we have interviewed.
Additionally, some lenders are requiring buyers to have mortgage payment reserves, and not permitting gift funds in certain cases.
Interest Rate Locks – Not So Fast:
In addition to the higher credit requirements, many lenders are limiting interest rate locks until loan files are fully approved and “clear to close” This is due to many variables including the drastic movements in rates over the past month. Interest rates are changing daily, sometimes multiple times per day. Borrowers should remember when comparing rates, do it on the same day.
MORE: Read additional information by Forbes on the recent FHA mortgage changes. Many experts agree the recent changes are temporary. Lending guidelines should return to normal once the economy starts to open up again and coronavirus fears start to ease.
FHA Program Choices:
FHA still offers many different programs based on borrowers needs, the programs include:
- 203(b) loans: These are what most buyers think when discussing regular FHA loans. 203(b) is used to either purchase or refinance a home and require down payments as low as 3.5% from qualified buyers.
- 203(k) loans: This is a Rehabilitation mortgage for homes that need repairs. This program allows borrowers to finance the house, plus costs of repairs (up to a limit) into their loan. This program is designed for both buyers and existing homeowners, allowing them to finance eligible home repairs and improvements.
- HECMs: Home Equity Conversion Mortgages are more commonly known as reverse mortgages. They’re designed for homeowners over the age of 62, allowing them to turn their home’s equity into a form of income.
- Streamline Refinance: Great for homeowners that currently have FHA loan and want to reduce their interest rate. Miniume paperwork is needed.
FHA Loan Limits 2020:
FHA loan limits increased at the beginning of 2020 and now range from $331,760 in low-cost areas to $765,600 in higher-cost areas. These limits apply to 1 unit residences, muti-unit loan limits are higher.
In a market like Volusia County, Florida, buyers can get an FHA loan up to the $331,760 limit — what FHA calls the “floor.” In a market that’s higher priced like Monroe County, buyers can borrow up to 552,000.
Keep in mind there are different limits for buyers purchasing two-unit, three-unit, and four-unit properties. See the complete list of FHA loan limits here.
Buyers that have questions can contact us 7 days a week by calling the number above, or just submit the Quick Request Form on this page. Please also learn more in the video below.