FHA Changes Could Have Substantial Effect on Condo Buyers
A few weeks ago, the Federal Housing Administration (FHA) introduced several changes to the guidelines it uses to lend mortgage products. The changes, which were mainly aimed at replenishing the FHA’s dwindling capital reserves, do not come as good news for many prospective homebuyers.
The new measures were implemented because the rise in popularity of FHA loans has resulted in a steady drop of the agency’s reserves. (Estimates are that up to 50 percent of new homebuyers are opting for the low down payment loan.) Below are a few of the main steps that the administration is taking to replenish its reserves as well as offset exposure to risky homebuyers:
- The upfront insurance premium that borrowers pay at closing will be increased from 1.75 percent to 2.25 percent of the overall value of the loan.
- In a measure that will allow the FHA to better balance its risk among a wide variety of borrowers, the amount of money required as a down payment for borrowers with low credit scores will be increased. While borrowers with at least a 580 FICO score will still be able to qualify for a 3.5 percent down payment, those with scores lower than 580 must put up a 10 percent down payment. This change will go into effect in early summer.
- The amount of money that sellers can kick in for closing costs will be reduced. Currently, the FHA allows sellers to pay closing costs up to 6 percent of the sale price of the home. The change will reduce the cap to 3 percent. It has been speculated that the 6 percent concession exposes the FHA to excess risk by creating incentives to inflate a home’s appraised value. The reduction will bring the FHA in line with industry standards that already exist for seller-paid closing costs. This change will go into effect in early summer.
The above changes will have the greatest effect on homebuyers who have low credit scores and are without a chunk of cash for a down payment. Jamie Trotter, a loan officer for Monarch Mortgage, told UrbanTurf that the new standards will not only decrease affordability, but will mean that buyers will need more cash upfront.
“A home with a sales price of $200,000 and a 3.5% down payment will now require an upfront mortgage insurance premium of $4,342.50, an increase of $965 from the previous requirement,” Trotter explained.
Erin Hundley, a sales agent for DC’s UrbanLand Company, told UrbanTurf that the update to FHA guidelines for new borrowers with less than a 580 FICO score will “have a negative impact for the small percentage of buyers that fall within this category,” noting that the increase to a 10 percent down payment could potentially eliminate their opportunity to purchase in the current market.
While these changes were needed in order to protect the FHA from running out of money, they will dramatically change the economics of the loans, which have become a very popular source of financing for new condo buyers. Combined with the expiration of the first-time homebuyer tax credit in April, the changes could also have a serious effect on the area’s condo market, which was just getting back on its feet.
Similar Posts:
See other articles related to: urbanland company, fha, dclofts, credit score, condo buying
This article originally published at http://dc.urbanturf.com/articles/blog/fha_changes_could_have_substantial_effect_on_condo_buyers/1758
Join the discussion
Most Popular... This Week • Last 30 Days • Ever

After we reported that homes in the DC area are spending a median of 11 days on the... read »
Neighborhood Profiles more »
Trinidad: The Difference 5 Years Makes
Shilpi Paul
February 15th | 27 Comments
Five years ago, the DC police department was setting up police checkpoints in the Northeast DC... read »
Editor's Choice more »
The Top 10 DC Zip Codes Where Homes Are Selling Quickest
Shilpi Paul
May 15th | 10 Comments
After we reported that homes in the DC area are spending a median of 11 days on the market, we... read »
New Condo Profiles more »
New Boutique Condo Project Coming to 17th and Q
UrbanTurf Staff
February 25th | 6 Comments
A Dupont Circle mansion is currently being converted into a four-unit condo development that will... read »
The DC Condo Market more »
18-Unit Condo Project in Adams Morgan Slated For July Delivery
Shilpi Paul
May 13th | 4 Comments
An 18-unit condo building on Champlain Street is slated for delivery in July with sales starting... read »
- 18-Unit Condo Project in Adams Morgan Slated For July Delivery
- Nine Unit Condo Project and Restaurant Coming to Bloomingdale
- New Animation Gives Size and Scope of Adams Morgan Condo Project
- A Planned 16-Unit Kalorama Condo Project Struggles With ANC
- 14th Street’s Central Union Mission Condo Project to Begin Construction in June
Green Real Estate more »
Harvest Home: DC’s Submission For the 2013 Solar Decathlon
Shilpi Paul
May 15th | 2 Comments
DC's entry into the Solar Decathalon is a net-zero home that generates energy primarily by... read »
Deal of the Week more »
Deal of the Week: U Street Condo Alternative With Rental Prospects
Shilpi Paul
March 26th | 7 Comments
While the price per square of this installment of Deal of the Week is fairly average, the lower... read »
Renting more »
14W Open For Move-ins Starting This Week
UrbanTurf Staff
April 26th | 5 Comments
14W, the 231-unit apartment building at 14th Street and W Street NW that began leasing in February,... read »
Market Watch more »
Market Watch: Logan Circle, Columbia Heights, Dupont Circle
Keith Gibbons
November 28th | 5 Comments
Housing Market Watch returns this week after a little hiatus as Keith Gibbons takes a closer look... read »
Unique Spaces more »
DC’s One-Room House
Shilpi Paul
May 2nd | 8 Comments
For those with the budget for a studio but the hankering for a house of their own, a one-room... read »
This Week's Find more »
Inspired By California in Takoma Park
Shilpi Paul
May 16th | 1 Comment
If This Week's Find looks a little out of the ordinary for Takoma Park, it's because it was... read »
UrbanTurf Reader Asks more »
UT Readers Asks: Better Than Home Depot, Less Expensive Than Georgetown?
Shilpi Paul
May 21st | 18 Comments
In this installment of UrbanTurf Reader Asks, a DC homeowner with a fixer-upper is wondering what... read »
- UT Readers Asks: Better Than Home Depot, Less Expensive Than Georgetown?
- UT Reader Asks: Does It Make Financial Sense To Pay Down My Mortgage Faster?
- UT Reader Asks: Will New Parking Regulations Lead to More Problems?
- UT Reader Asks: Will Buyers Pay More For Old Than New?
- UT Reader Asks: Will Condo Projects Provide Discounts to Buyers Working Without Agents?
What X Buys You more »
What $760,000 Buys You in Del Ray
Shilpi Paul
May 14th | 1 Comment
In What X Buys You this week, UrbanTurf takes a look at properties on the market in the $750,000 to... read »
Best New Listings more »
Best New Listings: Park Vistas, Butcher Block Island, and Mad Men (Week of May 17th)
Shilpi Paul
May 17th | 0 Comments
In this week's edition of Best New Listings, UrbanTurf looks at a Kalorama condo with park views, a... read »
- Best New Listings: Park Vistas, Butcher Block Island, and Mad Men (Week of May 17th)
- Best New Listings: Grassy Yard, Pointy Roof, and Windows Galore (Week of May 10th)
- Best New Listings: Truxton Circle, Sears Home, Eastern Market Victorian (Week of May 3rd)
- Best New Listings: A Craftsman, A Cottage and A Co-op (Week of Apr 26th)
- Best New Listings: The DMV Edition (Week of Apr 19th)
Luxury Real Estate more »
$190 Million: The Country’s Most Expensive House
UrbanTurf Staff
May 17th | 0 Comments
A $190 million estate in Connecticut hit the market on Friday, believed to be the most expensive... read »







































































3 Comments
Hard choices, but good changes that need to be made. 6% back on 3.5% down was really a 102.5% loan afterall
I look forward to both federal and quasi-government agencies actually taking a more pragmatic and fiscally responsible lending approach to persons without either a solid credit history or significant downpayment, which hopefully will dry up a pool of buyers, and in turn, forcing sellers to lower their prices.
“While borrowers with at least a 580 FICO score will still be able to qualify for a 3.5 percent down payment” = future foreclosure candidate