Where would we be right now without the FHA tool in our bag? This is the most diverse loan product available on the market today, and fits a multitude of different borrower profiles from folks with significant credit challenges or even no credit at all to those with stellar credit but small savings accounts. Statistics are beginning to roll in that show FHA loan volume increased by an amazing 168% in 2008 – 1.14 million loans, up from just 425,000 in 2007. WOW.
Because of this huge surge in volume, and the use of FHA financing by many as a subprime alternative, HUD has been really wrestling with how to best mitigate their risk going forward. 2008 saw the elimination of seller-funded down payment assistance, the introduction of risk-based premiums, the abolishment of the same only a few months later, and increased loan limits to spur home buying. As FHA stands now, here is what you need to know:
1. The maximum loan-to-value ratio for rate & term refinances has been increased to 97.75%, from 97%. Maximum cash back to the borrower is reduced to $500 from $2,000.
2. The maximum loan-to-value ratio for cash-out refinances remains at 95% for loan amounts less than the conforming limit and 85% for loans at or above the conforming limit.
3. As of January 1, two appraisals will be required for all cash-out refinances with a loan-to-value ratio above 85%. One can be a 2055 exterior only, which costs slightly less than a full interior/exterior appraisal.
4. The poorly-performing FHA Secure refinance option has been eliminated.
5. To do a streamlined refi, 12 months of on-time mortgage payments must be verified.
6. Down payment for purchase loans is increased to 3.5%.
Often, FHA financing is the best (and sometimes, only) choice for getting a loan done. If you have any questions about whether an FHA loan is right for you, please drop me a line. Almost 85% of my loan volume in 2008 was FHA, and I’ll be happy to answer whatever I can for you.
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