FHA Mortgage Restrictions

As you probably already know, FHA Mortgage Programs are great for borrower's who have little or no down payment.  You can purchase a home under the FHA program with as little as 3.50% down payment.  FHA will also allow the complete 3.5% down payment to be gifted to the borrowers from a relative or FHA will allow the 3.5% down payment to be borrowed from a "family member" as either a secured loan against the property , as an unsecured loan or any combination of a secured, unsecured loan.  Regardless of where the required minimum down payment comes from, especially in light of the fed's $8,000 tax credit, this is a great opportunity to assist .borrowers in purchasing their home.

New FHA Mortgage Restrictions: The Great, The Good, The Bad, And The Ugly

The Great: FHA made numerous announcements Friday pertaining to their program.  One of the announcements was in spite of some challenges FHA is currently facing, they are going to keep the required down payment. @ 3.5%.

In order for FHA to be a great alternative to Fannie Mae and Freddie Mac as a lending institute, FHA charges (1.75%) an upfront mortgage insurance premium (UFMIP) on every loan.  They also charge a monthly mortgage insurance premium of either .50 or .55 while Fannie Mae and Freddie Mac require private mortgage insurance (PMI) to be obtained for every loan which the loan to value (LTV) is greater than 80%. The PMI companies have their own restrictive guidelines over and above Fannie and Freddie's which makes obtaining a loan a lot more difficult when PMI is required.

The Great: FHA announced they will not be raising either the UFMIP nor the monthly amounts:

FHA announces their reserves fell behind the legal limit at which they are required to retain.

The Great: There will be no taxpayer bailout," FHA Commissioner David Stevens announced

FHA also announced on Friday they are changing some of their appraisal requirements.  Fannie and Freddie announced earlier this year stricter appraisal and appraisal ordering requirements which also included a controversial "Home Valuation Code of Conduct".

The Good: FHA  announced they are NOT requiring compliance to HVCC but they are incorporating some of the guideline of the HVCC . FHA has announced they have incorporated prohibiting of mortgage brokers and commission based lender staff from the appraisal process. I do not think this is a bad idea because no one wins if for what ever reason values are influenced and/or inflated. outside of acceptable appraisal standards. While most  brokers adhere to strict lending practices and principles , this will hopefully weed out those who may not .

FHA  announced stricter requirements pertaining to FHA's streamline refinanced program.  FHA has a streamline refinance program without an appraisal, a streamline refinance program with an appraisal and also a both with or without appraisal refinance without credit qualifying (no credit employment, income, liabilities reported).

The Good: FHA's streamline refinance program with an appraisal program did not change or restrict their maximum loan amount requirements.

The Good: While no income or employment is listed for a FHA non credit qualifying streamline refinance,  FHA will now require lenders to validate and verify the borrowers are employed and also they have income.  Who would want to approve a borrower who is not working or currently earning an income?

The Good: FHA now requires the lender must determine that there is a net tangible benefit as a result of the streamline refinance transaction, with or without an appraisal.  Net tangible benefit is defined as:

*** REDUCTION IN THE TOTAL MORTGAGE PAYMENT (principal, interest, taxes and insurances, homeowners'    association fees, ground rents, special assessments and all subordinate liens)

Reduction in Total Mortgage Payment:  The new total mortgage payment is 5 percent lower than the total mortgage payment for the mortgage being refinanced.  Example:  Total mortgage payment on the existing FHA-insured mortgage is $895; the total mortgage payment for the new FHA-insured mortgage must be $850 or less.

This requirement is applicable when refinancing from a Fixed Rate to Fixed Rate, from an ARM to ARM, from a Graduated Payment Mortgage (GPM) to Fixed Rate, from GPM to ARM, from a 203(k) to 203(b) and from a 235 to 203(b).

Fixed Rate to ARM:  Fixed rate mortgages may be refinanced to a one-year ARM provided that the interest rate on the new mortgage is at least 2 percentage points below the interest rate of the current mortgage

*** REFINANCING  from an adjustable rate mortgage (ARM) to a fixed rate mortgage,

ARM to Fixed Rate: The interest rate on the new fixed rate mortgage will be no greater than 2 percentage points above the current rate of the one-year ARM.  For hybrid ARMs, the total mortgage payment on the new fixed rate mortgage may not increase by more than 20 percent .  Example:  total mortgage payment on the hybrid ARM is $895; the total mortgage payment for the new fixed rate mortgage must be $1,074 or less.

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