FHA loans are the largest source of low-down payment mortgages. A buyer with less than stellar credit can purchase a property with as little as 3.5% down. Starting April 1st, the FHA will institute it’s third increase since 2011 when it raises it’s premiums by 1/10 of a percent, or 10 basis points.
Then, on June 3, FHa loans will be harder to qualify for whenthe debt to income ratio is is increased to 43% for individuals with a credit score of 620 or less. In addition, a minimum of 5% down will be required on loans over $625,000 and borrowers will no longer be able to eliminate the PMI insurance when the balance reaches 78% of the loan value. Instead, an FHA borrower will pay PMI over the entire life of the loan. A recent analysis of the upcoming changes was conducted by Steven R. Maizes, with Mortgage Capital Partners Inc. in Los Angeles. He concluded that an FHA applicant with a 720 FICO score and 3.5% down payment would pay $144.66 more per month on a $250,000 fixed rate 30 year mortgage than if he took out a conventional mortgage with 5% down and paid PMI.
If you are a buyer with a lower credit store and a low down payment, you may want to jump into the market before April 1. And this isn’t an April Fools joke.