Tag Archives: fha loan

FHA toughening its underwriting rules

First-time and move-up homebuyers with heavy debt loads, low credit scores and small down payments face a daunting new mortgage hurdle: The Federal Housing Administration is toughening its underwriting standards. Large numbers of applications could be turned down in the coming months as a result.

Industry estimates vary about the impact of the agency’s abrupt changes, but mortgage company executives told me last week that they are bracing for reductions in their FHA business by anywhere from 10 percent to 30 percent.

Here’s what’s happening: For several years, FHA has insured loans to buyers who previously would have been considered too risky or marginal at best. Those applicants often carried crushing monthly personal debts — for credit cards, auto loans, student loans and other obligations — totaling more than half of their monthly incomes. Many also had histories of credit problems that lowered their credit scores. Combined with skimpy down payments of 3.5 percent and minimal bank reserves, these borrowers have a high statistical probability of defaulting on their loans.

To prevent big losses to FHA’s insurance fund, the agency recently informed lenders nationwide that from March 18 onward, it would be applying more stringent standards to applications from high-risk homebuyers. In its letter, FHA documented its reasons for the crackdown. According to FHA Commissioner Brian Montgomery, the agency has been seeing disturbing trends in the quality of loans lenders have been delivering to it:

  • Nearly one of every four approved home purchasers had a debt-to-income (DTI) ratio exceeding 50 percent, the worst since 2000. In January, 28 percent of buyers were in that category.
  • FICO credit scores are tanking. They’ve fallen to the lowest level since 2008 — an industry-low average of 670. In the first quarter of fiscal 2019, more than 28 percent of all new purchase loans had FICOs below 640. In the same quarter, more than 13 percent of new loans had scores under 620 — 19 percent higher than the same period in the previous fiscal year. (FICO scores range from 300 to 850; low scores predict higher risks of nonpayment. Average scores for purchasers at giant mortgage investors Fannie Mae and Freddie Mac average around 750.)
  • Borrowers are siphoning equity from their homes at an alarming rate. In fiscal 2018, FHA saw a 60 percent increase in “cash-out” refinancing as a percentage of all refinancings. Cash-outs allow borrowers to convert equity into spendable money.
  • Growing numbers of loans have multiple indications of serious future risk of nonpayment — combinations of low credit scores of 640 or less and DTI ratios that exceed 50 percent.

Read more at: https://www.chicagotribune.com/classified/realestate/ct-re-0331-kenneth-harney-20190331-story.html

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What is an FHA Energy Efficient Mortgage?

When you’re looking for a home to buy with an FHA loan, one of your biggest concerns is naturally how much you’ll need to budget for each month in FHA mortgage payments. Add utility bills and any property maintenance you need to do to the equation and it’s clear that any way you can trim down those monthly payments is a good thing.

One way to raise the value of your property and lower your utility bills at the same time is to apply for an FHA Energy Efficient Mortgage or FHA EEM. These mortgages are federally recognized, available in all states, and give you the means to upgrade the home you want to buy to make it more energy efficient. The resulting lower utility bills and increased equity in your home will definitely benefit you over the lifetime of your FHA loan. Depending on how much money you save on your energy bills, you could even change your debt-to-income ratio and qualify for a larger FHA loan.

Contact the staff at: www.socalappraisalserv.com for more information.  Appraisers at Southern California Appraisal Services are also BPI certified building analysts.


The first thing you need to qualify for an FHA EEM is a report on the property’s energy efficiency. This is called the Home Energy Rating Systems report, and is performed by a professional rater. The property is inspected, everything from the insulation to the appliances. Even the windows get a look. The cost of the home as it exists at the time of inspection is calculated and will be compared to projected energy savings after upgrades.

Once the property’s current energy efficiency is determined, the inspector makes recommendations on how the property must be improved. The recommendations include a cost estimate for the upgrades and how much the home could save once those upgrades are properly installed. The recommendation also includes information about how long the upgrades will last until they must be repaired or replaced.

Read more at: http://www.fha.com/fha_article.cfm?id=69

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New FHA Loan Limits

In effect, this may make the FHA the go-to financing option for borrowers needing loans up to $729,750 — with down payments as low as 3.5 percent — in high-cost areas of California, the Washington region, New York and New Jersey, and in scattered counties in other states including Massachusetts, Florida and North Carolina. Fannie Mae- and Freddie Mac-eligible loans in those areas, meanwhile, stay capped at $625,500.

Equally important, the new plan raises the FHA ceilings for purchasers in hundreds of more moderately priced markets. Seattle area buyers’ maximum FHA loan amount jumped to $567,500, while the Fannie Mae-Freddie Mac ceiling remains at $506,000. In Hartford, Conn., the limit for FHA is now $440,000 — up from $320,850; Fannie and Freddie remain capped at $417,000.

Disclaimer: for information and entertainment purposes only.