FHA mortgage lending may tighten up in 2010 if sponsoring lawmakers have their way. It’s expected that the Obama administration will resist the effort underway by a group of lawmakers in Congress to make FHA lending requirements more stringent. FHA is a government-backed real estate financing program that is often associated with first time buyers but has gained popularity recently with repeat buyers due to certain program features such as low downpayment and the component that allows the borrower to finance a significant portion of their closing costs.
A major change under consideration would be an increase in the down payment requirement for this program from 3.5% to 5%. In addition to raising the FICO credit score required for approval to 620 from 610, the proposal also calls for a reduction in the maximum seller concession from 6% to 3%. Seller concession is a commonly used method to allow a home buyer to finance in a portion of their closing costs. The concession amount is added in to the contract on top of the agreed upon purchase price. The seller still receives the agreed upon amount and the buyer receives a higher mortgage but does not have to come up with as much cash to close.
It’s expected that these changes may be in place as early as the beginning of 2010. It’s wait and see right now to see if this makes it through Congress and if it is approved by the administration.