New FHA Mortage Rules Opens Door Of Opportunity To Buyers

October 28, 2007

FHA home mortgages - those insured by the Federal Housing Administration - may soon be a viable financing option for many more prospective borrowers. A current proposal, already passed by the House of Representatives (at this writing) would raise the FHA loan limit to $417,000 in high-cost areas, reduce the minimum required down payment to 1.5 percent of the home’s purchase price, and extend the maximum amortization term to 40 years.

The new provisions are part of an FHA reform bill (H.R. 1852) making its way through Congress. The basic objective of the legislation, according to the bill’s text, is "to modernize and update the National Housing Act and enable the Federal Housing Administration to use risk-based pricing to more effectively reach underserved borrowers, and for other purposes."

It will give FHA the capability to be more effective in helping past borrowers of high-risk subprime mortgages. Some of those who are having difficulty in making their monthly payments, thus facing possible foreclosure proceedings, may have the opportunity to refinance into a more friendly FHA loan. There has been pressure on legislators for years to bring FHA mortgage financing up to real-world economic conditions. Without these new and more flexible provisions, FHA would continue to be a dying breed of home financing options - or at least an endangered one.

An amendment attached to the bill would modify FHA loan limits to permit loans up to the lower of 125 percent of the local media home price, or 175 percent of the national conforming loan limit, with additional authority by the Department of Housing and Urban Development (HUD) to raise limits by area by up to $100,000 if market condition warrant.

source:  Jim Woodard

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