As of July 14, 2008 the Federal Housing Administration (FHA) is changing how it is lending money to those getting a mortgage through them.
Remember, FHA is a mortgage you get at the same bank you get conventional financing through. The difference is the loan is insured by the federal government. If a buyer were to default, go into foreclosure, on an FHA mortgage, the bank that originated that mortgage would get money back. FHA in the metro area loans up to a purchase price of $365,000.00 on a single family home. It requires only 3% down and will allow gift funds, higher seller contributions, and a greater debt ratio. It is for the most part easier financing to obtain than a conventional loan.
The Twin Cities is generally considered a declining market, so conventional financing is requiring 10% down. For this reason many of those buyers are going to the FHA mortgage.
Conventional financing is based on risk. The lower your credit score the higher the interest rate will be offered. FHA has a flat rate. No matter your credit score, you will be given the same interest rate. As of July 14, 2008, the rate of the up-front private mortgage insurance and the annual premium (which is paid monthly) will depend on your credit score. Do not panic though, as this is a differential of about $7.00 a month. In most cases it will not eliminate persons from qualifying. Those people financing through FHA with good credit will benefit.
FHA is, so far, only slightly moving toward protecting their investment based on credit score. It does remain an excellent way to finance.
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