Higher Costs, Tougher Standards

HUD Secretary Shaun Donovan made it official last week: Applicants for FHA insured mortgages in the coming months are going to be hit with higher costs and tougher credit standards.

In congressional testimony, Donovan said some of the changes are likely to include the following:
- Higher downpayments. The current minimum is 3.5 percent. Donovan didn't say how much higher the agency might push it, but congressional critics want to see at least a five percent minimum.
- Look for FHA's generous "seller concessions" to be cut in half -- from the current six percent to three percent of the loan amount (and maybe even lower.)
- Higher mortgage insurance premiums. FHA currently charges what it calls an "upfront" premium of 1.75 percent of the loan amount. That could go a lot higher, maybe even to three percent, according to Donovan.

Under present FHA rules, home sellers can contribute to their buyers' closing costs up to a maximum of six percent of the initial mortgage amount. Critics say that encourages sellers to inflate the prices they want from buyers, and allows marginal purchasers to buy houses they can't really afford. Click Here to Read the Full Story

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