The revisions are intended to increase access to affordable mortgages for low- and moderate-income borrowers, while also providing more certainty for lenders.
The revised policies are part of the FHA’s effort to improve its policy framework and make sure that it meets today’s market needs. This includes adopting up-to-date policy guidance and technological solutions.
One of the key changes in the revised policies is the minimum credit score requirement. The new requirement states that borrowers must have a minimum score of 580 for all loans that are manually underwritten. This is a major departure from the previous requirement of 500 or more, which was established almost 20 years ago.
The new policies also state that borrowers with non-traditional credit histories may be eligible for loans with manual underwriting even if they don’t meet the 580 minimum score requirement. The FHA recognizes that there are many potential borrowers who don’t have a conventional credit score but can still pay back their loan responsibly.
In addition, the FHA has also made changes to the upfront mortgage insurance premium (UFMIP). The UFMIP is a flat fee that’s paid upfront as part of the loan and is used to insure lenders. The revised policies reduce the UFMIP from 1.75% to 1.5%.
The combination of these changes improves the FHA’s ability to help more low- and moderate-income borrowers qualify for affordable mortgages. The minimum score requirement has been raised, but borrowers with non-traditional credit histories are now granted more flexibility. The reduction in the UFMIP also makes it easier for lenders to provide mortgages to people who need them without having to cover the entire cost of the loan.
This is a positive step forward for both borrowers and lenders in the single-family home loan market. The increased access to mortgages will help more people become homeowners, while the reduced UFMIP helps lenders cover the costs of providing those mortgages. Hopefully, these changes will result in more stability for everyone involved in the single-family home loan market.
This article was contributed on Nov 08, 2023