Summary of Recent Changes in the FHA Loan Program

Over the past few weeks we’re received a lot of questions regarding the recent changes to the FHA loan program. I might as well address some of these questions and concerns publicly. The changes are due to the recently signed Housing and Economic Recovery Act of 2008.

Changes to the down payment requirement: The minimum down payment requirement will increase from 3% to 3.5% starting October 1, 2008. To take advantage of the 3% down payment contracts must be dated before September 15th, underwriting approvals must be made before the 22nd and loans must fund by the 30th. Now, not only is the down payment requirements increasing, but H.R.3221 eliminates down payment assistance programs all together. I personally, don’t understand the reasoning behind this but then again it’s the government.

Status of the Upfront Mortgage Insurance Premium: HUD had recently made the FHA Upfront mortgage insurance risk-based. Meaning you paid more if you had worse credit. Now with the new bill H.R. 3221, there is a one year moratorium on these changes. In the mean time FHA will revert back to the single 1.5% premium charge.

New FHA loan limits: The new FHA loan limit will be the lesser of 115% of median sales price for your area or $625,500 but no lower than $271,050.  The median sales price this will be based on will not be published by HUD until November. We do know that if your loan limit since March has been higher than $271,050, the only way your loan limit will not be lower starting January 1 is if your area home prices have been having a significant rise (not true of hardly any area).  However, we don’t know what the new loan limit will be for sure until FHA does their math, only that it will be somewhere between the floor of $271,050 and the cap of $625,500.

Bottom line is that if you are planning a home purchase and would need a FHA loan, then you need to be aware that the loan limits will most likely be falling and the down payment amount will be rising after the first of the year. In essence, might as well purchase before end of the year.

$7500 tax credit: The recently signed bill provides a $7,500 tax credit for first-time homebuyers that will expire July 1, 2009, must be repaid over 15 years — making it, in effect, an interest free loan. First-time home buyers are defined as those who have not had an ownership interest in a real estate property in the past three years. North Phoenix Agent, Heather Barr, has a great post on her blog with details on this tax credit.

As you can see there are lots of changes in the industry. If you are in the market for a FHA loan, my best advice is ask lots of questions.


  1. Shailesh, Since I was one of those asking you questions, I really appreciate you getting this information out, especially regarding how the new FHA loan limit will be calculated.

  2. No problem Dru. You prompted the research and the incentive. :-)

  3. What is the minimum downpayment in Phoenix that the mortgage insurance industry requires for a conventional loan whenputting a downpayment down that’s less the 20%? Does the mortgage insurance downpayment requirements change based on the company? How is that regulated? I’ve heard conflicting information from loan officers and brokers.

  4. Peg,

    Thanks for your inquiry on the AZ Mortgage Guru. Mortgage Insurance can be confusing, especially in this market. To answer your question, you need to put a minimum of 5% down on a conventional, owner-occupied purchase. Mortgage Insurance will go to 95% LTV (loan to value).

    However, you must be careful. SOME of programs will automatically cut of 5% additional from this 95%, bringing it down to 90% IF your home is considered to be in a “declining market”. Make sure you ask your loan officer about this!

    Please let me know if you have any further questions!

  5. Hello Aimee
    Do you know if FHA approves loans for a home that are on a WELL and not city water and what are the requirements for that?

  6. I really hope the current loan limits get extended beyond the end of this year. There are a lot of people tied up in short sales who will be forced to bail if it gets adjusted downward significantly.


  1. […] government has been very busy this past year and half or so enacting all kinds of legislation. Many changes have been made to mortgage finance tax law.  So many that it can be hard to keep track of […]

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