Posted September 10, 2012Tweet
Update : The FHA waived its mandatory waiting periods in August 2013. Read more about the FHA Back To Work program here.
Between 2006-2011, the FHA's share of the purchase mortgage market increased 5-fold.
For 2012 and beyond, that share should increase.
The FHA is contemplating new, looser mortgage guidelines that would waive its standard "waiting period" after a significant derogatory credit event. Home buyers with recent bankruptcy, foreclosure or short sale may be cleared to buy homes immediately.
The Federal Housing Administration (FHA) is not a mortgage lender; the FHA does not make loans. Rather, it insures loans for banks that do.
The FHA publishes a compendium of rules known as "FHA mortgage guidelines" and so long as a mortgage meets of the rules' minimum standards, the FHA will insure the loan-issuing bank against default.
A better name for an FHA mortgage, then, might be FHA-insured mortgage; it's a more accurate reflection of the relationship between the FHA and mortgage lender nationwide.
For purchase transactions, FHA mortgage guidelines are fairly straight-forward :
In addition, mortgage loan sizes may not exceed local FHA loan limits.
In most areas nationwide, including Palo Alto County, Iowa; Price George's County, Maryland; and Miami County, Ohio, for example, local FHA loan limits are $271,050.
In other "high-cost" areas including Los Angeles County, California; Monroe County, Florida; and Eagle County, Colorado, the local FHA loan limit is $729,750.
Mortgage guidelines are a living, breathing thing. As the housing market moves, and as credit conditions necessitate, mortgage guidelines morph. This is true for FHA mortgage guidelines, just as it is for Fannie Mae- and Freddie Mac-type loans and VA loans, for example.
Guideline changes can be small; increasing maximum debt-to-income ratios from 43% to 45%, for example. Or, they can be big. The HARP 2.0 program is a good example of this. Other times, changes are major -- broad enough in scope that they reverberate throughout the housing market as a whole.
The FHA may make a major guideline change soon.
Within 75 days, the FHA is expected to change its purchase mortgage guidelines to allow home buyers with major derogatory credit events in their recent history to skip the traditional "waiting period" for an FHA-backed mortgage.
Major derogatory events include foreclosure, short sale, and Chapter 7 bankruptcy. The mandatory waiting period of each of the aforementioned events are as follows, assuming credit has been re-established by the borrower :
Under the FHA's expected new plan, these waiting periods will be waived in full.
Soon, FHA-insured loans may be available to home buyers who may have been recently foreclosed upon; for whom a short sale was necessary; or for whom a Chapter 7 bankruptcy was discharged yesterday.
The FHA's new waiver on foreclosures, short sales and bankruptcies would add to the national pool of home buyers, creating buy-side demand for housing and upward pressure for home values nationwide.
The FHA has grown its market share since the start of the decade on a combination of sound mortgage guidelines, low mortgage rates for borrowers, and a minimum downpayment option of just 3.5%. With its expected "waiting period" waiver, the FHA figures to grow its market share, and the pool of potential buyers nationwide.
Home prices have made slow, steady gains since October 2011 and those gains may accelerate with new FHA policies. See how today's FHA mortgage rates can fit in your household budget.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2014 Conforming & FHA Loan Limits
Mortgage loan limits for every U.S. county,
as published by Fannie Mae & Freddie Mac, and the FHA.