Looking to FHA for your next mortgage? Get a move on!  Although you have until Friday, April 2, 2010 to get your application in, Friday is Good Friday and most banks will be closed.

Your true FHA deadline is Thursday, April 1.

Guidelines Change In 3 Days

To shore up its balance sheet and dwindling capital reserves, the Federal Housing Authority is rolling out sweeping financial changes. Starting next week, FHA borrowers must to look better on paper and to be better credit risks.

Mortgage insurance premiums are rising, too.

In its official announcement, the FHA said its trying to better position itself to "manage its risk while continuing to support the nation’s housing market".

The changes start with case numbers assigned on or after Monday, April 5, 2010.

Reviewing The FHA Mortgage Changes

One widely speculated change wasn't made -- the increase of the FHA minimum downpayment.  Homebuyers in Cincinnati, Chicago and elsewhere can still buy with just 3.5 percent down.  However, the group did roll out a number of other changes, including:

• An increase in Upfront MIP from 1.75 percent to 2.25 percent
• A plan to reduce maximum seller contributions from 6 to 3 percent by summer
• A Congressional request to increase monthly mortgage insurance premiums

Furthermore, the FHA's new guidelines institute a minimum FICO requirement of 580 to make the minimum 3.5% downpayment, requiring 10 percent for any applicant whose credit score falls below that level.

2010: The Year Of Investor Overlays

But, just because the FHA allows 580 FICOs, banks don't have to allow it.

The official term here is "investor overlay". It's when that banks use Federal Housing Authority guidelines as a starting point for their own set of underwriting rules which are often more strict.

And banks have a good reason for making investor overlays.

In January, the FHA subpoenaed 15 lenders -- including the well-respected 1st Advantage Mortgage in Lombard, Illinois -- because of abnormally-high FHA default rates.  The act was a shot across the bow, it appears, because more lenders have been shut down since.

The FHA made a loan performance benchmark and if a  bank's defaults exceed the mean by x number of sigmas, said bank loses its FHA license. Period.

Expect FHA investor overlays to be a running theme of 2010.

Your FHA Mortgage Denial May Be Reversible

Starting immediately, FHA mortgage guidelines will vary from bank-to-bank as lenders get more active about their originated mortgages.  Going forward, what gets FHA-approved Bank of America, for example, may not be FHA-approved at Wells Fargo.

FHA loans will now be denied simply because the applicant applied at the "wrong bank".

If your mortgage has been denied or you just want to have the best chance of being approved possible, call or with some notes on your situation. I work for Waterstone Mortgage -- a HUD-approved lender.  We underwrite and fund FHA mortgages from our own accounts, and work with the nation's largest investors as an approved conduit.

In other words, apply once and I'll automatically align with the best pricing and fewest overlays. to email me about getting started.

Mortgage guidelines are in constant flux.  Or at least it seems that way.  And too often, rumors of "what's coming" take on a life of their own, spilling over into media coverage and into the minds of the homebuying public.

A classic example of this was the fabled "$15,000 homebuyer tax credit" from 2008.  It was an idea that passed the Senate and got good headlines but, ultimately, died in Congress.  Not before the news went mainstream, however.

The most recent rumor involves FHA mortgage insurance premiums.

The image above is a snippet from page 348 of the Special Topics sub-section in the Budget of the United States Government, Fiscal Year 2011.  Among other things, the text recaps the FHA's recent response to its own dwindling reserves and rising risk levels.

The FHA's new guidelines effective April 5, 2010 are highlighted, too.

Now, when the FHA passed its new guidelines (13 days ago), it said that it would petition Congress for the right to raise its mortgage insurance premiums because, by statute, the FHA doesn't have that authority.  According to the highlighted text, the FHA wants to make two changes:

1. Lower the Upfront Mortgage Insurance Premium from 2.250% to 1.000%
2. Raise the Monthly Mortgage Insurance Premium to 0.85% on most mortgages

This is where the rumors starts.  Just because the FHA asks for control over its own mortgage insurance doesn't mean that Congress will grant it. Nor does it mean that the FHA won't deviate from its original plan should Congress accede to the FHA's request.

In other words, the MIP changes are just a wish list. Reality is much different.

For now, starting April 5, 2010, the FHA increases its upfront mortgage insurance premiums to 2.25%, raises its minimum FICO score requirements to 620, and reduces its allowable seller concessions to 3 percent.

These are the facts. Homebuyers, loan officers and real estate agents should plan accordingly.

If you're buying a home and thinking of going FHA, be sure to talk to your loan officer about your personal timeline and how the new FHA guidelines may affect you.  Or, if you don't have a loan officer, and we can talk about your situation.  My bank underwrites FHA-backed mortgage in-house and our rates are low.

Plus, I love to work with my readers.

(Image Courtesy: WhiteHouse.gov; h/t Holden Lewis)