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FHA Risk-Based Premiums

FHA Risk-Based Premiums on FHA Single-Family Mortgages

Effective with new FHA case number assignments on or after July 14, 2008, FHA will implement risk-based premiums on one- to four-unit single family mortgages. The premium matrix shown below, will replace the premium matrix in Mortgagee Letter 00-38.

The premium grid is based solely on the prospective borrower’s credit bureau score and the loan-to-value ratio; both are defined below.

FHA defines the credit score as shown below:

“Decision Credit Score” Defined

If a credit score is available, it must be used to determine the decision credit score for the application and the premium to be charged. A “decision credit score” is determined for each applicant according to the following rule: when three scores are available (one from each repository), the median (middle) value is used; when only two are available, the lesser of the two is chosen; when only one is available that score is used.

Non-Traditional Credit

For premium purposes, the borrower representing the greatest risk to the Department will determine the premium to be charged. Borrowers with non-traditional credit (or insufficient credit) must qualify based on the underwriting guidance described in Mortgagee Letter 2008-11. For multiple Borrowers and those without credit scores, if the decision credit score for one borrower is between 559-500 and the other borrower is in the non-traditional credit category, the decision credit score between 559-500 is used to determine the premium. It the decision credit score for one borrower is between 639-600, and the other borrower is in the non-traditional credit category, the non-traditional credit category is used to determine the premium.

First-Time Homebuyer with HUD-Approved Pre-Purchase Counseling

First-time homebuyers who will be obtaining a mortgage with an LTV greater than 95 percent and whose decision credit score is in the 559-500 range are entitled to a reduction of their upfront mortgage insurance premium from 2.25 percent to 2.00 percent provided the homebuyer completes HUD-approved pre-purchase counseling.

FHA continues to be the loan program that helps people with low downpayment and the new changes to the FHA program will insure the program is accessible for homebuyers. Currently, 91% of all listing for single family homes and condominiums are priced within the FHA Franklin county maximum limit of $341,250.

If you should have any questions concerning this Mortgagee Letter, call 1-800-CALL-FHA (1-800-225-5342).