A few years ago FHA loans made up only around 3 percent of the home loan market. Now they make up closer to 50 percent, due to their lower down payment requirements (3.5.%) and less stringent qualification standards, combined with the virtual disappearance of conventional zero-down loans and second mortgages.

Some quick background: FHA loans are backed by the Federal Housing Administration, and despite their less strict qualification standards have typically had a pretty healthy rate of repayment; however, during the mortgage crisis many subprime borrowers turned to the FHA program, and it’s expected that the FHA loan repayment rate will worsen significantly over the next few years.  Bankrate.com has a pretty good overview of the FHA loan program.

Changes in Store for FHA Loans:

On December 2 HUD Secretary Shaun Donovan announced the following proposed changes that will affect new FHA borrowers:

1. Increasing the required initial cash investment.

This could be done by increasing the down payment from the current minimum of 3.5%, and/or by not allowing borrowers to finance the FHA premium.

2. Increasing the minimum FICO (credit) scores requirement.

3. Increasing mortgage insurance premiums.

4. Reducing the allowable seller concession to the buyer from its current cap of 6 percent, to as low as 3 percent.

These are big changes, and not all of them need Congressional approval.  In other words, some are expected to be implemented early in 2010, so if you know of someone planning to purchase a home with an FHA loan this year please let them know about this post!

Are you thinking about refinancing your existing home mortgage?  If so, there’s a handy guide to home loan refinancing from the Federal Reserve Board that covers some important topics, such as:

• Comparing home loan refinance options
• Understanding ‘no cost’ refinances
• Calculating when you will recoup the expense of refinancing your mortgage
• Home mortgage prepayment penalties

There’s also a glossary of home loan refinance terms that’s highly useful.

The pamphlet dates from 2008 and is 29 pages, it opens up in just a few seconds via pdf – here’s the link:

A Consumer’s Guide to Mortgage Refinancings

By the way, if you would like recommendations to two mortgage professionals who I think are extremely good, just call or drop me a line.  (They are also listed on my Resources page.)