Starting this spring, homebuyers who use Federal Housing Administration (FHA) loans will get socked with much higher costs. PMI premiums will increase to 2.25 percent of the loan amount from 1.75 percent; allowable contributions by the seller toward settlement costs will drop to 3 percent of the purchase price from 6 percent. Although homebuyers who have a credit score of at least 580 will continue to be permitted to apply a down payment of as little as 3.5 percent of the purchase price, homebuyers who have a credit score of less than 580 will be required to come up with at least 10 percent.
Real estate attorney Matt Alegi of Shulman Rogers expects mortgage interest rates to increase as a result of the money that is being removed from the secondary mortgage market. This, the cessation of tax incentives to purchase homes and FHA’s moves make him believe that the housing market will drop further.