How FHA Financing Could Slow Housing Recovery with New Mortgage Rules from HUD
There is virtually no economic expert out there who wouldn't admit that a robust housing market is crucial to a good national economy. We saw the effect of a housing crisis in 2007 when homes began to go into default and a flood of foreclosures hit the market. The result was not only a dramatic dip in the value of the average home, but individuals all over the country losing their job as the economy began to slow down and a number of families who found themselves underwater when it came to their mortgage steadily on the rise.
So, what can be done to prevent another such disaster? Well, many experts have recommended tightening lending guidelines in order to prevent as many risky loans as possible. While this makes sense, it also has some problems, especially for individuals who would otherwise not qualify for a traditional loan from a bank or other lending institution. This is where the FHA has traditionally stepped up in order to help individuals purchase a home when their credit history is not up to the requirements of other lenders.
Unfortunately, new revisions to how the FHA goes about its business could dramatically decrease the number of people who qualify for loans from the agency. One such revision is a requirement that loans be available only to individuals who have a debt income ratio of 43%. In the past, it was possible for individuals with a debt to income ratios high 55% qualify for a loan.
Another problem is that the tightening of standards by the FHA has led to monthly payments being higher than they were, which puts home ownership out of the range for low and middle income families. Of course, it is not just individuals with less than perfect credit who are feeling the pinch. Even individuals who have a good credit score may find that the best course of action is to get pre-approved before even discussing homes with a realtor.
While it is important to prevent another housing crisis, preventing individuals from achieving their dream of homeownership will actually slow down the recovery and make it difficult for the housing industry to recover at a steady rate both now and over the near future. With housing costs on the rise, especially in urban areas, and with restrictions getting even tighter in the coming year, there is quite a bit of concern that the recovery that we have experienced so far may slow down even more.