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Are You Planning On Getting An FHA Loan What You Need To Know

 

David asks…

Does anyone know of any upcoming FHA guideline changes?

I am suppose to be getting FHA. Just worried cause there is so many things going on with the market that in a few weeks it may be impossible to get a loan.

admin answers:

One of the major changes that FHA has done in recent years is the change in how the principal mortgage insurance ( PMI) now works when getting a home loan.  As of June of last year 2013 if you were getting a FHA home loan and were planning only putting down the required 3.5%.  The PMI would be for the life of the loan.  This is a huge difference since it use to be that after 5 years the premium that you were paying for the insurance would go away.

Now if you do plan on putting down more at least 10% then the PMI will only be active for 11 years.  That is assuming that you are doing a 30 year mortgage.   PMI is basically insurance that the Federal Housing Administration  (FHA) charges you the consumer if you want this home loan, hence the term FHA loan.  It really give you no benefit other than being able to get the home loan.   It is really for the banks, in case you do not pay on your mortgage and they have to foreclose on you.   FHA will step in and cover any losses the bank suffer due to the foreclosure.   PMI is calculated based off of your loan amount.  There is a 1.75 % upfront cost that can be financed and then there is the annual fee of 1.35% that is divided by 12.   So for example on a $200k loan the upfront cost would be $3,500.00, and the monthly premium added to your mortgage payment would be $225.00

You can try to avoid paying PMI by trying to qualify for a conventional loan some loans allow you to avoid the monthly PMI with as little as 5%.  As long as you qualify for a conventional loan based off of credit etc.

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What Are Some Of The FHA Changes For 2012

Interest rates have been at all time lows for quite some time now.  Not only have interest rates been at all time lows but values have fallen at the same time, in the Santa Maria real estate market you can see homes in Santa Maria that have lost 70% of value from their peak.  Which is the first time in American history where interest rates have fallen in conjunction with home values.  Historically values and interest rates are inverse,  basically when rates go up,  values tend to go down and when values go down interest rates go up.   Depending on where you are at some markets have experienced as much as a 70% loss in value from their highs, as stated previously.  Although the market has been prime for first time home buyers not just investors.  There are still many that are waiting to see what will happen some may be waiting to see if interest rates will drop even more than where they are at or they are hoping to see if values will continue to fall.  Now if you are a CASH buyer you may have some luck just waiting for you.  But if you need financing and buying a home with cash is not something you are able to do then you might want to consider to getting off the fence.  The reality is there are changes coming again to the most popular loan program out there which is FHA financing.  Anyone needing financing should be more concerned with just being able to get financing and being able to be approved for a home which might be more important than just waiting to see what the market is going to do.

The first change coming to FHA loans as of April 1st, is the increase in the PMI primarily the up front cost.  The monthly charge is going up as well but its not as dramatic as the upfront cost.  Currently the upfront cost of the PMI is 1% but its now going up to 1.75% .  The PMI is the principal mortgage insurance in case the borrower defaults on the loan the pmi will cover the cost of the outstanding balance.  So for a 200k loan the upfront cost is 2k but after April 1st the cost will be $3,500.00 that will be an additional cost added to the closing costs for a home loan.

Another change that is coming to FHA loans is how collection and charge off accounts are treated when qualifying for a loan.   Current FHA guidelines ignore Charge-offs and Collections depending on what the collections are.  But starting April 1st, you cannot ignore the balance if all collections and or charge offs combined is over $1k.  Note: Paying “down” of balances on disputed accounts and collections to reduce the singular or cumulative balance to below $1k, is not acceptable resolution of accounts.  The reality is that there will be those that are currently approved for a FHA loan but after April 1st they will no longer be approved.  The 2nd biggest change is the open Judgments having a minimum of 3 months payment history.  Current FHA guidelines requires only first payment made with copy of cancelled check or cashier’s check.  Clients will need to start making payments to show 3 months payment history in order to receive an approval.

There are additional changes coming to FHA loans this year but they have yet to be finalized as well as the effective date of these changes.  Mainly to increase the solvency of the FHA administration and the insurance fund from any further loses so that a bail out is not needed.  One major change that is coming will be the change in the amount of seller contribution to buyers closing costs.  This change will not affect homes under 200k for the most part but homes over 200k will feel the impact of this change.  Future guidelines will limit seller contribution to the greater of 3% or 6k.  Although this is not finalized yet it is an indication of the administrations efforts to change lending guidelines which will make it harder to qualify.  Among other things the new debt ratio which is yet to be finalized as well.   Which is the amount you can have in bills including your mortgage payment in relation to your current income.

 

The reality is that there will always be those that are waiting to see what the real estate market is doing.   Only to finally find out that they can no longer qualify for a home loan.   There will always be those that qualify for a home loan no matter what.   Although there are those that will find themselves being penny wise and a pound foolish.

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What Are The New Changes For Getting An FHA Loan

There are a few changes in the lending world that will soon be affecting the Santa Maria real estate market as well as all other markets in the U.S with borrowers trying to seek approval for the new mortgage home loan.   Now keep in mind that at this time govt. sponsored lending programs represent about 90% of the mortgage loans that are being generated.  So to say that real estate is recovering is probably more accurate than to say that we have recovered or have stabilized.  But we are hopefully past the half way mark on the recovery process.

As for the changes in getting an FHA loan.

These new rules go into effect this month, and are for FHA loans only, although there are changes happening in Fannie and Freddie Mac’s lending guidelines as well. But for now let us just stick to FHA, without confusing anyone.   FHA = Federal Housing Administration, now for those that do not know they do not loan you the money they insure the money that is being lent to you.  Basically you go to any bank or broker that is approved to originate a FHA loan the lender will loan you the money to get your home loan and as long as they are done per FHA rules and guidelines they will insure those funds so the bank does not have to deal with the risk of losing any money.

In being able to do these loans the FHA charges insurance premiums to the borrowers for getting the loan.  The insurance is for the bank but you as the borrower pay for this insurance so if you happen to default on the loan the bank will get the money, and the only benefit to you is that you get the loan to buy the house you want.

First change is that the premium that is being charged on a monthly basis is being raised to .85 – .90 percent depending on the balance.  It used to be .5 -.55 % so now the difference is for example on a 200k loan x .55% = $1,100.00 annual divide that by 12 you get $91.67 a month.  But now using the same loan amount 200k x .90% = 1800.00 divide that by 12, and you will now be paying $150.00 a month on to your new loan so getting a loan will now cost you more every month.

But the fun does not stop there.

Second change is that when you do get an FHA loan you are charged an upfront premium usually a few thousand depending on the size of the loan, and this is part of the closing costs.  The upfront premium use to be 2.25% and now its down to 1% which is pretty cool for a first time home buyer so rather than paying $4,500.00 for a new loan now you only pay $2,000.00 for the premium and this was part of the one time cost to close a loan when getting an FHA loan making it easier for first time home buyers.

Keep in mind that FHA loans allow you to get into a home with as little as 3.5% down where Fannie Mae or Freddie Mac you could be looking at 10 to 20% down depending on the type of loan and your credit so you can buy a $200k home with as little as 7k down.  Or $20k down payment for the same home and for most the answer is obvious.

For now depending on how the loses are for FHA will also decide how expensive it can be to get into a home, FHA is authorized to increase monthly premiums as high at 1.55% so be grateful its only .90%.  Many in congress also want to increase the minimum from the current 3.5% to 5%.  But if the market is recovering, and too many increases and costs in getting a home will make it come to a stop, and affect the rest of the economy so whether you are in the market to buy a home or not it does affect you.

There are other changes such as a minimum fico score to get an FHA loan, which is significant since getting an FHA loan never required a score to begin with.  But the minimum FICO score is 500 but anyone with a score under 580 must put down a min. of 10% and anyone over 580 can qualify for a loan with as little as 3.5%.  But also keep in mind that even though FHA may allow the BANK to lend to someone with a score as low as 500 many banks may not accept a borrower with a score of less than 620, the banks just have that option to go that low to do a loan for someone with scores that low but more than likely most will not due to risks.  Even though the insurance will pay the bank for any losses, just like your car insurance you do not want to many too loses or accidents or your insurance company may drop you or jack your fees up and make it hard for you to stay with them. Same concept.

Rates are still pretty low and the costs of a loan are still reasonable but in time there maybe more changes to come and waiting for the perfect may never come.  But hopefully there are not too many changes, because the economy does rely on real estate activity to fuel it and making it harder to get lending will only slow things down or stall the recovery that I have yet to feel myself. 😉

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If you have any questions about buying a Santa Maria home for sale in the Santa Maria Real Estate market or any properties on the Central Coastand need to get a loan in Santa Maria, CA or any where in the state of so I California not just on the Central Coast, so I can do California home loans, and first time home buyer loans, as well as refinance home loans and just plain simple mortgage loans. So please contact me by sending me an email at: GenePerez@GMSLoans.net

I do also service all the nearby communities and other markets such as the Santa Ynez real estate market, Nipomo Real estate market, Arroyo Grande real estate market, Grover Beach Real Estate Market, and all other surrounding areas regarding the homes on the Central Coast.

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information please let me know. I have been helping my clients for the last 15 years on the Central Coast, Gene Perez – 805-448-7101 , DRE 01321588

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