Typically, an FHA loan is one of the easiest loans to qualify for but that won’t be so for long. Changes will be made and these changes are not going to make it any easier for homeowners. All FHA mortgages will be affected by the changes to be implemented coming April 1, 2013. These changes are not going to be good news to many Tampa, Florida homebuyers who plan to get an FHA loan as the process will then be substantially more difficult. The FHA has set deadlines for a new mortgage insurance premium schedule; an increase in downpayment minimums; and, new underwriting standards for loans with low credit scores.
Nowadays, FHA loans are what most people prefer to get, especially with first-time home buyers. The FHA has been around since 1934. The agency does not make loans or guarantee loans. The Federal Housing Administration insures mortgage loans. And it is required by law to maintain a 2% reserve in its Mutual Mortgage Insurance (MMI) fund. The insurance removes or minimizes the default risk lenders face when buyers put down less than 20 percent. The FHA is in a financial hole right now. The last decade didn’t favor the FHA as bad loans of the past decade lead to the dwindling of the FHA’s reserves to -1.44 percent. To get itself out of the hole, the FHA’s plans are geared towards rebuilding the MMI with changes that are not going to make homebuyers glad to say the least. The most notable among the changes is an increase in annual mortgage insurance premiums on most FHA-backed mortgages.
MIP increase on April 1, 2013
On April 1, 2013, an MIP increase of 10 basis points annually will be implemented on most FHA-backed mortgages. This 0.10 percentage point increase will be implemented to all loan terms including 15-year fixed-rate FHA loans. Insurance premiums for jumbo FHA loans will also be changed. An increase of 10 basis points annually or 0.10 percentage points will be implemented on loans with terms of 15 years or less, and balances between $625,500 and $729,750. These loans are only available in designated “high cost” areas. An increase of 5 basis points annually or 0.05 percentage points to a maximum 1.55% annual MIP rate as allowed by law will be applied to loans with terms of between fifteen and 30 years. FHA Streamline Refinances which replace FHA loans from before June 1, 2009 are unaffected by the MIP increase.
New FHA MIP Cancelation Policy on June 3, 2013
The FHA is reversing its policy which allows FHA-backed homeowners to cancel mortgage insurance premiums once the outstanding principal balance of an FHA loan reaches 78 percent of the original balance. For purchases and refinances, the removal of MIP throughout the life of a loan– if the loan’s starting loan balance is higher than 90% of its appraised value — will be disallowed by the FHA. MIP must be paid for 11 years for loans in which the loan-to-value begins at 90 percent or less. This change goes into effect June 3, 2013.
In addition, in cases in which borrowers do not meet the minimum credit score requirement of 620 and their total DTI ratios go beyond 43 percent, lenders are now required by the FHA to manually underwrite loans for such borrowers. Also, any factors that support approving the loan are to be documented by lenders. The FHA will also be announcing that the minimum down payment requirements for jumbo FHA loans will be increased from 3.5 percent to 5 percent or more.
The Best Deals
Despite the FHA mortgages being more restrictive, both low-downpayment buyers and current homeowners with FHA-backed loans can still benefit from FHA mortgages for they offer the best deals that are available in the market today.
Chris Brown is the premier expert on HARP loans and Government FHA and VA loans. Please visit The Mortgage Chili Blog