Ch-Ch-Ch-Changes!  Once again changes to FHA (Federal Housing Authority) mortgage lending:

HUD has made several announcements regarding changes to FHA financing recently.  Below are a few highlights and key dates for you to know.  These are especially important if you are considering FHA financing and currently looking for a home!!

FHA Changes Coming in April 2012:
1.      Self Employed borrowers will be required in most cases to provide a current P&L (profit & loss) statement and a Balance Sheet for qualification
2.      More Borrowers will have to pay off collections in order to qualify for FHA loans – (current disputed/collection accounts in excess of $1000 must be ‘resolved’ (details in letter)
a.      Paying “down” of balances on disputed accounts and collections to reduce the singular or cumulative balance to below $1,000, is not an acceptable resolution of accounts.
3.      FHA’s Upfront Mortgage Insurance Premium (UFMIP) will be raised from 1% to 1.75%.
4.      Monthly Mortgage Insurance (MMI) goes from 1.15% to 1.25%

FHA Changes Coming in June 2012:
1.      Streamlined Refinances – REDUCTION in UFMIP from 1.0% to 0.01%
2.      Streamlined Refinances – REDUCTION in MMI from 1.15% to .55%

FHA Costs Going UP!!

If you’ve been considering a purchase that would include FHA (Federal Housing Administration) financing.  Don’t hesitate … as once again some of the costs of procuring this very competitive form of financing (especially for the first-time buyer) are going UP!!!  In an announcement from HUD today that mortgage insurance for FHA loans would increase April 1st, 2012 and June 1st, 2012!  FHA financing has considerable advantages for some buyers.  This will NOT affect existing FHA loans!!

Here’s a “quick and dirty” breakdown:

If you’re getting a home loan with less than 20% down, it’ll have mortgage insurance (MI), and there are two kinds: private (or PMI) and FHA MI. The FHA loans have better rates and easier approvals than PMI loans.

Right now, FHA has two tiers of MI:

(1) Up front MI is 1% of loan amount. It can be added to closing costs, or you can finance it by adding it to the loan amount.

(2) Annual MI is 1.1% of loan amount if your down payment is 5% or more, or 1.15% of loan amount if your down payment is less than 5% (you can go as low as 3.5% down with FHA). These annual fees are paid monthly. The calculation is loan amount x MI rate / 12mo = monthly MI payment.

Effective with today’s announcement, the two tiers of FHA MI change as follows:

(1) Up front MI for loans up $729,750 (EFFECTIVE APRIL 1): will be 1.75% of loan amount

(2a) Annual MI for loans up to $729,750 (EFFECTIVE APRIL 1): will be 1.2% of loan amount if your down payment is 5% or more, or 1.25% of loan amount if your down payment is less than 5%.

(2b) Annual MI for loans $625,501 to 729,750 (EFFECTIVE JUNE 1): will be 1.45% of loan amount if your down payment is 5% or more, or 1.5% of loan amount if your down payment is less than 5%.

Note that FHA loans go up to $729,750 by county (look up your loan limits here), and the Fannie/Freddie (non-FHA) limits are only $625,500. This is why FHA is implementing higher annual MI fees for those higher tier loans as of June 1. FHA mortgage insurance for loans to $625,500 will remain at the level shown in 2a after June 1.

If you have an FHA loan you’ve been waiting to refinance, do it now.

If you’re a home shopper using FHA financing, you’ll need to be in contract before the effective dates above to have the current, lower mortgage insurance fees. If your shopping period will take longer, ask your lender to run new scenarios to see how these fee hikes change your pre-approval.

There’s a time for spontaneity, there’s a time for flexibility and there’s definitely a time for resilience!  But, there’s always room for future planning, especially when it comes to finances and real estate.  Thinking ahead can make you $$$$!  Thinking about your retirement when you are young, can make you an early retiree.  Thinking about the type of loan you secure for real estate can make your property more salable in certain markets (such as those with higher interest rates).  Just sayin……….

I am actually referring to FHA (Federal Housing Administration)  or VA (Veteran’s Administration) loans!  FHA & VA do not lend money, rather they both guarantee the loans.  I remember in the mid-80′s when I began my illustrious career and the mere mention of an underlying FHA or VA loan made a real estate agent swoon!  WHY???  Because FHA/VA loans are assumable at the interest rate of the existing loan (current rates, at that time, topped at 13%…OUCH!).  So, if the new buyer can come up with the difference between the existing underlying FHA loan and the current sales price (and can meet the qualifying standards), they can assume at the existing interest rate.

I know, I know!  It’s been a long time since interest rates were an issue.  But, when (not if) our economy makes a change, interest rates must go up.  They’ve been artificially low for some time.  But, to have attractive financing that could be assumed would add to the future sale-ability!

Consider getting a FHA or VA loan to purchase your home. The present advantages are that these loans are priced competitively and a little easier to qualify for than conventional loans. The future advantage is that FHA and VA loans are assumable at the original note rate for qualifying buyers.

There’s more to sell than the home itself when you have an assumable loan. The mortgage payment could lower the cost of housing significantly.  A buyer may easily be willing to pay more for the home due to the attractive financing, especially if it helps their equity grow faster.

What will they think up next?   Did you know that you could set up your bridal registry at the bank and use the funds for the FHA down payment on a home?  This could be perfect for people getting married who already have their household items and really need help getting into a home.

Actually, FHA has had this little known program that allows cash gifts since 1996 and I’ve been in the biz since 1985 and had never heard of it!  But, I love the idea!!  Sellers, builders, real estate agents or anyone with a financial interest are restricted fom making a gift contribution.  It’s not difficult to set up and it’s available with any FHA lender.  FHA loans have a lot of other advantages as well.  Check them out!

1. Inform your mortgage professional early of your intention to obtain all or part of your down payment from gifts to the FHA homeowner bridal registry.
2. Open a savings account at your bank named “bridal registry account”
3. Friends and family are given account deposit information

Top 10 FHA Loan Advantages

Fannie Mae and Freddie Mac underwritten conventional, FHA (Federal Housing Administration) and VA (Veterans Administration) loans account for the vast majority of mortgages chosen by buyers to finance their home purchase. While buyers have the choice on which product to use, there are some considerable advantages to FHA.

1.  More tolerant for credit challenges than conventional loans.
2.  Lower down payments than conventional loans.
3.  Broader qualifying ratios – total house payment with MIP can be up to 31% of borrower’s monthly gross income and total house payment with all recurring debt can be up to 43%.
4.  Seller can contribute up to 6% of purchase price – this money must be specified in the contract and can be used to pay all or part of the buyer’s closing costs, pre-paid items and/or buy-down of the interest rate.
5.  Self-employed may qualify with adequate documentation – two year’s tax returns and a current profit and loss statement would be required in addition to the normal qualifying and underwriting requirements.
6.  Mortgage Insurance Premium can be released in five years when the balance is 78% of original sales price
7.  Liberal use of gift monies – borrowers can receive a cash gift to assist in purchase from family members, buyer’s employer, close friend, labor union or charity. A gift letter will be required specifying that the gift does not have to be repaid.
8. Special 203(k) program for buying a home that needs capital improvements – requires a firm contractor’s bid attached to the contract specifying the work to be done. The home is appraised subject to the work being done. If approved, the home can close, the money for the improvements escrowed and paid when completed.
9.  Loans are assumable at the existing interest rate – assumptions require buyer qualification but are actually easier than qualifying for a new mortgage. Closing costs are lower on assumptions than originating a new mortgage.
10.  If the rate on the assumable mortgage is lower than current rates for new mortgages, it could add value to the property.

If you haven’t heard by now, FHA is increasing the annual Mortgage Insurance Premium again by .25% on April 18, 2011.  Payments will be higher even if the interest rates remain the same.

Buyers who are ready to take action can still lock in the lower MIP.  If they have a contract signed by all parties and get a FHA case number issued prior to 4/18/11, the lower MIP rate will apply.

For a $175,000 home at 5% interest, the new MIP will mean the buyer will pay $35 more to live in the same home.  If you don’t have to pay more, why would you?

April 18th is a Monday this year, so you’ll probably need to get your contract completed by the previous Friday at the latest to give your loan officer an opportunity to order the case number.  If you don’t have a loan officer, I can certainly recommend a reliable one.  This does not impact existing FHA loans!! As always, making good decisions will improve your entire homeowner experience and save you money.

FHA will hire a risk manager.  They will increase audited financial net worth requirement of approved FHA lenders from $250,000 up to $1,000,000.  The will increase minimum credit score standards for buyers.  And, they will now require income verification on streamline FHA refinances.  This may disqualify some buyers that are on the edge of qualifying and it will decrease the number of lenders that can do FHA loans. 

These new developments plus the up-coming end of the 1st-time homebuyer credit (homes must be closed by November 30th, 2009) should motivate some buyers to “step up to the plate”!!!