Borrowers who are looking to purchase or refinance and take out FHA home loans will soon be stuck with paying for mortgage insurance for the life of the loan, rather than being able to eventually cancel it as they can now.
The Department of Housing and Urban Development (HUD), parent agency of the FHA, has indicated that it plans to reverse a current policy that allows FHA borrowers to cancel annual mortgage insurance once their unpaid loan balance drops to 78 percent of the home’s “original” value. USDA made a similar change in October of 2011 by adding an annual mortgage insurance, and it is also for the life of the loan.
No date has been set for making the change, although HUD has indicated it will take place sometime in 2013.
The new policy will only apply to new FHA mortgages taken out after the change is put into effect. Homeowners who currently have an FHA mortgage or who obtain one prior to the change will still be able to cancel their mortgage insurance according to the current rules.
The change will be a costly one. FHA borrowers currently pay an annual mortgage insurance premium of 1.20-1.25 percent on 30-year fixed-rate mortgages; borrowers with jumbo mortgages pay up to 1.50 percent, while those with 15-year fixed-rate loans pay between 0.25-.50 percent.
In addition to making mortgage insurance a permanent feature of FHA home loans, HUD announced that it also intends to raise the cost of annual mortgage insurance premiums by 10 basis points, or an additional 0.1 percent, across the board. That means borrowers with a standard 30-year FHA mortgage would be paying annual insurance premiums of 1.30-1.35 percent.
The rule change creates some urgency for homeowners who are thinking of buying a home with an FHA mortgage or doing a streamlined refinance of a current FHA home loan, so they can finalize the mortgage before the new rules take effect.
Homeowners with FHA mortgages would still be able to get rid of mortgage insurance once their home equity exceeds 20 percent of their property value by refinancing into a non-FHA mortgage with no mortgage insurance.
HUD is making the change after a study by an independent actuary found that the capital reserve of the FHA’s mortgage insurance fund had fallen into deficit, with a ratio of -1.44 percent, representing a negative value of $16.3 billion. The losses are attributed to ongoing impacts from mortgages originated prior to 2009.
“While the loans made during this Administration remain the strongest in the agency’s history, we take the findings of the independent actuary very seriously,” said Carol Galante, FHA acting commissioner. “We will continue to take aggressive steps to protect FHA’s financial health while ensuring that FHA continues to perform its historic role of providing access to homeownership for underserved communities and supporting the housing market during tough economic times.”
An official HUD statement announcing the change notes that FHA currently insures mortgages for the life of the loan, but borrowers are only required to pay insurance premiums for part of that time.
The HUD rule change does not affect traditional mortgages with private mortgage insurance, which borrowers will still be able to get removed once their mortgage balance drops below 80 percent of their home’s value.
For borrowers who make the minimum 3.5 percent down payment, it takes about 10 years to reach the 78 percent mark on a 30-year fixed-rate mortgage, but only four years on a 15-year loan. The home’s original value is either the purchase or assessed price at the time the loan was originated, whichever is lower.
To be able to have their FHA mortgage insurance canceled under the current rules, they must reach the 78 percent figure through the normal amortization schedule; that is, they cannot speed up the process by making larger payments.
This new HUD rule will drastically affect the overall cost of financing, especially over thirty years. However, an FHA loan is still a very popular product due to the low minimum investment.
As with any decision of this magnitude, you need the guidance of an experienced mortgage professional. Myself and my staff here at Consumer First Mortgage are ready and waiting to assist you. You can reach us at http://www.MortgagesCanBeSimple.com or by phone in Cullman at 256-734-6012 or in Arab at 256-586-5626.
Many individuals do not realize that even the slightest change in your financial situation after you apply for a mortgage can delay or ultimately jeopardize the approval of your loan.
In my experience as a loan officer, I have seen each and every one of these commandments broken. Unfortunately, some of those had the judgement of the underwriter come down upon them, resulting in their loan being denied.
Please take each of these ten commandments to heart as you go through the mortgage application process.
1) Thou shalt NOT change jobs, become self-employed, or quit your job.
2) Thou shalt NOT buy a car, truck, van, motorcycle, ATV, or any other vehicle (or you may be living in it)
3) Thou shalt NOT use your credit cards excessively or let ANY of your payments fall behind.
4) Thou shalt NOT spend the money you have set aside for downpayment or closing costs.
5) Thou shalt NOT buy furniture, appliances, or household items before you buy your new house.
6) Thou shalt NOT originate or allow any new inquiries on your credit report.
7) Thou shalt NOT make any large OR 'cash only' deposits into your bank accounts or transfer money between accounts without first consulting your mortgage consultant.
8) Thou shalt NOT change bank accounts.
9) Thou shalt NOT co-sign for anyone, or allow authorized users to charge on your credit accounts.
10) Thou shalt NOT omit any debts or liabilities from your loan application.
Any one of these items could result in your loan being denied. Please notify your loan officer immediately if any of these actions were taken after you applied or after your credit was pulled.
Following these 10 Commandments will lead you to the promised land of LOAN APPROVAL HEAVEN!
For more information regarding the loan approval process, contact me or one of our fantastic loan officers.
"Can you get a mortgage without having to put down 20%?"
I was asked this question about three times over the last two days, so I thought I'd put out some information relative to this question.
Needing 20% down is a common misconception in the marketplace today. There are numerous options for obtaining financing with less than 20% down. Below I will lay out several options for either no down payment or low down payment.
NO DOWN PAYMENT OPTIONS:
USDA/Rural Development - The Guaranteed USDA program offers 100% financing for qualified borrowers. There are many locations outside of major metropolitan areas that are eligible for this program. Click here to see if the area you're looking is eligible. Also, USDA has household income restrictions for their program. They calculate the total household income, regardless of who is on the loan application. This income limit is based on the number of people live in the household, and varies based on the area you live in. Click here to check income eligibility.
USDA also offers a Direct program that is geared for lower income households. This program offers subsidized payments and slightly longer loan terms. Here is more information on the USDA Direct program.
VA Financing - This loan also offers 100% financing and one of the biggest eligibility requirements is that you either need to be an active or discharged member of the armed forces or national guard. Click here to find out if you may be eligible. Here is a link to some frequently asked questions as well. VA loans do have a guideline for disposable income (the money left over after all debt payments are made), however do not have a household income limit.
LOW DOWN PAYMENT OPTIONS:
FHA Financing - FHA offers home loans with as little as 3.5% down. FHA has no income limits for the household, but does have loan limits, based on the county in which you are purchasing the home. Click here to check on the limits for your area. FHA also offers a program for purchasing FHA foreclosure properties for as little as $100 for qualified properties. FHA is one of the most lenient programs in regards to credit history, in my opinion. *Note* This 3.5% down payment can be received as a gift from an eligible source.
Local and State Bond Money Programs - Many states and even some larges cities have down payment assistance programs that can be used with a variety of loan programs. For example, in my state of Alabama, we have a program through Alabama Housing Finance Authority (AHFA) called the Step Up Program. This program allows an eligible borrower to receive down payment assistance from AHFA in the amount of 3% of the purchase price and apply that towards FHA's 3.5% down payment requirement. This amount is financed to AHFA over 10 years at the same competitive rate as the first mortgage. But this allows a borrower to get FHA financing with only 0.5% down payment. Some other local and state programs offer down payment assistance with no payback, if you stay in the home for a certain number of years. Check with your local lenders, housing authorities and local governments to see if these programs exisit in your area.
Conventional Financing - Fannie Mae and Freddie Mac both still offer programs with as little as 3% down. For example, FannieMae offers HomePath financing on eligible FannieMae foreclosures. Also, they offer HomePath Renovation loans for foreclosures that need a little TLC. For other homes, they allow as little as 5% down payment. However, when putting less than 20% down, private mortgage insurance (PMI) is required on the loan. PMI is offered by separate companies and they have their own individual requirements based on FICO score, amount of down payment, type of loan, etc. PMI can be paid monthly or it can be paid all at once up front by either the buyer, the seller, or the lender. Ask you lender for details on these programs.
I hope this has answered your general questions about the programs that are available right now. I'd be happy to help you with any further questions you may have.
Brandon Sniderwww.MortgagesCanBeSimple.comNMLS ID# 181033256-694-7514
...that's a great question! I wish I knew the final answer.
On May 25, 2011, the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity met with one goal:
"Determine the role of FHA, RHS, and GNMA in the Single- and Multi-Family Mortgage Markets"
Several industry leaders were brought in to testify at the hearing, including NAR's own president, Ron Phipps as well as chairman of Mortgage Banker's Association, Michael Berman.
A draft of the FHA-Rural Regulatory Improvement Act of 2011 was the focus of the hearing. The headline from this act will obviously be the change of FHA's minimum down payment from 3.5% to 5.0%.
I tend to agree with Phipps when he testified, "Proposals to further increase FHA down payment requirements are unwarranted. The current 3.5% down payment and closing costs represent a significat financial commitment. Requiring a larger down payment does little to reduce risk of default compared to strong underwriting requirments, and only puts home ownership out of reach for many families who have the income necessary to carry the cost of the home purchase."
I couldn't have said it better myself. I'm sure most everyone would agree that underwriting standards have only gotten tougher over the past two years.
CAN I GET A WITNESS???
This new Act had many components and here is a quick summary of the Top 10 issues it addresses:
1) Sets a minimun guidelines for the Special Risk Insurance Fund and the General Insurance Fund, as well as time frames for doing so.
2) Increasing the minimum down payment for FHA loans from 3.5% to 5.0%
3) Sets new FHA loan limits based on 125% of the median single-family house price for each county
4) Sets FHA's Annual Mortgage Insurance premiums to be no less than 0.55% annually but not more than 1.5% annually
5) Any FHA Mortgagee (a direct endorsement Lender) that approves a mortgage that is later found to have not been underwritten correctly, and HUD has to pay a claim in a certain amount of time, HUD may require the lender to indemnify HUD against the loss. If fraud or misrepresentation is found, through out the time periods!
6) Gives HUD the ability to terminate a lender's ability to originate or underwrite FHA loans
7) Establishes a CFO for GNMA
8) Establishes a new Deputy Assistant Secretary for Risk at FHA
9) Would move the management of Rural Housing programs under the HUD umbrella
10) Would potentially change RHS loans' guarantee fee to 1% with an annual premium of 0.5% (payable monthly, much like FHA Loans already work)
Again, none of these are specifically implemented just yet and none of these provisions have been officially approved. But in my experience, if HUD wants to do something, it's pretty much a done deal, it's just a matter of when.
Be sure to connect with me on Facebook and Twitter and visit my website at MortgagesCanBeSimple.com.
USDA Rural Development has long been the 100% financing leader for a lot of areas across the nation. One of the major benefits of this loan product was that it required no monthly escrows for an annual mortgage insurance (MI). MI is sometimes referred as PMI, and the loan is advertised many times as 100% Financing with No PMI. That’s all going to change come October 1, 2011.USDA issued Administrative Notice 4551 on February 24, 2011 that alluded to this upcoming change. The change has been confirmed in an email that also included instructions on how to calculate the fee.Following in the footsteps of the Federal Housing Administration (FHA) in late 2010, USDA will be lowering the upfront guarantee fee. FHA lowered their fee from 2.25% to 1%. USDA will be lowering their up-front guarantee fee from 3.5% back down to the 2%. That’s a nice change!However, the other change is that it will now require a 0.3% annual mortgage insurance fee. While this fee is an annual fee, it is collected monthly in escrow like most mortgage insurance payments. In it’s basic form, on a $100,000 loan the calculation would be like this:100,000 X 0.3% = $300 annual fee $300 annual fee / 12 mo = $25/mo Here’s a look at an example of a $100,000 of how it is currently and how it will change come October 1, 2011. Keep reading for a look at the comparison of how a loan will look now vs. after Oct 1, 2011.Here’s another major difference between USDA’s annual MI premium and most other premiums. USDA’s annual MI premium will be assessed the entire life of the loan. Mortgage insurance on both conventional and FHA loans is scheduled to cancel when the loan balance reaches 78% of the original purchase price. For an FHA loan with a 3.5% down payment, this is sometime between year 12 and 13. Compare that with USDA’s premium that could last the entire 30 years!Assumptions: $100,000 purchase price with $0 down payment. 5% 30 year Fixed Rate. No monthly escrows for property taxes, homeowner’s insurance and/or HOA’s are included.NOTE: Before someone picks apart my calculation of the guarantee fee, and total loan amount, and annual MI calculations, this is simplified just to show the basic differences.
Current - Sep 30, 2011
On or after Oct 1, 2011
Up-front Guarantee fee = 3.5%Annual MI = 0%
$100,000 base loan x 3.5% fee
Total Loan Amt = $103,500
P&I Pmt = $555.61
Total Fees collected by USDA:~$3500
Up-front Guarantee fee = 2.0%Annual MI = 0.3%
$100,000 base loan x 2.0% fee
Total Loan Amt = $102,000
P&I Pmt = $547.56New MI pmt = $25
Total Fees collected by USDA:$2000 + ~$6300 in annual premiums~$8300!
This week, Congress has passed H.R. 5981 and it's headed to the President's desk. There are some major FHA changes associated with this bill that gives FHA the authority to raise the annual mortgage insurance premium that is supposed to bring in $300 million more on a monthly basis to FHA.
So how does this affect the borrower?? The good news is that they plan to decrease the upfront mortgage insurance to 1%, down from 2.25%. The bad news however, is that monthly cost for mortgage insurance is going up from a factor of .55 to .90 for a 30 year loan.
That probably doesn't sound like a lot to most people, so let's put that into real numbers.
Let's take a look at an example of a purchase price of $150,000:
For an FHA loan BEFORE September 7, 2010
Upfront Premium (2.25%) - $3256.88Monthly payment including mortgage insurance - $793.93
For an FHA loan ON OR AFTER September 7, 2010
Upfront Premium (1.00%) -$1447.50Monthly payment including mortgage insurance - $826.93
As you can see, while the upfront cost goes down by $1809.38, the overall increase in payment is $33 / mo.
While I can agree that changes to FHA must be made to ensure that FHA stays solvent and remains an option for borrowers looking to obtain financing, I disagree with the way they've chosen to do it. I would've rather seen an increase in the upfront premium, possibly to 3.5%, which would have a more immediate impact to the mortgage insurance reserve fund. In just this example, that would have given FHA an additional $1809.57 for the up front premium. This option would've also have less impact on the number most borrowers are concerned with...the monthly payment. The upfront premium is typically financed back into the loan, and in the same example would've only raised the payment to the borrower by $8.91.
Someone help me out if I'm wrong, but based on my calculations this new option actually decreases the amount FHA will bring in the first year by 32% and it will be into the 4th year of the loan before the revenue generated would equal what the current system would. This does not take into effect early defaults, refinances, and payoffs. Another question is that if FHA is trying to lower the number of defaults, why would they want to raise a borrower's monthly payment? Of course, they didn't consult me.
These FHA changes will go into effect September 7, 2010 and a new Mortgagee Letter will be sent out once the President signs the bill.
Check out these other great posts by Jeff Belonger and Travis Newton to see the effect of these FHA changes on some different purchase prices.
Click here to read the original letter by David H. Stevens - Secretary of HUD/FHA Commissioner
Great news for buyers who are depending on the USDA Rural Development Program for 100% Financing. On July 27, 2010, the House made a motion to suspend the rules on H.R. 4889, thereby moving forward the bill that would give emergency appropriations to the USDA Rural Development Program. The motion passed 308 - 114 with 10 abstaining from the vote.
This new appropriations bill will give this program much needed funding for the USDA Rural Development Program. New guidelines will be in place and will be announced by the USDA National office as soon as the dust settles.
Our company has been able to continue to close and fund these loans through this 'interem' period, but many lenders haven't been so lucky. This will make way for Automated Underwriting again as soon as they make the necessary changes to GUS (Government Underwriting System). This means no more 'mandatory' manual underwriting for credit-worthy borrowers and we can move back to a more 'streamlined' approval process.
As usual this was not the main purpose of this bill. This bill is also known as the Supplemental Appropriations Act of 2010 or the Disaster Relief and Summer Jobs Act of 2010. This bill also had appropriations for the Department of Homeland Security, the Department of Labor and Small Business Administration (SBA), Department of Transportation (DOT), Department of Commerce, as well as other parts of the Department of Agriculture.
View details of the Bill here.
Republicans and Democrats were both split on the bill for various reasons, mostly stemming from the War in Afghanistan and Iraq. Those opposing the measure would rather see these funds spent here domestically rather than abroad. But no need to get into a political discussion, right?
Regardless, this is good news for home buyers, and I'm glad other lenders can start funding these loans soon as well.
As a mortgage lender, I don't know how many times I've had clients tell me what they thought was their credit score, only to find out differently when they applied with me.
"Why is that?" one might ask. I too have asked the same question before, so I did some research and what I found out astounded me.
Most of the websites you see advertised on TV or top your Google search results offer you a "free" credit report and your "free" credit scores if you sign up for their trial offer for monthly credit monitoring.
What they don't explain very well is that the credit score they give you isn't the same score the lenders get with we pull it. This is because most lenders use the FICO© Score provided by Fair Isaac. There are actually three credit reporting agencies (Equifax, Experian, and Trans Union) and each of them have a FICO© Score with different names.
What has happened is that each of these agencies have also developed their own credit score models with names like PLUS score, and Vantage Score. These have been developed so that they don't have to pay Fair Isaac for pulling each score. These other types of scores good indicators of how your credit is, but is not your real FICO© score.
When applying for any loan, especially a mortgage, knowing your true FICO© score is imperative. MyFICO.com is a website that delivers some of the same great services these other sites offer such as credit monitoring, score tracking and identity theft protection. More importantly, they can provide you with your true FICO© score. It isn't a "free" score, but as the saying goes, you get what you pay for.
Click here or click on the link below to try it out and know what your true FICO© Score is and you can get a 30-day trial of their Score Watch service.
FHA announced in January that they would be increasing the upfront MIP from 1.75% to 2.25%. This change goes into effect on Monday, April 5th and will affect any new FHA case numbers ordered.
This change was made in an effort to strengthen FHA's capital reserves, while enabling the agency to continue to fulfill it's mission to provide access to homeownership for underserved communities.
The increase in upfront MIP doesn't impact a borrwer's cash to close, because this upfront fee is typically financed into the loan. Practically speaking, what does this mean for a borrower? As an example, we'll use a $100,000 base loan amount at 5.25% for 30 years:
Old MIP @ 1.75% = $1750 P&I Payment = $561.87 New MIP @ 2.25% = $2250 P&I Payment = $564.63
The payment increase is only minimal ($2.76/mo in this example). For a $200,000 base loan amount, the payment increase would only result in an increase of $5.53/mo.
This is the first in a series of changes that are coming soon, including increasing the monthly MIP; update the combination of FICO scores and down payment requirements for new borrowers; and reducing seller concessions to three percent, down from six percent.
The changes that will affect borrowers the most will be any changes in the monthly MIP and the reduction of seller concessions. Both of these changes could increase the borrower's monthly payments significantly and could also result in higher 'cash-to-close' requirements.
To read the original mortagee letter released from FHA in Janurary, click here:http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-02ml.pdf
Be sure to subscribe below to stay updated with news like this. Forward this to your friends or anyone who might be interested in this information.
Brandon SniderDistrict ManagerConsumer First Mortgage, Inc.
Consumer First Mortgage, Inc. NMLS# 55278942 N. Main St. Arab, AL 35016Phone: (256) 586-5626 Toll Free Phone: (866) 897-5560 Cell: (256) 694-7514 Fax: (256) 586-56271510 2nd Ave NW Cullman, AL 35055Phone: (256) 734-6012 Fax: (256) 734-6312
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