Posts Tagged fha
Now is the Time to Finance With a Reverse Mortgage!
Posted by Victoria Belle-Miller in Finances on 05/01/2010
A reverse mortgage is a great financial solution for homeowners who are seeking ways to keep their home, pay all their expenses and still maintain their financial independence. Now is the best time for homeowners to take advantage of this type of financing. Soon, certain changes will take place within the reverse mortgage program that will likely affect future applicants.
Current Administration Requests HECM Subsidy
Home equity conversion mortgages (HECMs), which are the most common type of reverse mortgage, have been successful in helping homeowners find a way out of financial predicaments. The program offers several advantages, but to continue offering these home loans and their benefits, the program needs money. The office of Management and Budget requested a $250 million subsidy for the HECM program in the 2011 budget. If this subsidy is not approved, major changes will go into effect that will likely reduce the effectiveness of the home equity conversion mortgage.
The principal limit factors (or PLFs), which determine the amount of money a homeowner can receive from his or her loan based on age and interest rates, were already reduced at the beginning of this year. David H. Stevens, assistant secretary of Housing for the Federal Housing Administration, said that in order for the program to successfully continue in 2011, whether the subsidy is received or not, the annual mortgage premium will have to increase from 0.5% to 1.25% and the principal limit factors will have to be reduced at least another 1-5%, depending on the homeowner’s age.
What Does This Mean for HECMs?
If the $250 million subsidy is not granted, even more changes will have to take place. Without the necessary money, the principal limit factors would have to be reduced another 21% in 2011, which is unpleasant news for those in the process of obtaining reverse mortgages. Reducing the principal limit means seniors will receive significantly less money from their loan, specifically about 30% less, which equals about $23,000 to $27,000. Stevens fears that, if this change occurs, fewer homeowners will be able to take out these loans because there will not be enough to finance their homes.
Act Now to Reap the Benefits of this Loan
This type of financing is different than other home loans. Unlike most loans, homeowners do not have to pay a monthly mortgage payment. As long as the loan requirements are met, the homeowner will not owe anything on the loan until he or she no longer resides in the home. If there is sufficient equity in the home, the equity can be converted into cash that the homeowner can use for any expense. The amount the homeowner can receive depends on his or her age, home value and interest rates, and the homeowner can choose how his or her money is disbursed.
Stevens discussed how crucial the HECM program is because of the various financial setbacks seniors encounter today, including high medical bills and declines in income and savings. If all of these changes take place, it will eliminate this loan as a financial solution for many homeowners. Homeowners who want to enjoy the current benefits offered by this type of financing should speak with a loan specialist to learn more about their options.
Victoria Belle-Miller is the newest member of the Senior Reverse Mortgage writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the team and a valuable source of sound mortgage advice.
The Advantages of Buying a Home With an FHA Loan
Posted by Victoria Belle-Miller in Finances on 05/01/2010
Buying a home is a major undertaking for both first-time home buyers and current home owners who are buying a new home. One of their main goals is finding the right type of financing for their home needs. An FHA loan is a great financing option because it has many advantages and incentives that aim to help those in the process of buying a home save money.
This Loan Saves Homeowners Money
A major expense during the home-buying process is the down payment on the new home. But, compared with other types of home loans, FHA loans tend to require lower down payments, usually around 3.5% of the purchase price. This can be a relief for first-time home buyers who do not have large sums of money upfront, as well as current homeowners looking for ways to cut back on their expenses. Spending less money on a down payment leaves borrowers with more money for other costs associated with a new home.
Because interest rates will affect a homeowner’s monthly mortgage payment, rates are something to consider when choosing a home loan. Interest rates tend to fluctuate based on current market conditions and other factors. But, because the Federal Housing Administration insures this type of financing, lenders are able to offer low interest rates. Homeowners are also able to get fixed interest rates so that their interest rate will not change over time. Low, fixed interest rates will save homeowners money and leave them with more money available for their other expenses.
This Loan has Simple Qualification Guidelines
The FHA aims to make these loans affordable for different types of home buyers. Therefore, they do not have strict credit or income requirements. If an applicant has a troubled credit history, he or she may still qualify for a loan, as long as he or she has had no delinquent rent or mortgage payments in the last twelve months. Applicants with low credit scores can still qualify, but most lenders will require an applicant to have a credit score of at least 620.
This Loan has Few Requirements
The FHA requires that the applicant have an appraisal done on the home to determine the home’s value and to determine that the home is safe and meets other necessary requirements. An inspection is not required, but it is highly recommended to check for any essential repairs that need to be done on the home.
There is a mortgage insurance premium that must be paid. It covers loan costs in the event of a default and is usually about 1.75% of the loan amount. The upfront portion of the insurance can be financed into the loan, which eliminates one out-of-pocket cost. Homeowners will then need to pay a monthly mortgage premium with their mortgage payment.
Consider an FHA Loan for Your Home Purchase
This type of financing is known for having high loan-to-value limits, which means that the amount of the loan can be equal to a higher percentage of the home’s value compared with other types of home loans. Please note that loan limits vary by location. The federal maximum loan limit is $729, 500.
If a potential applicant finds the advantages of an FHA loan appealing, an FHA loan specialist can help them take advantage of this loan to finance his or her new home.
Victoria Belle-Miller is the newest member of the FHAMortgageBank.com writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the FHA loans team and a valuable source of sound mortgage advice.
Reverse Mortgage Loans Help Homeowners Make the Most of Home Equity
Posted by Victoria Belle-Miller in Finances on 04/20/2010
After retirement, many homeowners may be looking for ways to pay for all of their expenses. This is becoming more difficult in our current economy due to certain decreasing government benefits and unexpected pitfalls. Homeowners may be less prepared for retirement than they expected.
The Center for Retirement Research discovered that more than 60% of households are not prepared for retirement when it comes to their finances. Their research found that if retired home owners do not use the available equity in their homes, they are 10% more likely to be at risk for being financially unprepared. A reverse mortgage loan could be the answer home owners are looking for because it can supplement their current incomes and allow them to live the lifestyles they had prior to retirement.
How the Loan Works
Reverse mortgage loans are designed to give home owners financial security and independence after retirement. This type of financing is unique because home owners do not have to make any monthly mortgage payments. This is one less payment home owners are responsible for, and it allows them to put their money toward other required expenses or pleasure. As long as the homeowner lives in the home and meets the loan requirements, he or she will not have to make any payments on the loan.
If a homeowner has sufficient equity in his or her home, which is determined by an appraisal, that equity can be converted into cash. There are no restrictions on how the money is used, but home owners often use the money to supplement their incomes. The amount of money a home owner can receive depends on his or her age, the value of the home, and current interest rates. The home owner can choose to receive the money in a lump sum, a line of credit, monthly payment, or a customized option that combines some of the options listed above.
In most cases with this type of loan, the homeowner will not owe more than the value of the home once he or she no longer occupies the residence. The loan will be repaid using the proceeds from the sale of the home. But, on the rare occasion when the loan balance exceeds the value of the home and the home owner or home owner’s heirs wish to retain ownership of the home, they will have to pay off the full balance of the loan.
Eligibility and Requirements
To be eligible for this type of financing, the homeowner must be at least 62 years old and must be financing his or her primary residence. In order to meet the requirements of the loan, a homeowner must stay up to date on homeowner’s insurance, property taxes, and home repairs. If any of these is not kept current, the homeowner will be required to pay back the loan in full.
All home owners wishing to finance their homes with this loan will be required to attend reverse mortgage loan counseling before they can apply. The purpose of this counseling is to properly educate borrowers about this type of loan to determine if it is the best financing option for their situation. The counselor should inform the borrowers about all the costs associated with the loan and should be able to answer any questions borrowers have.
Consider a Reverse Mortgage Loan when Financing your Home
This type of financing is not right for everyone, so it is important to understand the loan requirements and outcome. This loan will reduce the amount of equity in the home and will cause the homeowner to accumulate debt over time. But for many homeowners, the loan benefits far outweigh the cons, making these loans the best solution for their financial needs.
Retirement is a time to be enjoyed, and no one wants to be financially unprepared. Homeowners can use reverse mortgage loans to supplement their incomes and to live the lives they desire post-retirement.
Victoria Belle-Miller is the newest member of the Senior Reverse Mortgage writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the team and a valuable source of sound mortgage advice.
Know What to Expect From Your Reverse Home Mortgage
Posted by Victoria Belle-Miller in Finances on 03/16/2010
Reverse home mortgages were designed to provide older homeowners with financial independence in the years following their retirement, when the need to supplement their incomes may arise. Unfortunately, some people are taking advantage of the homeowners who are eligible for this type of financing, and we are seeing some cases of mortgage fraud occurring. The Federal Grand Jury recently indicted three men on charges of conspiracy and financial institution fraud after they tried to profit from a reverse home mortgage fraud scheme. After sentencing, these men could receive extensive prison sentences, as well as large fines.
The harsh punishments these men could receive show just how seriously the U.S. Department of Housing and Urban Development is taking these crimes. Legislation has been passed in several states to make further strides toward preventing more mortgage fraud in the future. In addition to these efforts, older homeowners can prevent becoming victims of mortgage fraud by knowing exactly what to expect from this loan program.
How This Mortgage Should Work
This loan can be used for a home purchase, to refinance a current mortgage, or just to cash out equity. With this type of financing, a homeowner does not make any payments toward the loan for as long as he or she resides in the home and meets the requirements of the loan. These requirements include staying current on homeowner’s insurance, property taxes and any necessary home repairs. If a homeowner meets these requirements, he or she will not be responsible for any amount exceeding the loan amount once the loan is due.
If a homeowner has enough equity in his or her home, it can be converted into cash. A homeowner can spend the cash on any expenses they choose and the money received is not considered taxable income. The amount of money a homeowner can receive depends upon his or her age, home value and current interest rates. There are different disbursement options a homeowner can choose from, including monthly payments, a line of credit, a lump sum, or a customized combination plan.
Mortgage Eligibility
To qualify for this type of financing, a borrower must be financing their primary residence and be at least 62 years old. This loan does not have minimum credit score or income requirements, so more homeowners are likely to qualify.
All homeowners must attend loan a counseling session before they can take out a reverse home mortgage. The counselor will let the homeowner know what to expect from his or her loan and can answer all of his or her reverse home mortgage questions. Then a homeowner can decide if this loan is the right financing option for him or her.
Do Not Be a Victim
Homeowners should not have to pay for any information. Any reverse mortgage information a homeowner could need is available for free from qualified loan specialists and on the U.S. Department of Housing and Urban Development’s website. A homeowner should thoroughly research the lender he or she chooses to ensure that he or she is reputable. A lender should be able to answer all of the homeowner’s questions, as well as inform him or her of all the costs associated with the loan.
It is important to note that most lenders want to help older homeowners, not hurt them. This type of financing can be a great solution for older homeowners who are looking for ways to supplement their incomes or improve their lifestyles. While the U.S. Department of Housing and Urban Development continues to work hard to protect homeowners from reverse mortgage fraud, homeowners themselves should also utilize the many resources that are available to ensure that they become satisfied borrowers instead of victims.
Victoria Belle-Miller is the newest member of the Senior Reverse Mortgage writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the team and a valuable source of sound mortgage advice.
FHA Streamline Refinance Saves Money!
Posted by Victoria Belle-Miller in Finances on 03/13/2010
An FHA streamline refinance has multiple benefits for homeowners who want to refinance their current FHA mortgages. One of these benefits includes a lower interest rate. A lower interest rate, along with the other benefits of the loan, will save homeowners money that they can use to pay off other debt or to pay for other expenses.
What is an FHA Streamline Refinance?
The purpose of this type of financing is to lower a homeowner’s interest rate on his or her loan and, in turn, lower his or her monthly mortgage payment. This loan allows homeowners to refinance their existing home loans with a more efficient process. With this type of financing, there is less documentation and less underwriting, which can make the loan process significantly quicker. There is also an option to refinance with this type of loan without having to get an appraisal, as long as certain requirements are met. If no appraisal is done, the new loan amount cannot be more than the original loan that was taken out by the homeowner.
Requirements of this Loan
A homeowner must already have an FHA mortgage that is current in order to qualify for this type of financing. This means there can be no delinquent payments on the mortgage. With this particular type of financing, no additional cash can be taken out. If a homeowner would like to receive cash back when refinancing his or her loan, there is a cash-out refinance option available, but this option is not a streamline loan.
There are closing costs associated with this loan, but a homeowner has options that allow him or her to avoid paying them out of pocket. In some instances, homeowners can choose to obtain a higher rate in exchange for lower closing costs. On the other hand, if there is sufficient equity in the home, a homeowner can decide to have the closing costs included in the new loan amount. An appraisal will determine if there is an adequate amount of home equity for the homeowner to choose this option.
Benefits of this Type of Financing
Refinancing with this loan can lower a homeowner’s rate and monthly payment and save him or her money over time. This type of loan has more efficient processing when compared with other home loans. It can have fewer requirements, and, in some cases, the closing costs can be financed so homeowners will have less money to pay upfront. This saves them more money for their other expenses.
There are not strict eligibility requirements for this type of financing. Homeowners do not need a high credit score or income to qualify for this loan, but most lenders will require that a borrower have a credit score of at least 620. For homeowners who would like more refinancing options besides the streamline refinance, the FHA also has refinance loans that allow a homeowner to consolidate debt, change the terms of his or her loan or receive cash back.
This type of financing is a great option for current homeowners who want a quick way to reduce their current interest rates and lower their monthly payments without having to meet all of the standard requirements for a home refinance loan.
Victoria Belle-Miller is the newest member of the FHAMortgageBank.com writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the FHA loans team and a valuable source of sound mortgage advice.
FHA 203k Loan Information
Posted by Victoria Belle-Miller in Finances on 03/05/2010
FHA home loans, which are insured by the Federal Housing Administration (FHA), are great financing options for any homeowner who wants to purchase a house or refinance his or her current mortgage. These loans have low interest rates and usually only require down payments of 3.5 percent! FHA loan requirements are simple, so current and potential homeowners are more likely to qualify for these loans than other types of loans.
FHA 203k Rehabilitation Mortgage Insurance Program
The FHA has a specific loan program to help homeowners who want to make improvements or repairs on their home, but do not have the funds to do so. These loans are called FHA 203k loans and can be used for either a purchase or a refinance. There are two types of loans in this program, one loan is for repairs that cost less than $30,000 and the other loan is for repairs that cost more than $30,000.
A streamline FHA 203k option is also available to homeowners who are interested in doing non-structural repairs or improvements. This loan requires less documentation and can be less costly. It allows a homeowner to finance up to an additional $35,000 into his or her mortgage in order to make improvements to the home. An FHA home inspector or appraiser can identify home repairs that need to be made.
How the Loan Can Be Used
Although there are some restrictions on what the loan can be used for, there are plenty of renovations and home repairs that the loan does cover. In general, these include modernization, eliminating safety or health hazards, making a home more accessible for individuals with disabilities, or making a home more energy efficient. More specifically, the loan can be used for roofing, plumbing, flooring, painting, minor remodeling and more.
Loan Requirements
There are certain requirements with this type of financing. Homeowners must spend at least $5000 on their home repairs in order to be eligible. Homeowners must get cost estimates from a licensed and insured contractor(s) before signing the sales contract. The total cost of the mortgage, including the repairs, must remain within the FHA loan limits for the county in which the home is located.
This loan cannot be used to flip houses, and the homeowner must use the loan on the home in which he or she lives. The work being done on the house must begin within 30 days of the loan closing. All work must be completed within six months to comply with the loan requirements.
If a homeowner wants to make repairs to his or her home and needs additional financing, this type of financing could be the best option. Many of the same eligibility standards used for standard FHA home loans apply to the FHA 203k loan. Most lenders will require that the borrower have a credit score of at least 620 to be eligible. To qualify for the loan, certain energy efficiency standards, as well as certain structural standards, must be met.
This loan could be great solution for homeowners who want a better way to finance home repairs and improvements without depleting their savings.
Victoria Belle-Miller is the newest member of the FHAMortgageBank.com writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the FHA loans team and a valuable source of sound mortgage advice.
FHA 203K Loan Makes Financing a Home in Need of Repairs Simple
Posted by Anne Johnson in Finances on 02/25/2010
The FHA 203K loan is a type of financing that is insured by the Federal Housing Administration. It is a unique type of financing that allows homeowners to obtain both a purchase loan and rehabilitation financing in the same transaction. Before this transcendent loan program, a homeowner had to obtain an initial, temporary loan to purchase the home and a separate rehabilitation home loan to make any necessary repairs. Only after the repairs were complete could the homeowner gain permanent financing for their newly improved home.
FHA 203K: How does it work?
The FHA 203K loan was designed to streamline the process of buying a home in need of repairs. In order to provide funds for the repairs, the loan amount is based on an expected future appraised value that takes into consideration how much value the completed repairs will add to the current value. Up to $35,000 over the purchase price of the home can be financed into the loan to cover the cost of repairs.
The contractors chosen by the borrower to do the repairs will receive the money for their work in two draws. One draw is for 50% of the work and is disbursed at the beginning of the repairs while the remaining 50% will be disbursed after the work is completed. The repairs must begin within thirty days of the closing of the loan and must be completed within six months. The amount paid to the contractor(s) must be determined before the loan closes by obtaining written bids on material and labor costs. The homeowner can do the work himself provided that he is a licensed and bonded contractor.
What types of repairs will the FHA 203K cover?
Some of the repairs eligible to be completed with the funds from an FHA 203k loan include: roof replacement, electrical or plumbing work, kitchen remodeling, accessibility renovations, appliance purchases, and painting. Although many cosmetic renovations are allowed, luxury items and upgrades are not permitted. Also, any funds needed to repair to any detached structures, like sheds, swimming pools, and gazebos, may not be included in this loan amount.
FHA 203K: Qualifications
The FHA 203K program has the same types of eligibility requirements that exist on any FHA home loan. A homeowner must qualify on the basis of both credit and income to be eligible and the property must be FHA approved. As a general rule, the monthly mortgage payment cannot exceed 41% of the borrower’s monthly income and most lenders require at least a 620 credit score. Homes that qualify include: FHA-approved condos, 1-4 unit homes, and planned urban development homes (PUDs). The construction of the home must have been completed at least one year prior to financing in order for the home to qualify.
The FHA 203K program can be a great tool for any homeowner looking to renovate or repair his or her home. In a housing market that has seen foreclosures reach record highs, the FHA 203k loan can not only provide potential home owners with more opportunities to purchase a home, but can also help rebuild the housing market by facilitating the rehabilitation of foreclosed properties.
As a former psychology major, finding solutions to resolve problems has always been a subject of interest to me. I hope that my writing will give people the confidence to make important decisions about FHA loans. In addition to writing, I love to read, knit, spend time with friends and family, and watch the Missouri Tigers and Green Bay Packers!
Lenient FHA Loan Guidelines Make Now a Great Time to Apply
Posted by Victoria Belle-Miller in Finances on 02/21/2010
FHA loans are a great option for first time homebuyers on the house hunt, as well as current homeowners who are looking to refinance their current mortgages. These loans offer low down payments, as well as low interest rates, which helps keep monthly mortgage payments low. This type of financing, which is insured by the Federal Housing Administration (FHA), also has more lenient credit and income qualifications than most other home loans. Even potential borrowers who have less-than-average credit scores may still be able to qualify.
Loan Eligibility
It is typically easier to qualify for this type of financing, compared with other types of home loans. While the FHA does have lenient credit score and income requirements, most lenders require that applicants have a credit score of at least 620 to qualify. The FHA also requires that applicants have a clean credit history of at least twelve months, meaning they have had no delinquent mortgage payments during the twelve months preceding their application. The house an applicant wants to finance must be his or her primary residence, which means they plan to live there at least six months out of the year.
Loan Requirements
This type of financing requires that the borrower make a down payment on the home being purchased, as well as monthly mortgage payments. The down payment can be as low as 3.5%, which is much lower than down payments on most other home loans. Applicants will also have to pay an upfront mortgage insurance premium on the loan, which is currently equal to 1.75% of the loan amount.
Before the loan can be closed, an appraisal will need to be done on the home to ensure that the home meets all of the minimum safety standards that the FHA requires and to document the value of the property. Borrowers also will be required to escrow their homeowner’s insurance and property taxes, which ensures that everything is paid up to at least one year.
There is interest on the loan, but it is typically lower than conventional loan rates. And borrowers can opt for fixed interest rates so that their rates remain unchanged over the life of their loans and their monthly mortgage payments are consistent. This option would be especially good for borrowers who have had credit issues in the past.
Loan Refinance
For a current homeowner, refinancing with an FHA loan could lower his or her interest rate, which could also lower the monthly mortgage payment. Refinancing also gives homeowners the option of changing the terms of their loans. They can extend the length of their loans or change from adjustable rates to fixed rates, which could save them thousands of dollars in the long run. With the cash-back refinancing option, homeowners can take out a loan for a higher amount than the amount needed to pay off their current mortgage and use the rest to pay off large bills or cover other expenses. There are no restrictions on how a homeowner can use the cash.
Apply Now Before Requirements Change!
This type of financing offers several benefits and has relaxed guidelines. A borrower who does not have a lot of money for a large down payment can still become a homeowner with this type of loan. Current homeowners can save money every month by refinancing and getting lower interest rates, as well as receive cash back for other financial needs.
The FHA will be changing their requirements in the next few months, so now is a good time to speak with a FHA loan specialist to determine whether this type of financing is right for you!
Victoria Belle-Miller is the newest member of the FHAMortgageBank.com writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the FHA loans team and a valuable source of sound mortgage advice.
In a Journalistic World Full of Opinions on Reverse Mortgages, Where is the Truth?
Posted by Anne Johnson in Finances on 02/08/2010
One month into the year 2010, many people have heard at least something-good or bad- about reverse mortgages. This product has become extremely popular in the last couple years and its popularity continues to rise. However, with popularity also comes criticism. Every article that is published seems to be a minimal amount of information clouded by a storm of opinions.
Although this product is different from any currently on the market, reverse mortgages are a still lien on a person’s home, just like traditional mortgages. Unlike traditional mortgages, a reverse mortgage does not require a person make monthly mortgage payments for as long as they live in the home.
Reverse mortgages are used so homeowners over the age of 62 can pay off their existing mortgage and obtain access to additional funds. Once a homeowner has taken out a reverse mortgage, they will never have to make a monthly mortgage payment again. This federally insured product does require that the homeowner remain current on real estate taxes, homeowner’s insurance, and home repairs. Provided that the homeowner maintains his obligations, the reverse mortgage will not become due until the homeowner moves away or otherwise vacates the home. If the homeowner fails to meet these obligations, the reverse mortgage could become due and payable before the homeowner leaves the home.
The federally insured reverse mortgage does have costs associated with it, just as all financial products do. Most of the up front costs associated with the product go directly to the government so that the reverse mortgage remains a non-recourse product. It is considered non-recourse because, assuming the homeowner continues to respect his contractual obligations, he will never owe more than the fair market sale value of the home.
Reverse mortgage benefits can help people who cannot comfortably afford their mortgage payments, health care, and daily expenses. Important to note is that this product is something which should be discussed with the homeowner’s heirs. In order for the home to remain in the family after the homeowner has passed away, the estate will be responsible for paying off or refinancing the reverse mortgage. This loan should not be considered if a homeowner wishes to leave a mortgage-free home to their heirs because it is a loan and does need to be repaid.
It seems that some critics are unclear on many important facts about this loan. The fees can be a little higher than traditional mortgages, but the interest is not. Also, the largest fees go directly to the government for insuring the reverse mortgage, not to the banker to make a quick buck. For homeowners who could use this product, the benefits strongly outweigh the costs.
There is a lot of misinformation surrounding reverse mortgages. This product is not right for everyone, but also should not just be used in the case of last resort. It can greatly help senior homeowners enjoy their retirement and the protections surrounding the mortgage continue to improve. Hopefully, the product will be around for many years to help seniors without enabling anyone to take advantage of them.
As a former psychology major, finding solutions to resolve people’s problems has always been a subject of interest to me. I hope that my writing will give people the knowledge and confidence to make important decisions about reverse mortgages. In addition to writing, I love to read, knit, spend time with friends and family, and watch the Missouri Tigers and Green Bay Packers!
FHA Loans Can Still Provide Many Benefits
Posted by Anne Johnson in Finances on 02/08/2010
Many prospective homeowners and mortgage professionals have heard that the regulations for FHA loans are changing. After the sub-prime mortgage industry died down, the FHA home loan program became the scapegoat for any and all problems associated with the housing market. Critics believe that the FHA loan program is too lenient on its credit requirements. Because of this constant scrutiny and other outside criticisms, the FHA has decided to make some significant changes to its qualifying requirements for its home loan program.
In past years, the FHA home loan program did not require a specific credit score in order to qualify for their loans. Although most lenders required at least a 620, many critics of the FHA’s program believe that the lack of a credit score requirement has led to the large number of defaults after the housing market crash. In order to prevent this from happening in the future, the FHA’s new rules state that a borrower must have at least a 580 credit score in order to take advantage of their 3.5% down payment program. If an applicant has a credit score below 580, they must put at least 10% down on a new home.
A protection that has always existed on FHA loans is the required mortgage insurance. Mortgage insurance provides benefits for both the homeowner and the lender. This type of insurance helps the lender because it ensures that they will be paid in case of borrower default. Because the lender knows that the loan is insured by the federal government, they are more likely to offer favorable terms to the borrower.
A new change to the FHA’s mortgage insurance raises the up front premium by half a percent from 1.75% to 2.25% of the loan amount. This effort is a way to ensure the sustainability of the FHA loan program. The FHA is currently trying to obtain Congressional approval to increase the annual premium. If this approval is granted, the FHA would reduce the amount by which they increased the up front premium. Some FHA officials have discussed making the premiums risk based, which would mean that the premiums would vary depending on credit score and history.
The last protection which the Federal Housing Administration has decided to implement with these changes is a reduction in allowable seller concessions. When these new regulations go into effect, the seller will only be able to provide 3%, whereas before, the seller could provide up to 6% of the purchase price. These regulations are all set to take effect in April, 2010 and are an effort to increase the quality of FHA loans.
Only time will tell if these regulations will have the desired effect and increase the quality of the FHA home loans issued. Many homeowners are in agreement with the changes because they want the housing market to bounce back quickly and believe that the best way for this change to occur is to require more of prospective homebuyers. Other homeowners believe that, while encouraging people to improve their credit is beneficial, restricting home loan applicants does more to hinder the housing market rather than stimulate it. Hopefully, these new changes will have a positive effect and help the housing market grow and prosper.
As a former psychology major, finding solutions to resolve problems has always been a subject of interest to me. I hope that my writing will give people the confidence to make important decisions about FHA loans. In addition to writing, I love to read, knit, spend time with friends and family, and watch the Missouri Tigers and Green Bay Packers!