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FHA Loans for Buyers Make Changes in April

FHA offers home loans with only 3.5% down with loan amounts up to $281,250, which opens the door for more families to own homes. To keep the current MI, applying before April 1st is recommended.

The Federal Housing Administration (FHA) has long offered buyers first-time buyers with good jobs who are solid credit risks, but simply lack the cash to make the type of down payments required in the conventional marketplace. In some local markets, FHA finances well over half of all purchase loans.

However, the agency has changes coming on April 1st that will impact homebuyers who rely on FHA for affordable financing. 

FHA plans to raise its financed annual mortgage insurance premiums from 1.75 percent to 1.85 percent, and revoke new borrowers' ability to cancel their premiums once their loan balances hit the 78 percent LTV level.  The Mortgage Insurance (MI) is an issue that has completely changed as currently borrowers only had to pay this MI insurance for 5 years.  Any loan applications submitted after April 1st will have MI for the life of the loan.

According to Ernest Martinez, Bilingual Mortgage Planner with Midwest Mortgage Capital , "My first-time homebuyers are not too concerned since their immediate goal is to get in the house.”

Issues such as down payments, risk-based pricing, and underwriting standards will not change, which is actually a greater benefit to borrowers.

1. The minimum down payment will remain at 3.5%, although the agency resisted demands that it boost the minimum to 5%.  The decision to retain the 3.5 % minimum down payment was especially key, said David H Stevens, immediate past FHA commissioner and current CEO at the Mortgage Bankers Association, “ FHA can raise or lower premiums anytime, but once you raise the down payment (minimum), that would be difficult to chip back."

FHA loans differ from conventional loans starting with the most basic aspect of purchasing a home: the down payment. Down payment requirements for FHA home loans start with a minimum of 3.5%. Conventional mortgages require higher money up front; more like 10 to 20%. 

2. There will be no risk-based pricing on premiums, another demand made on the agency.  FHA will continue its one-price-for-all system in which low-risk borrowers essentially subsidize the premiums of higher-risk borrowers.

3. Underwriting will continue to be generous on key items like debt-to-risk income ratios.

Martinez is optimistic that these changes will be acceptable to borrowers, “I'm encouraging my buyers to look for properties now. As long as a CASE NUMBER is ordered by April 1st the BUYER can take advantage of the current FHA program and benefits." says Martinez.

There is an educational resource, fha.com, for additional information, It’s a private company, not a governmental website and they do not make loans.

FHA is an approved lending institution that operates under the US Department of Housing and Urban Development (HUD).  Contact them for further information at 1-800-CALL FHA.  However, I highly recommend contacting a real estate professional (Realtor) and ask them to refer you to a qualified mortgage broker or lender who they trust, so that you can see how the FHA program might get you into a home now!

Beverly Taki is a Missouri-licensed real estate broker who has successfully represented clients for 25 years.  She is a broker salesperson at Keller Williams Realty St Louis. 10936 Manchester Road, St. Louis, MO   63122. Beverly has earned a certificate in dispute resolution from Pepperdine University, specializing in negotiation and mediation. Taki can be reached at beverlytaki@kw.com or 314-677-6366.  Her website is beverlytakistlouis.com and her blog is realestatestlou.com.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Frank Ruzicka March 06, 2013 at 12:37 AM
Beverly, Very good timely advice, the FHA changes will be costly so now is the time to act for an FHA purchase or refinance. I would like to make one observation; we routinely close 97% conventional loans which carry very affordable PMI premiums (relative to FHA). The 97% conv. loan with a slighter higher rate is still less per month due to the ever rising cost of the FHA mortgage insurance premiums. You do need to have good credit (720 or above) but the 95% & 97% conventional loans are quickly overtaking FHA as the loan of choice for many first time buyers. A buyer can really take advantage of these low rates when they combine seller paid closing cost and use single premium mortgage insurance. Not every lender can offer this or may be aware of the huge cost savings available.
Len Behnen New owner March 23, 2013 at 01:07 PM
This is a perfect time to purchase a home. The spring market has brought out a lot of purchasers since our interest rates are the lowest it has been in years ! Cindy Behnen Prudential Alliance Free Staging 314 303-0634
Chris Mallie March 23, 2013 at 04:10 PM
gee, a real estate agent spammer saying it's a perfect time to buy a home. go figure.

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