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 email@example.com or 314-677-6366. Her website is beverlytakistlouis.com and her blog is realestatestlou.com.