Since the beginning of 2013 there have been some announced changes for buyers looking to obtain an FHA loan. FHA is an insurer of mortgage loans and is popular because of the low down payment option. I had the opportunity to ask Dawna Lepler of The Lending Company a few questions many of my real estate clients have asked over the past few months.
Q. Why has FHA decided to make these changes?
A: FHA is required to maintain a 2 percent reserve on its Mutual Mortgage Insurance fund (MMI). Because of the bad loans given in the early 2000s, FHA had a drop in its MMI to 1.44 percent. In an effort to rebuild to its original 2 percent, FHA has made the move to increase its annual mortgage insurance premiums on most FHA-backed mortgage loans.
Q: What is the change that happened in April to FHA loans?
A: Beginning April 1, most FHA-backed mortgages were subject to a Mortgage Insurance Premium (MIP) increase of 10 basis points annually, or .10 percentage points. The increase applies to all loan terms, including 15-year fixed-rate FHA loans.
Loans with terms of 15 years or less, and balances between $625,500 and $729,750, will be subject to an increase of 10 basis points annually.
Loans with terms of between 15 and 30 years will be adjusted higher by 5 basis points annually.
Q: What does this do to monthly payments?
A: For the average priced Ahwatukee home of $250,000, this is about a $20 increase per month.
Q: What are the changes happening in June to FHA loans?
A: FHA also made another upcoming change — the agency is reversing its policy which allows FHA-backed homeowners to cancel mortgage insurance premiums once the outstanding principal balance of an FHA loan reaches 78 percent of the original balance. Going forward, FHA will disallow the removal of MIP throughout the life of a loan, if the loan’s starting loan balance is higher than 90 percent of its appraised value. For loans in which the loan-to-value begins at 90 percent or less, mortgage insurance premiums must be paid for 11 years.
Q: How will these increases affect current home buyers?
A: New home buyers will see an increase in monthly payments; therefore, they need to be sure they still qualify for the current pre-approved loan amount. If an offer is not accepted by June 1, the buyer will need to speak with their loan officer to verify that they still qualify for the original loan.
Q: What if I have more than 20 percent equity in my house after a few years, what should I do?
A: Seek the advice of a licensed loan officer to review your current situation and see if you should refinance with a conventional loan.
Q: What other options are available for me?
A: Conventional financing is available with possibly as low as a 3 percent down, certainly 5 percent down, however, the qualification requirements are more strict. The best suggestion is to have your loan officer run scenarios for all possible costs over the life of the loan. What may seem more expensive at first, over time, may be the more cost effective loan.
Q: Can I qualify for a loan if I had a short sale a few months ago?
A: Not for FHA or conventional financing. There may be other loan options available with a higher down payment. Typically, you need to wait between two and four years to qualify for FHA and seven years to qualify for a conventional loan. Since loan qualifications change often and new programs become available frequently, it is best to stay in contact with your loan officer to see if anything has become available for your situation.
The bottom line is that FHA is still a good option for some home buyers. The best way to stay informed is to speak with a qualified loan officer and explore all your options. Compare costs over the life of the loan and know the limitations of obtaining an FHA loan vs. a conventional loan.
If you have any further questions you can always contact Dawna Lepler, NMLS #233151, The Lending Company, Loan Officer, at DLepler@theLendingco.com or (480) 621-4245.
• Christie Ellis, owner of United Brokers Group, is a real estate broker specializing in the Ahwatukee area. She is the author of “Real Estate Agent CEMETERY: How to Survive the Fears, Challenges, and Mistakes That Can Kill Your Real Estate Career.” Reach her at (480) 201-3575 or www.StopTheCarThisIsIt.com.