By Diana Palmieri
Whether you are refinancing or purchasing a home for the first time, be aware of the many changes that have been enacted and being considered. There is a new Consumer Financial Protection Bureau (CFPB) for ensuring safe and affordable mortgage credit. However, if new requirements are too strict, it may squeeze out potentially qualified borrowers. A lot of these new rules will start to take effect next year.
Data from inside FHA lending shows that mortgage bankers funded $233 billion in FHA-insured loans last year, marking a 22 percent increase from the year prior. Recently announced changes may derail that success.
According to the U.S. Department of Housing and Urban Development (HUD), here are some changes to be aware of.
Mortgage Insurance Premium Changes (MIP)
Because the FHA allows a low down payment on mortgages, it requires the borrower to carry mortgage insurance. The FHA will increase its annual mortgage insurance premium for most new mortgages by 10 basis points, or 0.10%. Premiums on jumbo mortgages ($625,000 or larger) will also increase by 5 basis points, or 0.5%, to maximum authorized annual mortgage insurance premium. There are certain exclusions on refinance transactions, so check with your lender. When the outstanding loan balance gets to 78% of the principal balance, the MIP was automatically cancelled; that is no longer the case. The FHA will require most homeowners to pay MIP for the life of the loan. These changes are to allow the agency to better manage risk and strengthen the health of the Mutual Mortgage Insurance Fund.
FICO Scores
Borrowers with FICO credit scores below 620 and a total debt-to-income ratio of more than 43 percent will not be eligible for processing through the FHA’s automated underwriting system. Such borrowers will have to be processed manually, with lenders documenting compensating factors such as a larger down payment or a higher level of reserves. What this will mean to you is that it will take longer to get your refinance or first mortgage.
Higher Down Payments
According to HUD, the FHA will propose an increased minimum down payment on loans between $625,500 and $729,000 to 5 percent from 3.5 percent. “This change, coupled with the statutory maximum premiums charged for these loans, will help protect FHA and further facilitate its efforts to encourage higher levels of private market participation in the housing finance market,” the agency said.
Borrowing After Foreclosure
Three years after a foreclosure, a borrower can apply for an FHA mortgage only if they have re-established credit and qualify for an FHA loan. They are cracking down on lenders giving folks a guarantee that they can get a loan right away–right after foreclosure. There are rumors that the FHA is considering a minimum of 20 percent down for anyone seeking an FHA loan within seven years of a foreclosure. If foreclosure has happened to you recently and a potential lender is making it seem really easy to get another mortgage, ask questions and walk away if it does not feel right.
FHFA – Increase in G Fees
The Federal Housing Finance Agency (FHFA) is hoping to recover a portion of the costs that Freddie Mac and Fannie Mae incur in cases of default. It plans on doing this by increasing what’s known as the “g-fee” or guarantee fee. Bottom line to you is a higher rate to borrow.
BOTTOM LINE – Always make sure you have a knowledgeable loan officer and attorney on your side. You don’t want to get blindsided at closing, so ask questions and be aware of what’s going on during the borrowing process.
The information contained in this article is not intended to constitute legal, accounting, tax, investment, consulting or other professional advice or services. For specific information that applies to your circumstances you should consult a qualified tax advisor. In accordance with IRS Circular 230 Disclosure, and to ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any tax advice contained in this article was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.
Diana Palmieriis dually registered with Vanderbilt Securities LLC and H Beck Inc., which are unaffiliated. Securities offered through Vanderbilt Securities LLC, member SIPC/FINRA/MSRB.
