New Laws for FHA Loans...

It appears that this week we had another turn in the Mortgage Lending industry. Over the last year or so, there have been many changes that have made it extremely hard for many purchasers to buy a home. Most of these changes have come from the "Conventional" mortgages, but the FHA or HUD guidlines had only changed slightly.

Most people that I have talked with don't understand the differences in all the loan programs. Most have thought of FHA as a type of "Lower Class" loan and were somewhat "cautious" about taking the FHA in stead of a Conventional type mortgage. But alas, after explaining the differences, when applicable, the FHA loan would win out. It requires less "Down Payment" and has a lower mortgage insurnace rate than the conventional mortgages do.

Over the past year, many changes in conventional lending have made it extremely hard if not impossible for the standard comsumer. Mortgage insurance is based off your credit score and if you put down less than 10% the mortgage insurance alone could make the payment much more. On top of that, your credit score would have to be much higher in order to get the conventional loan.

HUD says that a buyer can get an FHA loan with a down payment of only 3 & 1/2% if your credit score is 580 or more. If the purchasers credit score is lower than 580, it would require a 10% down payment. Mortgage companies rely on investors to buy their loans, and I don't know of any mortgage companies that have an investor that will buy a loan with a credit score less than 620; thus, the 580 and lower is almost an obsolete rule. There are a few mortgage companies that will give a purchaser a loan with a 580 score, but the interest rate and "origination fee" (a fee that the mortgage companies charge to underwrite most loans) would be higher than normal. This is a vanishing breed of companies as well.

In a conventional loan, mortgage insurance is referred to as PMI or Private Mortgage Insurance. In and FHA loan, it is referred to as MIP or Mortgage Insurance Protection. FHA has 2 types of MIP the first is an upfront fee and the second is an annual fee. FHA uses the up front fees to fund the interest payments that are needed to pay on HUD homes (those homes that have been financed with FHA loans) that have been foreclosed. Typically, when you sell your home financed as an FHA loan, you might qualify to get a portion of this money back. It depends on how many foreclosures there are, and how long you own your home. There is no perfect way to say if you will or won't get any of that money back, but it stands as a possibility.

Another HUD change is that of the amount of mortgage insurance for the loan. The old rules stated that in an FHA loan, the purchaser would have an "up front" fee of 1 & 3/4% of the loan amount. The new rule will raise the up front fees to 2 & 1/4%. This up front fee can and is usually added to the loan amount. As an example... if the purchaser borrowed $100,000, the up front MIP would have been $1,750. The new rule would make that up front fee $2,250.00, adding $500 to the amount of up front fees and adding $500 to the mortgage as well. This $500 would raise the payment an average of only about $3.00 - $4.00 in the monthly payment.

Hud is now considering changing their annual MIP fees as well. The annual fee is divided by 12 and is added to your payment each month as is PMI. In the update that is attatched and dated January 21, 2010, they had not yet determined if they will make a change to this amount or not.

Finally, a change that could make a lot of difference is that of seller consessions. Previously, a seller could contribute up to 6% of the sales price to pay part or all the purchasers portion of "Closing Costs" and Pre-Paids" for the purchaser.

The Closing Costs are the costs that are incurred from taking the mortgage and loan. The fees are varied and costs are different in each situation and for each individual mortgage comapny. These fees are mostly mortgage company generated such as Apraisal, Underwiting Fees, Origniation Fees, and many more. A few of of the closing cost fees that are not driven by the mortgage companies are such as recording the deed and mortgage with the county, getting a survey, having inspections done, and other things that are either necessary or wanted when purchasing a home.

Pre-Paids are the costs that are associated with the loan by setting up an "escrow" account in your loan to have your taxes paid for you each year and also to have your homeowners insurance paid for you each year. In times past, these were not mandatory, but more and more they are. I don't know of any "primary" mortgage that does not require your escrows drawn. Thus, in your monthly payments, 1/12 of the homeowners insurance and 1/12 of the taxes are collected each month. Your taxes are fickle in that some of the taxes are paid in arrears and some are paid up front. The homeowners fees are paid in advance.

To set up an escrow account, the mortgage company will collect up to 3 months of homeowners insurance payments, and 3 months of tax payments at closing. Plus, they will collect for 1 full year of homeowners insurance at closing. A third fee that is collected at closing for your escrow is that of interest. A daily interest fee is collected from the day of closing to the end of the month. Thus, if you close on the 15th of March, there would be 17 days of interest that would be collected at closing. Again, on a loan for $100,000 with an interest rate of 5%, your daily interest would be about $14.00 per day. The mortgage company will then use a computer software program to gauge exactly how much money will be needed in your account and give you an aggregate adjustment and subtract any funds that would have over funded the escrow.

The old rule said that the seller could pay up to 6% of the contract price in the purchasers portion of closing and prepaid costs. The new rule will cut that amount to 3%. The new rule could cause the purchaser to need more money up front; although, in most cases, it will make hardly any differnce. It is uncommon for these costs to run much if any over the 3% rule.

In summary, the FHA loan is still the best way to mortgage your home if your loan amount is within the guidlines of FHA. It is cheaper on up front fees, it is cheaper in mortgage insurnace, and generally it is almost the same in interest rate. Typically the house payment will be lower as well. HUD says that the changes are designed to promote conventional mortgages and to make conventional financing and HUD financing more on an equal level.

Please don't hesitate to give me a call if you have any questions at all... 205 229-3013.



http://su.pr/1yPaPV Click Here to see the HUD statement that was posted.