FHA to Stop Penalizing Homeowners Who Pay Off Their FHA Mortgage Early

penaltyCan You Believe It! The CFPB does something right!
For years now, FHA has assessed a “Pre-Payment Penalty” on homeowners who pay-off their FHA Mortgage early. They don’t call it that, but that’s what it is!

Here’s how it works: No matter what date in a month a FHA mortgage is paid off via sale or refinance, FHA charges that homeowner interest until the end of the month. Let’s say the closing takes place on the 2nd of the month. The loan is paid-in-full, yet FHA charges the borrower for “unearned interest” through the last day of that month. That’s a Pre-Payment Penalty in my book!

fha logoNot a big deal you say! A delay in closing a FHA mortgage past the 30th of the month means higher closing costs for those wanting to refinance and less proceeds from those selling their home. Why is this allowed to happen? Because FHA said so, that’s why. Just another way to increase their bottom line

Unfortunately, they don’t have to make the change right away.
FHA has until 1/14/15 to halt this usurious practice. In the meantime, it is business as usual.

I’m blown away!  The Consumer Finance Protection Bureau (CFPB ) is making FHA stop this rip off that has been going on for years

FHA Too Expensive for Home Buyers. There Are Other Options.

FHA says they should have done less business in the past and (to pay for their sins) they should do less business in the future. To help that process along, they drastically increased the Up Front Mortgage Insurance Premium (UFMIP), doubled the cost of the Monthly Insurance Premium (MIP), and will require the MIP to be paid for the life of the loan.

FHA MIGuess what? Their wish is coming true!  The Government Agency created in 1934 to “assist in providing housing opportunities” for American families saw their application volume drop by 50% in June. At a time when mortgage rates were near all time lows, FHA priced them self out of the market. Great help they are!

Many features of a FHA Mortgage make it an attractive mortgage option for First Home Buyers. However, the cost of the mortgage insurance makes the monthly obligation too expensive. I’m working on two transactions now. Each has challenges that could have been addressed with a FHA loan in the past.  One will be done as a conventional mortgage with a higher rate but lower MI for a savings of $60/month; the other, luckily, as a USDA Loan with a similar rate and MI that is 1/3 the cost of FHA premiums.

I don’t think I’ll recommend a FHA Insured Mortgage to my clients unless that’s the only way to get them in a new home.

NAR Supports Obama’s Housing Finance Reform Policy

National Association of RealtorsHere are excepts from a National Association of REALTOR® statement  on President Obama’s recent housing policy speech.

“NAR believes the principles of comprehensive housing finance reform outlined by President Obama will contribute to the long-term stability of our nation’s housing market and provide consumers with access to affordable mortgage credit, even during economic downturns.

“Realtors® remain steadfast in our efforts to preserve the government guarantee in any restructured secondary mortgage market to ensure the continued availability of safe, reliable mortgages.”

“Realtors® urge continued support for the Federal Housing Administration’s mortgage insurance programsFirst Home Buyer. Many First Home Buyers rely on FHA-insured loans to purchase a home. It is important that we preserve access to FHA for all qualified middle class families.

“NAR is ready and willing to work with President Obama and Congress to develop policies that ensure mortgage credit is always available at reasonable costs so that everyone who is willing and able to afford a home can do so.”

http://www.realtor.org/news-releases/2013/08/statement-from-nar-president-gary-thomas-on-president-obamas-housing-finance-reform-speech

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FHA Mortgage Monthly Insurance Premiums Are Increasing April 1, 2013

FHA Mortgage Monthly Insurance Premiums Are Increasing April 1, 2013

FHA has confirmed that the Monthly Mortgage Insurance Premiums (MIP) Are Increasing for the home loans it insures effective April1, 2013.

If you are sitting on the fence deciding whether to buy a new home this spring,
Now Is the Time to Buy. It’s going to get more expensive as the year progresses.

1.   Beginning April 1, 2013, FHA Monthly Mortgage Insurance Premiums Are Increasing by .10%
         •   For loans with down payment of between 3.5  and 5.0%, the MIP will increase
              from 1.25%  to 1.35%
         •   On loans with a down payment of more than 5.0%, the MIP will increase from
              1.20% to 1.30% 
            ◊   The increase will add about $13 a month to the payment on a $150,000 loan.
                  Not a lot … But it will affect buyers Debt-to-income (DTI) ratios and could
                  prevent some  buyers from qualifying for mortgages they might have
                  qualified for prior to the change

2.    FHA will also eliminate the cancellation of these premiums when the loan is paid down to 78% of the original appraised value.
         •   For loans with less than a 10% down payment, the MIP will be required to be paid for the entire 30 year term of the mortgage.
            ◊   The new monthly MI premium on a $150,000 FHA mortgage will be about $160.00 per month. Buyers with just a 3.5% down payment – even those putting 10% down – will pay this premium for the entire term of the loan … without regard to the value of the home and the decreasing balance on the loan in years to come.
            ◊   Do the math … that’s an additional $38,400 a home owner will have to pay in insurance premiums over a 30 year period

Remember, this is the 2nd FHA Monthly Mortgage Insurance Premium Increase  in 12 months. Last year’s 0.10% increase was mandated by the Temporary Payroll Tax Cut Act signed by President Obama in 2011. The Act has expired, but the premiums continue. This time the increase is needed to shore up FHA’s capital reserves which are in jeopardy of default.

Personally I think that FHA’s Monthly Mortgage Insurance Premiums Increase is a step backwards for the Real Estate Market.  
HUD and FHA claim their mission is to create a strong, sustainable housing market that will bolster the economy and protect the consumers. First Home Buyers will feel the impact of these changes and present a barrier to home ownership.  That’s ironic because the new administration claims to be an advocate of medium income households. Strange way to show support?

Bottom Line: The housing market is beginning to see an increase in home sale. This will beDon't sit on fence tempered by an increase in home prices and the expected increase in mortgage rates. Now is the time to consider conventional financing as a viable mortgage option and a take a hard look at other mortgage programs with lower down payment requirements and cheaper MI

Call Me @ 860.945.9284 to discuss the right mortgage option for your family and to take advantage of my FREE Mortgage Pre-Approval service. We’re licensed in all 6 New England states; NY and FL too. I’m here to help.

FHA Mortgage Insurance Premiums Are Not Cheap

With FHA-insured mortgage rates being quoted at about 0.750% lower than comparable conventional loan rates, home buyers often expect a significant savings on their monthly payment by choosing a FHA mortgage to finance the purchase of their new home.
This is not always the case. FHA imposes an Up-Front Mortgage Insurance Premium (UFMIP) of 1.75% to all its borrowers. This UFMIP is usually added to the base loan amount increasing the borrowers’ total loan amount and essentially cutting the equity created by their small down payment in half. In addition, FHA charges an annual Mortgage Insurance Premium (MIP) of 1.25% that is divided by 12 and added to the monthly mortgage payment.

Here’s an example:   A First Home Buyer purchases a single-family house for $155,000 and makes the minimum 3.5% ($5,425) down payment. Their base loan amount is $149,575. The UFMIP of $2618 is added to this base increasing the total loan amount to $152,193. The monthly principal and interest payment is calculated on this total loan amount. Using a 3.25% interest rate, the monthly mortgage payment is $662.04. Added to this payment is 1/12 of the annual MIP ($155.81) increasing the total monthly mortgage obligation $817.84. If taxes are $250 per month and Homeowners insurance (HOI)is $60 per month, the First Home Buyer’s total monthly obligation…Mortgage Principal and Interest + MIP + Taxes + Insurance…would be about $1,128 each month.
By comparison, and without going into much detail, payments on a 4.00% rate conventional mortgage with a 5.00% down payment could be about $820.00 per month including MI (plus taxes and HOI).

Why So Expensive?   Overall, Mortgage Insurance premiums on a FHA-insured mortgage are much higher than a comparable conventional loan. And this is from a government agency supposedly committed to making it easier and less expensive for First Home Buyers to get into the housing market.
Why?  This is because the FHA had a whole lot of loan defaults between 2008 and 2011 and its reserve funds are way below what is required by law. In order to remain solvent, FHA has increase mortgage insurance rates 4 times in the last 4 years. Yes, new home buyers are paying for the sins of the past. Plus, it is expected that premiums will increase again in 2013…we just don’t know how soon.

The Good News!   When FHA does increase their premiums,  all existing FHA-insured borrowers will still pay their current interest rate and MIP premium. So if you are looking to buy your First Home and take advantage of an FHA-insured mortgage the sooner the better…really!

 
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to review you mortgage options and take advantage of my FREE Mortgage Pre-Approval service. I’m here to help.

Buyers Choose Conventional Mortgages Over FHA Loans

The use of FHA mortgages declined over the summer. This new trend suggests that FHA-insured mortgages are losing favor among home buyers and conventional mortgages are gaining market share.

A conventional mortgage conforms to FNMA and FreddieMac lending guidelines. Reasons for this reversal include amazingly low rates; increased acceptance of higher LTV mortgages by PMI companies; and a reluctance to accept the recent increase in FHA mortgage insurance premiums.

Real estate agents may complain about onerous lending requirements, but they report no shortage of mortgage money available for home buyers; even those with less than a 20% down payment and credit scores in the 660-680 range.  With rates in the mid to upper 3.00% range, it’s almost free money!

Astute First Home Buyers know this is an unbelievable opportunity and are beginning to push the up prices of quality homes. NOW is the Time to Buy! 

Call Me @ 860.945.9284 to review your mortgage options and take advantage of my FREE Pre-Approval service. Let me show you how to save $30-50 month on a $165,000 with a conventional mortgage vs. a FHA-insured loan. I’m here to help.

What is a FHA Mortgage Loan?

What is a FHA Mortgage Loan?  The FHA 203(b) Mortgage Loan is the most “basic” FHA-insured mortgage loan. There are several types of FHA-insured loans … a whole alphabet soup of them.  This is the one buyers talk about when they apply for a home loan.

FHA loans are Not Just for First Homebuyers. FHA loans can also be used to:
•  move up to a bigger home
•  downsize to a smaller one
•  Buy a second/vacation home
•  Refinance an existing mortgage loan
•  However … You can have only one FHA-insured loan at a time. You can’t have a FHA insured loan in your name and get a second loan.

But before we go too much further …Let’s Talk About Some Basics.
The Federal Housing Administration (FHA) is a federal agency that insures loans made by FHA-approved lenders. The FHA’s objective is to assist in providing housing opportunities to families who cannot meet the qualification requirements for conventional mortgage loans.
•  FHA does not set interest rates. Rates are determined by market conditions and negotiated between the buyer and the lender.
•  FHA does not lend directly. The money comes from participating lenders. FHA works with these lenders to insure quality, regulatory compliance, and fairness in the lending process.
•  FHA Mortgage Insurance provides FHA-approved lenders with protection against the risk that homeowners will default (foreclosure) on their mortgage obligation. The comfort level of FHA insurance enables these lenders to consider applications from buyers with as little as 3.50% down payment, credit scores in the mid-600 range and low interest rates.

FHA 203b Loan Guidelines:
FHA sets the guidelines to qualify for a 203(B) mortgage. There are a lot of them. Participating lenders may add “overlay” criteria to qualify for their version of the 203b mortgage. For example; FHA sets minimum credit score of 580 to qualify for this program. Most lenders require a minimum score of 640 to qualify. Talk candidly with your mortgage broker about your situation and about his access to lenders who offer FHA mortgages with the overlays that address your needs.
Here is an overview of the more attractive features of a FHA 203b mortgage:
•  Owner occupied homes only — you must intend on living in the property.
•  The program is not restricted First-Time Home Buyers.  Any qualified borrower may utilize these loans for financing the purchase of a new home.
•  FHA insurance enables lenders to offer the program at a lower interest rate than might be available to a buyer with similar circumstances who opts for a conventional loan product.
•  The FHA 203b program allows for a 3.5% down payment. These monies can come from the borrowers’ own savings or can be a gift from family members. The program also allows 100% of the closing costs can be in the form of a gift.
•  The FHA 203(b) will consider the income of non-occupant co-borrower to help qualify for the loan. This is a great way for parents to help young buyers purchase their first home.
•  Seller Concessions: Home sellers can elect to contribute up to 6% of the house purchase price toward the closing costs associated with the loan. Buyers should discuss this option with their Realtor® when negotiating the purchase contract.
•  The 203(b) loan can be structured as a fixed rate mortgage or an adjustable rate mortgage (ARM) loan. There tends to be more flexibility in calculating household income and debt-to-income ratios.
•  The FHA 203(b) can be used to a single family, a duplex, a 3 family, or a 4 family multi-unit, owner occupied property. Remember, with a 3-4 unit loan, the down payment requirement is greater and the buyer must have 3 months mortgage, taxes and insurance payments (PITI) available in savings after the loan closes.

Now Let’s Talk About Mortgage Insurance.
To cover the risk of a borrower defaulting on the monthly payments, FHA charges an Up Front Mortgage Insurance Premium (UFMIP) as well as an annual Mortgage Insurance Premium (MIP).  The cost of this insurance is paid for by the borrower. The UFMIP is typically added to the base loan amount and becomes part of borrower’s monthly payment. The annual MIP is divided into monthly installments and included in the borrower’s monthly obligation.
Recent legislation has made FHA insurance more expensive. Give me a call. Let’srun the numbers to see if an FHA 203(b) is the best option for you and your family

Bottom Line
When your mortgage is insured by FHA, you become a secure and desirable borrower. Lenders are willing to extend benefits to you can’t find with conventional loans. The major benefit of FHA Loans is that you can qualify for a loan with a low down payment. Most conventional loans require a 20% down payment. FHA loans require a 3.5% down payment. With a gift for the down payment and seller concessions for the closing costs, you could move in with very little out-of pocket expense. Plus, should you have low credit scores or low income, you will still be able to take advantage of the benefits that make FHA Loans so affordable. Talk to your loan officer, or give me a call, to see if this is the Right mortgage option for you.