**There are some possible changes coming in the near future. Here is what is in the works: (Not an official announcement)**
I just returned from the National Association of Realtors® convention in Washington D.C. and want to share some of the valuable information I received. There are three major CHANGES approaching:
1 – Modifications to the Rural Housing program
2 – Tighter restrictions on FHA loans
3 – Adjustments to FHA mortgage insurance
These announcements are not official yet! They should come out with official statements in the next few weeks.
1) The Rural Housing Program
The current delinquency rates on Rural Housing loans are at a 10 year low! Due to this success the government wants to keep the program running. However, they are running out of money to support it. Consequently the Rural Housing program must become self-funded.
The new law HR5017 gives the Rural Housing Service the ability to charge up to 4% upfront for all Rural Housing loans. This is twice as much as the current fee of 2%. HOWEVER, they are only increasing the fee to 3.44%. This means the upfront fee will increase by 1.44% (approximately $3,000 increase on a $200,000 home).
The Rural Housing program has become more popular than anticipated. There are over 4 times as many loans as projected. As a result the man-power dedicated to the program is being bombarded with 4 times the workload they expected. The staff is the same size as it was when the program began. There has been no increase in man-power to handle this increased workload. This is why the U.S.D.A. has been given the nickname: U.S.DelAy! When getting this loan you should anticipate at least 45 days for closing.
2) FHA loan restrictions
With the current qualification requirements many individuals with a FICO score of 580 or lower are able to get a loan. Of these individuals who have qualified, one out of every three individuals has defaulted on their FHA loan. To combat this high delinquency rate, those with a FICO score between 500 and 580 will be required to pay 10% down to qualify for an FHA loan.
3) FHA Mortgage Insurance
Over the past few years, the Federal Housing Administration has been draining its reserves. By law, they are required to keep a minimum of 2% in their reserves at all times. However, the current reserve has fallen to .53%. They are currently evaluated changes to help replenish the reserve.
The first is a change in the upfront premium for mortgage insurance. The current upfront mortgage insurance premium of 2.25% may be reduced to 1%. Good news right? This means individuals would be able to get into a home with less costs upfront.
The second part of the plan is where they intend to replenish the reserves. The monthly payment on mortgage insurance would increase from .5% to .8%! This means the monthly payment on FHA loans will increase. This may reduce the total amount an individual can qualify for because of the increased monthly payment.
How does this translate?
Here is how the current program works: If you purchase a $200,000 home, it requires $4,500 upfront to go towards the mortgage insurance premium. Your monthly contribution to mortgage insurance would be approximately $83 per month ($1000 a year) resulting in a total of $5,500 going towards mortgage insurance in the first year of the loan.
Here is how the changes would look: After these changes are implemented a $200,000 home would only cost $2,000 upfront but will require a $133 monthly contribution ($1,600 a year). The total amount towards the mortgage insurance in the first year will be $3,600.
This change would increase the monthly payment by $50 per month. If you are only in your home for 5 years you will actually be spending less on mortgage insurance with the new program. However, after that point the new program will require more. Within 10 years you will have spent over $2,000 MORE for mortgage insurance.
