New FHA loans MORTGAGEE LETTER & Explanations about Credit Scores - Make Your VOICE Heard
Buyers and sellers need to be aware of what is happening in the mortgage industry!
Important Blog Today – FHA loans & HUD’s changes - You can make your voice heard. Please read further..
So much has transpired in the last week with FHA loans and there are things that you need to know and understand why some of these changes took place.
Last week HUD put out their policy changes and what could take place in the near future. FHA loan changes go from fact to fiction. The next day, they put out the official HUD mortgagee letter, ML 2010-02.
Overall, I have noticed several comments that either the commentor seemed confused about the changes or believed that the changes would be no good and or destroy home buying. Which will lead me into my next blog tomorrow. We must ABOLISH FHA loans. (please stop by tomorrow for any eye opener)
Some important FHA changes -
What were the FHA loan changes by HUD? Please read : FHA loan rumors become a reality. Keep in mind, the only change that is official is # 1. The other specified changes will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.
1. Raising the FHA UPMIP (upfront mortgage insurance premium) - So many keep saying that this is an added expense to borrowers at closing. Yes & No. This statement is misleading, even though it appears on the HUD settlement statement. In reality, you are allowed to finance this upfront mortgage insurance into the loan. The new change was only 50 basis points, going from 1.75% to 2.25%. This change will go into effect on or after April 5th, 2010, with all new FHA case numbers assigned.
Example on the difference :
On a $300,000 loan, you are talking about an additional $1,500 added onto the loan. This equates to an additional $8 per month. That is not much to disqualify someone, unless you were already exceeding the debt-to-income ratios already.
Why was this change made? To help re-establish FHA's capital reserves. David Stevens gives an explanation to some of this in FHA changes. Just a FYI - David has just recently joined us at Active Rain and was appointed the Assistant Secretary of Housing in early 2009. I wanted to share my thoughts because some of my views slightly differ from what Mr. Stevens wrote in his blog post.
2. FHA credit score changes & down payment updates - With all FHA loans, you still don't need a credit score. Keep in mind most lenders and investors have what are called lender overlays. The lender can add to the FHA guidelines. Why would a lender do this? To make it more sellable to other investors on Wall Street.
This is a change that is not really a huge change. You must now have a credit score of 580 or above in order to be allowed to use the regular 3.5% down payment guideline. Any score below this, the borrower will need at least 10% down. Why is this not such a huge concern? Most lenders are at 620 and several are at 640. The reason being is that most investors on Wall Street don't want to purchase loans less than a 620, because more loans under this score don't perform as well.
Credit scores under 620 - Yes, there are a few investors that allow for scores under 620, but BUYER BEWARE. Just because a loan officer has this program, doesn't mean that it will happen. On top of that, most lenders have major penalties if you fall under the 620 score. These penalties are anywhere from a 1/2% in rate to up to 2 additional points in fees, and sometimes both. Why? Because that lender will portfolio that loan, hoping that they can sell it in 12 months. The additional points and higher rate is to help with their risk, for those loans that don't perform.
My opinion on this? Work with a trusted loan officer that is not pushing the lower credit score. Work with a loan officer that will help you get your credit scores up in 6 months to a year. So what you missed the first time homebuyers tax credit. Because of the difference in fees and rate, it will cost you more money over the longer period than if you just waited and worked on your credit.
3. FHA seller concessions from 6% to 3% in seller help - Mr. Stevens stated this in his blog, FHA changes. "The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions."
Hey, I love making loans, but I will have to agree with HUD's assessment here. Now, I will say this though. It will hurt many markets across the U.S. Especially those families that are middle to lower income and those buying homes that are priced at $160,000 or lower, especially those at $90,000 and less.
Overall, we can have that whole argument that you need skin in the game, etc, etc. On all FHA loans, the borrower still needs 3.5% of their own money into the transaction. Sure, you can get a gift from family members, or even grants, and or even money from non-profit organizations. But the outcome in my opinion, could dampen the housing recovery even more. And that is why you can voice your concerns and add comments to the Federal Registry. FYI - I will be posting a powerful blog tomorrow on Abolishing FHA loans overall. Please stay tuned.
Make your VOICE heard in February 2010
PS.. - Reminder - I will post a new blog when these changes become public on the Federal Registry, allowing everyone to voice their opinions. Here is when you can stand up and be officially heard. YOUR VOICE.
- FHA Loans Rumor Alerts - You don't need 10% or 20% down & more about credit scores - Part 2 of 2 (not truly all about part 2, but I do go into discussions about the credit scores - because of the recent FHA changes, I didn't get into great details about 10% or 20% down)
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For more information on FHA loans, please go to this link. The FHA Expert
For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!
Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc
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