FHA home financing comes with many pros, making it an often suitable choice for prospective first time house buying. For those with low or no credit, obtaining a home loan can often prove to be a very difficult endeavor, as lenders have become considerably more conservative with approving home loans. FHA mortgages provide an option that allows a person to have low or no credit and still become a home owner, even approving those with past credit blemishes such as foreclosures or filing for chapter 7 or 13 bankruptcy. Also, the low down payment is another attractive aspect of an FHA house loan, as it does not require a home buyer to have the very high down payment percentage that other mortgage options will ask for. Depending on a person’s credit score and history, a person can get a home loan that requires a down payment of as little as 3.5%.
Get Started with Quotes from Lenders for First Time Home Loans
While FHA loans for first time home buying may have many pros, they also come with some cons:
- Mortgage insurance is required
- Compare closing costs between Fannie Mae, Freddie Mac and FHA
- US government has been insuring loans for 1st time home buyers since 1934
Other Popular Pages for First Time House Buyers:
Compare Home Buying Loans to Paying Rent Monthly
How to Apply for a FHA Home Loan
For those with exceptional credit scores, or who can afford the higher down payment rates, a FHA first time home loan may not be the best option. One stipulation that comes along with FHA home loans is the requirement for mortgage insurance, and this includes paying monthly mortgage insurance rates and premiums. This insurance allows FHA loans to be granted to those with lower or no credit, but these payments may be inconvenient for those who can obtain a home loan that does not require the insurance. Also, closing costs with FHA loans may be somewhat higher than those incurred with non-FHA home loans, but this is not exclusively the case.
The Federal Housing Administration recently announced that they will be allowing electronic signatures on documents required with FHA house loans for Single Family Residences. The process of home buying has a lot of moving parts, so any ability to increase efficiency can be ultimately be a factor in lowering costs for consumers while increasing profitability for FHA lenders.
Each year the Department of Housing and Urban Development reviews the performance of FHA mortgages and adjustments are made to the FHA standards and underwriting guidelines. Factors like down-payment requirements, credit, loan to value and much more are considered when issuing annual lending requirements. Read more about FHA Loan Requirements for 2014.
HUD has approved FHA financing to begin accepting e-signatures for the following: origination, servicing and loss mitigation. FHA publishes their Mortgagee Letter 2014-03, where they revealed their support for electronic home loans.
Realtors Love Electronic Signatures with FHA Home Loans Because It Automates the Process
With the FHA’s recent announcement, real estate sales people will be allowed to pursue a streamlined process electronically because they can partner with brokers and lenders that have the choice to process their loans electronically. Read more about Silanis’s E-Signature Technology
Lending Companies Value Digital Signatures
The home financing industry is well versed on e-signatures for both the application, good faith estimate, loan disclosures and closing documents. It’s no secret that this technology provides quick and efficient solutions that ensure and compliance while minimizing the amount of time it takes to close a FHA purchase loan.
FHA Electronic Signature Performance Standards.
In their recent letter, the Federal Housing Administration highlights the following standards for the use of e-signatures on documents that will be accepted for FHA home mortgages:
•Complying with all requirements of the ESIGN Act
•Associating an electronic signature with a document;
•Demonstrating intent to sign;
•Requiring the single use of a signature;
•Authenticating an individual’s identity;
•Attributing the individual’s signature to their identity;
•Managing issuance, use and loss of credentials;
•Maintaining integrity of records and auditability of the electronic process.
Consider FHA home loans in 2014, but make sure you understand your eligibility with respect to meeting the standards for qualified government home mortgages in this New Year. The good news is that Congress just passed a bill that committed not raise the insurance premiums on FHA loans. If defaults remain can remain low this year, we don’t anticipate any more hikes to the premium. Clearly, the Federal Government is steadfast on reviving the housing sector by extending attractive terms on first time house buying loans.
Apply with a FHA Loan Application
The Consumer Financial Protection Bureau recently created new rules for mortgage lenders that require them to make “a reasonable, good-faith determination” about the ability for an applicant to repay the home mortgage. When loan companies follow the standards, they have some protection against those that would charge them with inappropriate lending.
New Ability-to-Pay Rules Include:
• Home loans cannot extend beyond 30 years
• Fees and points cannot exceed 3% of the loan amount
• Current income or assets must be sufficient
• Credit history must indicate that borrowers have a history of making payments on time
• Certain debt-to-income ratio compliance
• Higher risk mortgages will not qualify
Visit the original article on Federal mortgage rules in Your Houston News and educate yourself more on all that has changed in 2014.
As thousands of mortgage lenders close out the year, many loan professionals have questions in regards to FHA home loan programs in the year to come. Here are some common questions we are getting:
1. Will FHA continue to increase the insurance premium on FHA loans? They do this to off-set the defaults and to help raise the level of the reserves, but it many cases the benefits of low interest rates are lost because of the higher mortgage insurance premiums that FHA requires monthly.
2. Will Congress mandate higher down payment requirements on FHA loans for first time buyers? Many loan officers are fearful that FHA will require a 5% down payment rather than a 3.5% down payment.
3. Will HUD increase the minimum credit score requirement on FHA mortgages? Right now people still have a chance of qualifying for a bad credit home mortgage loan if they have at least a 500 fico score. Most FHA approved lenders have imposed their own minimum credit score requirements. 580 and 620 seem to be common bench marks for many companies originate FHA home mortgages.
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It’s about that time of year when government agencies convene in an effort to discuss 2014 FHA loan limits, guideline modifications, easements and new standards for home buying and refinancing in the year to come. To nobody’s surprise many home buyers and real estate professionals are praying for FHA to raise loan amount limits in 2014. This helps borrowers because it often increases their purchase power by allowing higher loan amounts with house buying that only requires a 3.5% down payment in most cases.
How New House Buyers Benefit from Raised 2014 FHA Loan Limits
Did you know that FHA mortgage limits vary by property type? The Federal agency insures larger loan sizes for a 4-unit home, for example, than a single-family home or a condominium. The FHA will also insure greater loan sizes in regions the agency considers to be “high-cost”. If you were wondering, the Federal Housing Administration deliberates that an area is high-cost if its median house sale price exceeds the national average by specific fixed amount. Did you know that this year there were 74 counties in the United States that reached the maximum size allowed for FHA insured mortgages? Dan from the Mortgage Reports.com reported that there are another 697 counties in nationally in which the FHA limits are higher than the conforming limit set by Fannie Mae and Freddie Mac.
What are the Loan Amount Limits for FHA Mortgages in Your Area?
In all other counties, limits on FHA home loans are as follows:
•1-Unit House : $271,050
•2-Unit House : $347,000
•3-Unit House : $419,425
•4-Unit House : $521,250
In high-cost regions such as New York City; New Jersey, Colorado, Virginia, Maryland, Washington and most of California. In these regions, FHA loan limits range up to:
•1-Unit House : $729,750
•2-Unit House : $934,200
•3-Unit House : $1,129,250
•4-Unit House : $1,403,400
The FHA has designated four areas in which loan limits are even higher, replicating the abnormally high cost of living. These four areas are Hawaii, Alaska, Guam and the U.S. Virgin Islands.
•1-Unit House : $1,094,625
•2-Unit House : $1,401,300
•3-Unit House : $1,693,875
•4-Unit House : $2,105,100
FHA offers genuine opportunities for people with low credit scores, limited credit and 1st time home buying. Looking for Help? Compare FHA Lenders for First Time Home Buyer Loans
Please be aware that the Department of Housing and Urban Development, Congress and the Federal Housing Administration review the loan limits in early fall each year in an effort to set the maximum loan limits for the following year. When delinquencies and defaults rise, it is common for HUD to adjust the FHA mortgage limits accordingly. We anticipate that 2014 FHA loan limits will be similar to this year as defaults have tapered off and the housing sector has been recovering with strong gains in most areas across the United States.
It’s no secret that FHA home loans have been a driving factor in the housing recovery because they help a wide range of borrowers with low down-payments and ensure competitive pricing from low interest rates. Last year FHA originations rose 22% to $233 billion. Since FHA defaults and delinquencies also rose last year, the Department of Housing and Urban Development and the Federal Housing Administration decided to tighten the guidelines in an effort to minimize defaults. There have been new FHA requirements incorporated that may hinder some borrowers from getting approved.
Home Loans Must be Manually Underwritten for Applicants with Poor Credit Scores
When an applicant has a credit score of less than 620, the FHA is now requiring approved FHA lenders to manually underwrite the mortgage. This means that borrowers that have are submitting a FHA house loan with bad credit would have their request reviewed by an underwriter if their credit score averages came between 500 and 619. Last year applicants with fico scores below 600 could still get the home loan underwritten by the automated underwriting system.
FHA Raised Annual Mortgage Insurance Premium
Due to the number of poor credit FHA liens insured during the housing crisis, the FHA’s reserves nearly evaporated. The strategy to strengthen FHA financing was laid our with higher annual mortgage insurance premiums, which went into effect April 1, 2013. Keep in mind that these mortgages are only readily available in higher cost areas of the country such as certain areas of California, Maryland and Colorado. People that have a high balance FHA mortgage should also discuss possible changes with their lender as higher insurance premiums will apply. However, the new rules do not apply streamline refinance program.
Customers with FHA Loans Can No Longer Cancel Mortgage Insurance
After June 3, 2013, customers that get a FHA home loan will no longer be able to cancel their mortgage insurance once the outstanding principle balance reaches 78% of the original balance. The new rule states that MIP cannot be removed throughout the life of the mortgage if the starting loan balance is higher than 90% of its appraised value. However, if the loan-to-value begins at 90% (or less), the borrower has 11 years to complete mortgage insurance premium payments.
Interest rates are going up, home prices are rising and now FHA confirms they are raising the rate on insurance premiums for FHA mortgages. 2013 has not started off as well as many FHA lenders and first time home buyers had anticipated. With today’s banks offering 30-year FHA mortgage rates hovering at 3.5% on fixed rate terms, now is the time to get your loan locked into the system.
The Federal Housing Administration recently announce that April 1, 2013 is the date when new borrowers will forced to pay higher mortgage insurance. The U.S. Department of Housing and Administration reiterated the looming changes. FHA will be implementing the annual mortgage insurance premium on most of the FHA loan programs that are issued a case number beginning the first of April or later. So the clock is ticking for many first time home buyers and current homeowners that are on the fence for a refinance loan. Al Pereida of the California Loan Center suggested “that applicants need to apply with a FHA mortgage lender no later than March 21st so that they get a case number issued before the deadline because after that monthly payments will be higher.”
On most FHA home loans, the annual premium goes up by 0.10% point, or $100 per year for each $100,000 in loan amount. For loan amounts higher than $625,000 with a term greater than fifteen-years, the increase will be 0.05% point, or $50 per year for each $100,000 in loan amount.
Will FHA Borrowers Pay Mortgage Insurance Forever? FHA recently confirmed that in the future, if the borrower begins their new mortgage with a loan to value ratio above 90%, that the government agency will collect the mortgage insurance premium for the life of the loan. According to the SF Gate, “If the initial LTV ratio lies 78 and 90%, FHA will discontinue the insurance if the loan balance falls below 78% of the initial lien amount anytime after 11 years.”
There has been a lot of talk about Congress coming down hard on government financing with tighter 2013 FHA loan requirements in an effort to stem foreclosures and reduce delinquencies. In 2012 we witnessed the lowest interest rates ever recorded and importantly the housing sector has begun to turn the corner for the better.
Thousands of first time home buyers were able to utilize FHA to buy a home in their neighborhood. In most cases converting a renter to a home owner is good for the economy. Most of these consumers choose these government loans because the FHA down-payment requirements still only request a 3.5% from the borrower. Fannie Mae and Freddie Mac request 10 to 20% in most cases from first time home buyers.
Millions of struggling homeowners were able to refinance with government loans because the rates were low and the credit guidelines were more flexible. People like the FHA refinance requirements that only require 3.5% equity and a 96.5% loan to value ratio for underwriting purposes. People also like that 2013 FHA requirements still say the minimum credit score is only 500. Most lenders offering refinancing from Fannie or Freddie say that the minimum credit score is usually 680, with the rare exception allowing for scores as low as 640 for borrowers that have compensating factors.
We anticipate that there will be proposals from committees in Congress to raise the 2013 down-payment requirement to 5%, but our staff does not believe there is enough momentum to pass such legislation. The Federal Housing Administration has been helping consumers become first time home buyers since 1934 and we do not expect that to change in the next few years.
We do anticipate that there will be changes to FHA loan programs in the new year. We anticipate the minimum credit score will rise at some point in the coming year. We expect refinancing with FHA to remain aggressive as property values across the country are finally rebounding.
The Federal Housing Administration was created during the Great Depression to help first time home buyers get better access to home loan programs. The primary goal of FHA was to help renters become homeowners by extending fair loans to everyone. FHA mortgages are available to consumers that a debt-to-income ratio between 30 and 43% and who have marginal to good credit. One someone becomes an FHA customer they will have the option to refinance it if the market pricing improves under the FHA streamline program.
The FHA home loan program accepts lower credit scores than conventional loan programs from Fannie Mae or Freddie Mac. The direct endorsed FHA underwriters have the ability to make exceptions on home purchase and mortgage refinance programs. There are many instances when an applicant has compensating factors that may help them overcome some of the lending restrictions. First time home buyers still select FHA loan programs more often than any other program because of the low down-payments and forgiving credit guidelines. With the minimum credit score only at 500, first time home buyers with poor credit are very attracted to FHA mortgages. FHA continues to offer the most opportunities and the path of least resistance for first time homebuyer loans. And new borrowers’ love the fact the FHA does not allows lenders to charge pre-payment penalties for refinancing or early payoff. The 30-year FHA rates remain very attractive in the 3.25% to 3.5% range for qualified applicants.’
FHA borrowers must pay mortgage insurance monthly until they acquire 20% equity in their property but it remains a realistic 1st time home buyer loan. Conventional lenders typically require that borrower comes up with 20% down-payment. In some cases Fannie and Freddie will approve a purchase loan for a first time home buyer with a 10% down-payment and mortgage insurance, but the applicant will need high credit scores in the 720+ range in most cases.
After a roller-coaster year of ups and down, FHA loan guidelines in 2013 could see more changes. Of course the Department of Housing and Urban Development started asking for more documentation a few years ago, so we do not see 2013 FHA requirements increasing for the most part. However, FHA reserves dipped to record lows because of increased defaults on mortgages that the Federal Housing Administration insures. It seems a to be well-known that FHA will seek a bail-out from American tax payers in the first quarter of President Obama’s second term. Congress will meet to discuss injected more money into this government mortgage program, while raising or maintaining the 2013 FHA loan limits.
5 Most Frequently Asked Questions Regarding Changes in 2013 FHA Guidelines
- Will Congress mandate a higher down-payment requirement on first time home buyers?
- How much will mortgage insurance premiums be raised to compensate for lost revenues?
- Will FHA raise the 500 minimum credit score?
- Will the streamline program allow borrowers to finance closing costs for refinance transactions?
- Will the 2013 FHA guidelines continue to accept seller concessions?
With the Federal Reserve’s commitment to keep low interest rates and Obama being reelected you can bet that 2013 will be another great year for government loan origination. We believe the changes to FHA guidelines will be minor, but we expect to see a hike in FHA premiums. Most industry pundits believe FHA will continue to dominate the market for first time buyer loans. Most signs point towards new buyers selecting FHA for home financing and there have been talks about expanding HARP 3.0 with FHA to help more underwater homeowners in the year to come.