Major Changes to FHA financing (great news)!
Attention all Home Buyers and Sellers!
You will want to take the time to read this right away. If you are a buyer who needs a low down payment mortgage or a Seller who already has an FHA mortgage, this is going to affect you. This week there have been two major changes announced regarding FHA financing, one of the most commonly used mortgages for home purchases.
FHA offers a low down payment mortgage (3.5% down), often with lower requirements for qualifying (lower credit scores than conventional financing). In Utah, there is an additional FHA product called Utah Housing that is a 0% down mortgage.
To summarize these new changes, monthly mortgage insurance on FHA financing (MIP) is being significantly reduced and monthly interest will now only be charged on the actual outstanding principle balance (not for the entire month regardless of principle owed).
Over the past several years, FHA financing has become less attractive compared to other loan programs available. These two changes will make FHA financing a much stronger option for a large percentage of buyers financing their purchase through a mortgage.
There are still pros/cons with each type of financing and it is best to sit down with an experienced and reputable mortgage specialist to discuss your options and to compare the loan programs for your individual situation. We STRONGLY recommend:
Annual MIP Changes:
01/08/2015: As of 1pm EST, the status of the MIP changes is that annual MIP (paid monthly) is dropping from 135bps to 85bps. At first, the FHA press release said 'for all new FHA-insured mortgages,' but now that phrase has been dropped completely. So we don't exactly know if there will be some limitation as to who can take advantage of this, or if there will be some way for existing case numbers that haven't yet funded to benefit from the change. No one can say until FHA puts out it’s official “Mortgagee Letter” and we are assuming the change is effective immediately but it may have a future start date. Typically, changes are effective on a loan depending on when the FHA case number is pulled. Therefore, many lenders have stopped pulling FHA case numbers on loans until this issue is cleared up by HUD/FHA.
Changes to Interest Calculation on FHA Insured Mortgages:
The revised policies in this final rule become effective for FHA-insured mortgages closed on or after January 21, 2015.
Interest will only be allowed to be charged on the actual outstanding principle balance. This means that two net positive effects will occur:
Again: this revised policies in this final rule become effective for FHA-insured mortgages closed on or after January 21, 2015.
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