Changes with FHA
Many changes were promised this year for FHA, and they did become effective on April 5, 2010. The changes with FHA were not necessarily a negative, but in order to keep the benefits available to potential home buyers and current homeowners it had to be done. Disorder and displacement is what brought us to the place we are in today, so it was meant to be used as a tool not a stumbling block.
A few of those major changes were an increase in the upfront payment of mortgage insurance, and the decrease in seller concessions. The upfront payment on the mortgage insurance is used to keep the cost off the monthly payment. This mortgage insurance would cover the lender in the event that you default on your loan. With the upheaval in the economy, it came as no surprise that this would happen. These changes with FHA were not as well received, but it’s understandable why they happened. With defaults at an all time high mortgage insurance was almost guaranteed to go up, and less money from the seller just enforces the buyer getting the chance to put more of an investment into the home upfront.
When it comes to conventional loans, the mortgage insurance was applied to any loan that was over 80% of the home’s value, and that is what spurred the phase of home buyers doing the 80/20 plan, so that they could avoid paying that insurance. FHA’s rate was initially 1.75%; the changes with FHA now bring it to 2.25%. Once the loan reaches 78% of the home’s value, then the mortgage insurance would be removed, now that it appears to be less of a risk.
Changes with FHA also meant that the buyer would need to bring more money down in order to close on the home. Is this wrong? Not necessarily, and certainly it holds the home owner more accountable. The homeowner knows that they need to be more responsible by putting more money into the home upfront, than relying on someone else to do it. Previously with 6% seller concessions, the homeowner felt less obligated on their new home. Making more of an investment into something you want to buy is not at all a bad thing, and it shows more commitment.
The mortgage insurance can be rolled into the loan, so this is usually not a problem. The lesser amount of seller concessions may just keep families from buying so fast and thinking through their decisions more before acting. In addition, if the credit score is 580 or below the home buyer will need to put 10% down instead of 3.5%. This makes perfect sense for a lender only because they will see the buyer that has a lower credit score as more of a risk. With the financial status of this country weighing in with a lot of uncertainly, the changes with FHA just makes sense.
For more information on FHA, and how to start the process of buying your home, please visit www.fhaloansnow.net.
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