New FHA Rules Will Affect Livermore Home Buyers in 2013

If you were 16.3 billion dollars in the red, what would you do? The Federal Housing Administration reported this operating loss to Congress last month. This announcement, uttered in the face of a  towering Federal deficit, caused understandable angst. No one wants to see an FHA bailout become necessary, especially taxpayers.

The FHA is a government agency that insures mortgage loans made by banks and other direct lenders. Without the FHA, home buying would be extremely difficult for buyers who are unable to meet high down payment and credit score thresholds.  So, letting the FHA simply go broke and fold up shop would not be in the best interest of anyone.

To stop the flow of red ink, the FHA is making changes to their guidelines in early 2013. Here’s what you need to know:

1. Mortgage insurance premiums can no longer be waived as the loan becomes seasoned. Under the old guidelines, a homeowner could apply for a waiver of monthly premiums after a certain threshold of equity was met. In the near future, the mortgage insurance premium will remain on the monthly payments for the life of the loan.

Remember that mortgage insurance protects the lender, not the borrower. If you have an FHA-backed mortgage and you default on the loan, the insurance will cover the lender’s losses.  There is no direct benefit to you, save for the fact that the presence of the insurance made your mortgage possible.

2. Monthly mortgage premiums will increase by .10 basis points. While this is modest, it does add up over time. On a $500,000 mortgage, this would be an extra $50 a month.

3. The minimum down payment for mortgages of $625,500 and up will be 5%. Previously, the down payment could be as low as 3.5%.

4. Borrowers who have credit scores in the 580-620 range will face tougher debt-to-income ratios.

On the whole, there is nothing to lose sleep over. These changes are not likely to slow down FHA mortgage applications. The most unpopular measure in the bundle will be the inability to remove mortgage insurance as equity builds.  If a borrower becomes annoyed enough with the monthly premium, he or she can always refinance into a non-FHA loan, providing it makes sense to do so.

Looking for more information about buying a Livermore home? Let me help you! I will refer you to reputable mortgage lenders in the area, and I can help you find the ideal home for your needs and budget. Please feel welcome to contact me for the latest home sale details in Livermore, Pleasanton or Dublin. I’ll answer all of your questions, and provide you with expert guidance for success!

John Kurtzer
Your Livermore Real Estate Expert
RE/MAX Accord

Livermore Real Estate
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