Posts Tagged ‘FHA guidelines’

FHA still looking to revise condo guidelines

June 13, 2019

A post earlier this year on The Mortgage Blog detailed some of the potential changes coming from the Federal Housing Administration for using FHA loans when purchasing condos. As with most things involving the government, they still haven’t finalized the details, but the final product is coming more into focus.

The FHA Commissioner stated the agency is currently working to revise its condominium approval rules and that he expects a final rule to be announced soon. These changes on condos are paramount has he called condos a “mainstay of affordable housing” for seniors citizens and first-time buyers.

With that in mind, here are some of the proposed changes:

  • allow owner-occupancy determinations on a case-by-case basis.
  • allow up to 45% of commercial space in a building without documentation.
  • increase the approval period from two years to five years (this would be amazing since condo complexes are seemingly always in a “get approved with FHA mode” since they only last two years).
  • still the possibility of allowing for spot approvals.

The goal for FHA loans and condos is the become more flexible, less prescriptive and more reflective of the current market than existing guidelines.

While these changes will be welcome, it is hard to get too excited. The FHA issued proposed changes to its condo rules in 2016 that promised to lift a number of restrictions and streamline the certification process, but it has yet to issue a final rule. 

If these can go into effect, it would be perfect for buyers with lower down payments and/or below average credit scores. While one can qualify to buy condo with 3% down using a conventional loan, the rate for someone with below average credit scores is 1% or more higher than doing an FHA loan. This would make condos more affordable to more buyers.

Looking to buy a condo around the Atlanta BeltLine? Maybe a live/work/play area with condos over businesses? Or perhaps just a good old fashioned high rise condo complex? If you are looking to buy a condo in Georgia, contact me today. We’ll get you ready to move into your new home in no time at all!

Potential new rules for condos with FHA loans

March 12, 2019

While potential condo buyers aren’t on pins and needles waiting to hear from HUD like we would be for who wins an election, still, buyers would love to know the direction HUD will go with FHA loans and condos. Current loan guidelines for buying condos with FHA loans are tough. The condominium project must be pre-approved by HUD to use an FHA loan. Then during the loan process, the condo project is re-certified; meaning, the criteria needed to get pre-approved is double checked to make sure the condo is still within the guidelines for its pre-approval.

Basically, buying a condo with an FHA loan is a lot of work. The condo homeowner association (HOA) must go through the hoops to get the complex approved for an FHA loan. Most HOAs don’t want to deal with the burden. Then repeat the process for the loan itself – twice the work for the same payout. Hopefully this will change soon.

A proposal was made a few years ago to HUD that would open up the number of condo complexes eligible to use FHA loans. The loosening of guidelines would also reinstitute spot approvals (similar to what conventional loans do for condos). This makes buying condos WAY easier with FHA loans.

This change will benefit home buyers with average to below average credit making a smaller down payment. Currently, almost all condos are purchased using conventional loans. While someone can qualify for a conventional loan with a credit score of 620+, the mortgage rate and monthly private mortgage insurance rates (for loans with PMI) are significantly higher than an FHA loan. The difference is big – easily over a half a point higher in rate and almost double the monthly PMI (depending on the down payment being made). Home buyers with average to below average credit could be in a position soon to save a couple thousand dollars annually.

Seriously HUD…. What’s the latest?

Looking to buy a condo in Georgia? One program we could use instead of an FHA loan is the Fannie Mae HomeReady loan. This has some advantages over a normal conventional loan that helps those making a minimum down payment on a home purchase. Contact me today, and we’ll see if you qualify for HomeReady whether buying a condo or not.

FHA to lower max loan amounts

December 10, 2013

blog-author-clayjeffreys3

At the beginning of 2013, I wrote a blog post mentioning how the government wants to pull back (not out) of the mortgage industry in terms of the number of loans they insure. One way they hope to accomplish this (as mentioned in the post earlier this year) is to increase the mortgage insurance premiums on FHA loans. See the link above for the full post.

Another sign the government is attempting to scale back is the recent announcement that FHA maximum loan amounts will be reduced. Expect to see the counties with the highest FHA loan limits of $729,750 to reduce by roughly 14% to $625,500. The reduction in other areas/counties of the country has yet to be determined. FHA also announced that areas where the housing market has not recovered as much will not see a reduction in the maximum loan amount.

This is actually a good sign for the housing market and mortgage industry overall. The government stepped in and expanded the availability of FHA loans during the housing crisis. Now that housing prices across the country are recovering and loan guidelines have loosened a bit for conventional loans, FHA insured loans are not as critical to the housing market.

With those two things in mind, the goals of FHA right now are to:

  • reduce the number of loans they insure
  • replenish their reserves that were depleted due to all of the foreclosures
  • concentrate on borrowers that are still underserved

How does this news impact those looking to buy a home? First, realize that a LOT has changed in terms of FHA loans, minimum down payments for conventional loans, minimum credit score requirements for both FHA and conventional loans, etc. In short, if you haven’t spoken with a licensed mortgage originator about the changes, an FHA loan may not even be the best avenue to explore anymore.

Second, expect a rush of buyers into the market this coming year. In the metro Atlanta area, there was a housing shortage for almost all of 2013. Now is the time to plan and get prequalified to get a jump start on the housing market for 2014. If you are buying in the state of Georgia, contact me today to get the prequalification process underway.

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FHA changes begin April 1st

February 12, 2013

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As you may have heard OR read on this blog, FHA announced changes to their loans. Those changes take place on all case numbers assigned on or after April 1, 2013. Does this mean you need to be closed on a home by the end of March.

In the words of Lee Corso – not so fast my friend!

lee-corso

The changes that increase the monthly mortgage insurance rate AND make the mortgage insurance permanent are for all loans with case numbers assigned by April 1st. That doesn’t mean you need to be closed by that date. Ideally, you need to be under contract by Monday, March 25, 2013 so your lender can order your case number. Under this scenario, you should have a case number before April 1st.

Typically it takes 24-48 hours to get a case number back, but there could be a rush on case number orders due to the April 1st deadline. To ensure you get a case number assigned before April 1, 2013, be under contract by March 25th. Have your lender order the case number ASAP, and you should have it back by the end of the week.

This means you don’t have to find a home and be closed in roughly 45 days from now. What it does mean is you have six weeks to get prequalified, find a home, make an offer, and get under contract. You can close after April 1st and still get the current mortgage insurance terms and guidelines for your FHA loan.

Looking to buy a home in the state of Georgia? Contact me today, and I can help y0u get started with the prequalification process.

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FHA changes officially announced

January 31, 2013

blog-author-clayjeffreys2

As I mentioned earlier this month, FHA has indeed announced changes to their guidelines. While FHA was approved by Congress to increase their monthly mortgage insurance rates by roughly 60%, the actual increase wasn’t that severe. Don’t get too excited though. There is one change that isn’t going to be very popular at all.

The announced changes include:

  • Monthly mortgage insurance for borrowers making the minimum down payment will see the monthly mortgage insurance rates increase from 1.25% to 1.35%. On a $200,000 that works out to about a $17 per month increase.
  • The biggest change is that mortgage insurance will be required for the life of the loan. Mortgage insurance will no longer fall off of the loan once you have 22% equity. You’ll pay monthly mortgage insurance for 30 years on a 30 year fixed FHA loan unless you make a 10% down payment when you buy the home (if you can make a 10% down payment, you more likely to be better off going conventional).
  • Borrowers with a credit score less than 620 and a debt to income ratio higher than 43% will require manual underwriting for approval along with a letter from the lender explaining why this borrower was approved. Individuals looking to buy a home that fall into this category will be hard pressed to find a lender who will process their loan.

As expected, these changes make conventional loans look way more attractive. For example, let’s assume you are looking to buy a home and have a credit score 720 or more. With today’s PMI rates, the monthly mortgage insurance on FHA loans is twice as much than conventional loans with a 5% down payment.

Let’s use a $200,000 purchase price again and compare FHA and conventional loans:

  • The FHA down payment is only $7,000, but the monthly mortgage insurance is $220 per month.
  • The conventional loan down payment is a little higher at $10,000, but the monthly mortgage insurance is $107. That is a savings of $113 per month (over $1,300 per year).

Why the changes? It is twofold. First, FHA is looking to raise money because their reserves are exhausted. Increasing mortgage insurance and requiring it for the life of the loan would help replenish their reserves that have been severely hurt by the foreclosure crisis over the past few years.

The second reason is to reduce the number of FHA loans they insure. By making it more expensive to use an FHA loan, it will steer borrowers to conventional loans – which is the goal of the government so they do not have to insure as many mortgages as they are currently funding.

The moral of the story – if you are looking to buy a home using an FHA loan, you want to get started and closed before these changes take effect. If you are buying in the state of Georgia, I can help you get started with the prequalification process today. Don’t delay as these changes are coming!

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