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2013 FHA Changes: What the Future May Hold

Happy New Year! FHA Changes are Coming

Happy New Year! FHA Changes are Coming

Orange County, CA – The Federal Housing Administration(FHA) has made some pretty big announcements in recent weeks. There’s a strong chance that you’ll be significantly affected if you’re a new buyer looking for a home in the next coming year. The changes are meant to increase revenue for the Federal Housing Administration and help it back on to its feet after a difficult 2012 in which losses were significant. There are a number of changes that are expected to go into effect by Spring of 2013. But it wouldn’t be a New Year without some change!

Increasing Mortgage Insurance Premiums

One of the first changes anticipated is the increase in annual mortgage insurance premiums. At the moment, people who opt for an FHA 30 year fixed loan pay a mortgage insurance rate of 1.25% annually. If the proposals are carried out, this will rise to an estimated 1.35%. The same increase would likely apply to high balance loans as well. Those are loans that exceed $417,000. In specific high-cost counties across the country like Orange County, CA the mortgage insurance rate will hike from 1.50% to 1.60%.

Cancelling Mortgage Insurance Removal

One of the biggest statements made by the Federal Housing Administration is the plan to cancel mortgage insurance removal. Instead they will enforce mortgage insurance premium payments throughout the life of the loan. This is a stark contrast to private mortgage insurance on conventional loans and the current FHA guidelines. Currently, the Federal Housing Administration requires that mortgage insurance premiums are paid for the first five years. Then, if your loan has been paid down to 78% of the value the mortgage insurance can be cancelled. This is likely to be a major blow to some potential buyers who operate between fine margins of cost. They will need to balance affordability with flexibility. Loan programs like FHA offer greater flexibility. But now that flexibility will be significantly more expensive. With some loans lasting thirty years, the total cost impact can be enormous.

Decreasing Loan Limits

Another anticipated change by the Federal Housing Administration is the reduction of the maximize loan size. For instance, the current loan limit for an FHA loan in Orange County is $729,750. In counties like ours this limit is expected to be reduced. These loan limits are reviewed annually, and despite the recent pressure, FHA recently re-instated the existing loan limits. It sounds like they will be re-considering that decision. Will they bring them down to the current conventional high balance limits? In Orange County, CA the conventional loan limit is $625,500. It would seem that this would be a logical level to bring consistency across the board. This would take away another current advantage of FHA loans and further encourage home buyers to take a closer look at their conventional loan options.

Streamlined Short Sales

A new short sale program, aimed at existing FHA borrowers who are struggling with their commitments and heading towards foreclosure, is to be brought online. The agency is hoping to streamline the short sale process, which permits the owners to sell their property for a lower price than the balance of the existing mortgage. Short sales are less costly to borrowers and banks alike. Short sales cost less to process than a foreclosure and preserve a borrower’s credit better.

Homeowner Education

Another expected provision that may be added this year is homeowner education. Counselling is currently available and required for specific loan programs. First-time home buyer incentive programs, like down payment assistance, commonly require participants to receive counselling. Applicants who do not have a high credit score and those who are purchasing their first home may now be required to take a similar course as a condition for receiving an FHA loan.

With all the expected changes there is no doubt that the FHA loan today will be vastly different in a year’s time. The only thing we can do is to try to plan for the changes that are ahead of us. Know your options. Speak to your loan consultant and make sure that you have a full understanding of your best plan for the New Year. If you need help creating a plan, please contact me.

Scott Storace

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