FHA Financing Changes Are Coming in 2013…

FHA Financing Changes Are Coming in 2013…

If you are a buyer thinking of using FHA financing, you may want to see how you can get qualified for a conventional loan.

FHA financing is a government insured type of mortgage which has been a favorite of especially first-time home buyers because it only requires 3.5% down and a lower credit score than a conventional loan.  Theoretically FHA only requires a credit score in the 500s BUT most lenders require a minimum of 640 so the loan can be re-sold.

The lending side gets really complicated and most of it the average person doesn’t need to know but the reality is lenders loan their own money initially, then they sell your loan to investors so they can fee up their money to lend to new buyers.  Each bank or mortgage lender has “overlays” or their own criteria that has to be met in addition to the FHA requirements and they may be more stringent.  They are just trying to ensure that the mortgage isn’t going to default.

In 2013 there are two important changes that have been announced.  The first is the up front mortgage insurance premium is raising to 1.35% from 1.25%.  That doesn’t sound so bad since it’s a one-time fee but the worst is that now you also pay a monthly mortgage insurance for 5 years and 78% equity but next year they are changing it so you will have that monthly mortgage insurance FOREVER or until you refinance.  Realistically we are at the lowest interest rates we are likely to see in our lifetimes.  To lock in this rate and not pay mortgage insurance for the life of the loan, you may want to try to get qualified for a conventional loan.  Less than a 20% downpayment typically does require mortgage insurance but once you get to about 20-25% equity in the home, you can get rid of your mortgage insurance and keep your super low interest rate.

One drawback is you do need a higher credit score to qualify for most conventional loans but a good lender can work with you and let you know what loan products you qualify for and how you might be able to make changes and qualify for the loan that is going to be best for you.  We are not mortgage lenders but can get you in touch with a good local lender that will work for you.

The following article was written by  David & LisaWebber, www.webberteam.com. they were gracious enough to let me repost this great message here for  my readers.

photo by: lumaxart
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