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Mar 24

FHA Mortgage Changes

Collections

FHA recently announced they are making some changes next month that will impact homebuyers. Beginning April 1st the credit matrix is going to tighten up once again.  An FHA DE Underwriter told me Monday that she is losing some authority to make a judgment calls on open collection accounts including medical collections.

Currently all DE Underwriters can approve a mortgage application even when the credit report contains collections.  Medical collections were the most commonly overlooked blemish, especially if they were more than a year old and without recent updated activity.  After next week If the credit report shows more than a grand total of $1,000 in collections then any and all must be paid off in full before the loan can be funded. In the future this will kill many deals.

Five out of the last ten credit reports I reviewed contained collections that totaled more than the new thousand dollar limit.    Four of those individuals were approvable without paying off their open accounts.  Three of those four would not have been able to pay them off and still have enough money to close.  That is a big change!

FHA Mortgage Insurance Premiums

On April 9th the FHA up-front mortgage insurance premium nearly doubles.   The 9th is falls on a Monday so the preceding Friday, April 6th is the last day to grab a case number using the old premium.  There is a copy of the entire Mortgagee Letter in my Dropbox if you want to read about the other changes.

Even loan officers have a hard time understanding how this facet of the mortgage industry works.  FHA doesn’t actually lend money, they insure mortgages that are originated by lenders like banks and mortgage companies. If the borrower defaults on the mortgage then the FHA insurance kicks in an covers the lender’s loss.  FHA charges the borrower an insurance premium similar to how an insurance company does for a home owner’s policy.  Instead of covering fire damage to the actual house it covers a default by the borrower/homeowner.

The FHA mortgage insurance premiums are paid annually just like a home owner’s policy with one small twist.  The initial premium can either be paid in cash or financed into the loan amount. The current up-front premium is equal to 1% of the loan amount. On April 9th that factor jumps to 1.75%.

People in my area are screaming about the recent jump in the price of gasoline.  While that is bad, it didn’t jump 75% in one day!

Is it really a big deal?  Absolutely! On a mortgage of $200,000 that is a bump of $1,500 added to the loan amount.  Pay interest on that extra $1,500 on a thirty year mortgage and it is a very big deal.

My first concern was for the poor first-time homebuyer that is already struggling to qualify.  Some buyers will not be able to get the home they want because this  change will push their income to debt ratios out of whack.

Buying a property in Kentucky and want to be pre-approved for a mortgage and or tax credit? Visit my online application site or printand use this simple form to get started. If you prefer we can do it over the phone, call my direct line during normal office hours, (502) 753-4127.

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