The mortgage industry is constantly changing. New laws are signed, which then affect buyers—sometimes in their favor, sometimes against them. With a new president in office, there have been recent changes to the Federal Housing Administration (FHA) loans. We simplify those changes below and let you know how they could affect you if you are looking to buy a home.
Let’s explain first what FHA loans are. FHA loans have been specifically designed to help borrowers get into homes. Because the loans are insured by the Federal Housing Administration, and come with the government guarantee, lenders have more lenient qualifying guidelines, making it easier for buyers to get a home loan.
With more lenient qualifying guidelines, FHA loans make homeownership more accessible to more people. Individuals applying for an FHA loan can typically have a lower credit score than those applying for a conventional home loan. In order to qualify for an FHA Loan a minimum credit score of 600 is a good baseline. FHA guidelines also generally require that your total DTI does not exceed 43%.
In early January of this year, the U.S. Department of Housing and Urban Development introduced a rate cut that would have reduced the annual FHA insurance premium on new mortgages for lower- and middle-income and first-time home buyers. The new premiums would have dropped to 0.6 percent from 0.85 percent, averaging a savings of $500 a year (or more depending on the loan amount) for homeowners.
However, President Trump suspended the pending rate cut the following week, so it never went into effect.
If you are looking to purchase a home and plan on getting an FHA loan, you will be paying the same premium rate for required mortgage insurance that you would have since January 2015.
That means that after paying an upfront insurance fee, you will pay 0.85 percent of your loan amount for premiums each year.
FHA loans can still be beneficial for individuals who have a lower down payment or a less than perfect credit score. This lower down payment can even be provided to you from a family member as a gift fund.
With lower credit score guidelines and debt-to-income ratios, FHA loans still help many individuals afford the dream of home ownership.
Talk with one of our loan advisors to see if an FHA loan is still right for you. They can help explain the benefits and disadvantages of the loan as well as help you decide which mortgage type is right for you.