TRUMP Did What!? Recent Changes in Mortgage Lending Part 1By: Tara Deming
It try to maintain an optimistic outlook about life overall. So much so that when Donald Trump was elected and inaugurated my attitude was let's give him a chance and see what he can do! Over the last few weeks he's passed legislation that could have a long lasting impact on U.S. citizens' lives for years to come. The mortgage industry has already been impacted by the current administration. In early January the outgoing Obama administration proposed a rate cut for FHA-backed loans. It argued that FHA could easily withstand a cut to premiums, saying the agency’s finances had vastly improved since it received its first-ever bailout in 2013. The administration also noted that FHA’s Mutual Mortgage Insurance Fund’s capital reserve ratio exceeded requirements for two consecutive years. “With sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families,” former HUD Secretary Julian Castro said at the time. Any excitement over the proposed rate cut was short lived. Hours after being inaugurated, Donald Trump suspended the pending rate cut then terminated it all together days later. Confused? Wondering how this could potentially affect you? Keep reading to gain an understanding of what all of this means.
What is an FHA loan?
An FHA loan is a mortgage insured by the Federal Housing Administration. Borrowers with FHA loans pay for Private Mortgage Insurance, which protects the lender from a loss if the borrower defaults on the loan. Because of that insurance, lenders can -- and do -- offer FHA loans at attractive interest rates, with less stringent and more flexible qualification requirements.
How does this affect me?
· Simply put, if you have already purchased a home with an FHA loan the cancellation of the proposed rate cut does not affect you.
· For most borrowers getting an FHA-backed loan that means that after paying an upfront insurance fee, you will pay 0.85% of your loan amount for premiums each year. The Obama administration had planned to drop that rate to 0.60%. So, if you planned on purchasing a home with an FHA backed loan, you could have possibly saved roughly $41 each month on a $200k loan or $500 a year. Since the proposed rate cut that was supposed to go into effect on January 27th was cancelled, those who were planning to purchase with a FHA backed loan will be paying the same premium rate required for mortgage insurance that has been in place since January 2015.
What can I do?
FHA loans are popular for many because a buyer with a credit score as low as 580 & down payment of 3.5% of a homes sales price can purchase a home. Although millions of buyers purchase a home with an FHA backed loan, it is not the only option. The other option is to become a home-owner using a conventional loan. Conventional loans will require a higher credit score of 620 and a down payment of 5%. There are some exceptions to these rules which can be discussed with a mortgage lender. Rather than relying on the FHA loan and essentially paying more due to the PMI, I challenge you to seek alternative methods to purchase your home. Whether that is using a conventional loan or purchasing with cash moving away from depending on something that was always meant to be a short term fix could save you tens of thousands of dollars over the lifetime of your loan.
Due to my glass is half full outlook on life I'd like to think that the future could get brighter. Just maybe, in the absence of canceling the rate cut there is another plan being put in place to help those interested in become home owners save money in the process. Time will tell.
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