There are a few changes in Federal Housing Administration loans that are going into effect next week. NY1's Jill Urban talks about changes in the following report.
If you’re in the market for a loan and you're considering an FHA, starting April 1, the rules will be changing.
"The most significant changes are that the mortgage insurance premium is going to be going up. And it used to be that people could stop paying mortgage insurance premiums after a certain point, if they paid down the loan below a certain level, and that's no longer going to be the case for people who borrow 90 percent of more," says Peter Grabel of Luxury Mortgage.
So if you put down less than 10 percent, you will have to pay that premium for the entire term of that loan. If you put down more than 10 percent, it could be eliminated after 11 years. Until now, it's only been up to five years.
Grabel says that borrowers now really need to crunch the numbers because for some people, conventional options could be more affordable.
"Another alternative, if you can afford to put down 5 percent or more, you can get a conventional loan and do private mortgage insurance or PMI," Grabel says. "The nice thing about that is it can be eliminated after one year if you have the means to pay the mortgage down or if the home value goes up, so you are not paying it for the life of the loan."
Aside from the increase premiums and extended terms, the underwriting guidelines will also change.
"Underwriting's getting tougher," Grabel says. "You need a higher credit score, and more conservative guidelines mean you have to have stronger income or a lower debt-to-income ratio to qualify."
If you're in the market for an FHA loan, you should really speak to a professional because there are a lot of variables to these changes and you need to understand all the options.
The biggest draw to FHA for many is the ability to put down as little as 3.5 percent, but there has been talk that that could soon change as well.
"There's speculation that for loans over $625,000, that FHA is going to increase the minimum down payment to 5 percent from 3.5 percent," Grabel says. "But that hasn't happened."
Again, for now, it's just speculation. But in this ever-changing environment, you never know what could happen.