FHA is really an insurance program – I know, you thought you were getting a FHA Home Loan, and that might be the best mortgage program for you – but FHA doesn’t actually make mortgages. They only insure the Bank against a loss on your FHA loan. Because they are writing the default insurance against your loan – they are the ones wo set the guidelines regulating which loans they will insure.
FHA Home Loans are great for folks in North Carolina who need that need some “extra” flexibility with qualifying. If you think about your situation, and the words “common sense Underwriting” will be needed to get an approval – well then, FHA Loans are for you. They have lower credit score requirements, and they don’t count deferred student loans against you, like USDA Loans do.
The FHA Default Insurance is what we refer to as FHA PMI. The Insurance program works just like Allstate or State Farm. When there’s a claim (from the Bank) the money comes out of the “fund.” Well, recently, the FHA PMI funds have been drawn down, and now FHA is trying to figure out how to get more money in the fund, to keep paying out claims.
With the FHA PMI Insurance fund being underwater – they decided to make some changes to the way they allow FHA PMI to drop off of the mortgage. Frankly, in our opinion, this is a better option for home buyers. Because the other thing they can do is raise the FHA PMI Rates in 2013. In the message to Congress, FHA noted that most borrowers are currently only paying into the FHA PMI fund for around 10 years, and this can’t continue.
In their message to Congress, they noted:
FHA has been left without premiums to cover losses on loans held beyond the period for which it collects premiums.
The decision to take away the ability for FHA PMI to be cancelled only applies to New Loans with less than a 10% down payment. If you already have a FHA Loan, then the terms outlined in your Note will dictate how long you have to keep FHA PMI on your loan. If you make more than a 10% down payment on a FHA loan, it must stay in place for 11 years and you reach a 78% loan to value.
As it currently stands, if you currently have an FHA mortgage, the FHA PMI that you pay monthly is still set to drop off (cancel) once your principal balance reaches 78% of the loan to value and a minimum of 60 mortgage payments have been made. (this is important – we have people ask us all the time if they can just pay the mortgage down to 78% – no, you have to pay in for the full 5 years).
THIS IS AN IMPORTANT CHANGE… if you currently have an FHA mortgage in the mid-to-high 4% range and you have been considering an FHA streamlined refinance, you need to act quickly.
For us – this might be THE reason to go ahead and do the Streamline. Having the ability for the PMI to fall off the loan is a HUGE benefit, and as FHA stated… sometime in 2013, that benefit is going away.
If you are considering buying a home and you are planning on using FHA for financing in 2013 (and beyond) – be prepared to have the FHA PMI stay in effect until you either sell the home or you can refinance to a different type of mortgage. USDA Home Loans made a similar change last year.
If you are interested in buying your first home in NC please call Steve and Eleanor Thorne 919 649 5058. We understand the guidelines, and we’d love to help you buy a home or refinancing a home anywhere in North Carolina,!