New FHA Rules – 3 major changes coming soon

Minneapolis, MN: If you are a first-time home buyer, you may already be leaning towards an FHA-backed mortgage to finance your Minnesota or Wisconsin home. Recently, the Federal Housing Administration announced changes to their mortgage guidelines, which are being made to stem the losses from all the foreclosures the past few years.

FHA does not provide loans, rather FHA is a government entity that insures mortgage loans made by banks and non bank lenders. Needless to say, if a lender can get an FHA guarantee on a portion of a loan, they are much more willing to provide a loan to someone.

Without the FHA, home buying would be a bit tougher for many home buyers buyers who cannot meet the slightly higher down payment and credit score requirements of a conventional loan. After the collapse of subprime lending in 2008, and the tightening of credit that followed, FHA-backed mortgages became the only game in town for many first-time home buyers.

FHA guidelines are a little more forgiving when it comes to credit history, making it the only practical option for some  home buyers who had a prior bankruptcy, foreclosure, or short sale in the past few years.

Here are 3 major FHA rule changes slated for 2013, and how they may affect you:

1. All FHA loans initially require mortgage insurance.  Just like conventional loans, mortgage insurance could be dropped below 80% loan-to-value.  After June 3rd 2013, this is no longer the case. Mortgage insurance on FHA loans will be on your mortgage payments for the life of the loan.

2. The cost of monthly mortgage premiums is going up slightly on April1, 2013. While it is  a relatively small amount; it would add an extra $20 a month to a $200,000 mortgage.  This will only effect new loans.

3. Few lenders allow for score below 640, but for those lender who do offer very poor credit score FHA loans (580-620 range) home buyers will face stricter debt-to-income ratios in 2013. In other words, the less debt you have, the better.

The good news is, these changes shouldn’t derail anyone’s plans to buy a home in MN, WI, or the rest of the country. Even with the new changes in 2013, FHA-backed mortgages remain attractive for many at least for the first 10-years or so of home ownership.

Finally, if you are buying a home, remember to get pre-approved by a local Minnesota or Wisconsin mortgage lender first…  You need to know what loan programs you qualify for, down payment options, FHA mortgage interest rates and how they will effect you, and an acceptable price search range to be looking at BEFORE you spend any time with a Realtor.