The United States Federal Housing Administration (FHA) recently announced that they will be putting a new cap on mortgage loans – a maximum of $625K beginning January of 2014.
Bigwig financers Freddie Mac and Fannie Mae have undoubtedly prompted this decision. FHA Commissioner, Carole Galante recently stated, “As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play. Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market.”
The FHA Bailout & What To Expect
The Federal Housing Administration is the biggest mortgage insurer in the world, and an estimated 34 million properties have been covered since 1934. The Federal Housing Administration is self-funding – no other government agency in the world is fueled by self-generated revenue.
The new loan cap will impact buyers across the U.S. – currently loans stay above a set $271,050 – loans will continue to bottom out at the same amount. Mortgage company-tycoons Mae & Mac set their loan caps at $417K, and buy loans as large as $625K.
In years past, the Federal Housing Administration insured loans up to 125 percent of median home prices – In 2014 they will only insure 115 percent of median home prices in any given county.
At the decline of the homebuyers market, the Federal Housing Administration suffered great financial losses (as did everyone else) – towards the beginning of 2013 they asked for a healthy bailout of 1.7 billion, the first time in the organization’s nearly 80-year history that they’ve taken money from an outside source.
Things To Know About FHA Loans:
If you are planning on reaping the benefits of these loans, there are a few things you should know:
- Perfect Credit Isn’t Essential – According to the United States Department of Housing and Urban Development (HUD), there are no minimum credit scores required for loan-insurance approval.
- First Time Home Buyers – The 203(b) provides insurance for first time homeowners; the borrower must comply with approval standards, and if eligible, can insure 1-4 unit buildings.
- A Minimum Down Payment Is Required – The current minimum down payment required for approval is 3.5% of the buyer’s price – a considerably less expensive way to borrow funds when considering most alternatives.
- All Funding Must Be Insured – The premium must be paid upfront, but can be financed as a part of the full loan amount.
- Cash For Repairs – There’s a loan-product available for homeowners who need repairs; the 203k is based the value of a home after repair-completion.
- Loan Modifications & Financial Hardships – Mortgage insurance loans are definitely not designed to be an easy escape for borrowers; for people experiencing serious financial struggles, the Federal Housing Administration offers loan forbearances, modifications, and deferrals.
Securing Investment Properties
Securing a loan is a fantastic way to get into real estate – especially without having to put out a ton of cash upfront. There is a downside however – you must live at the property to avoid prosecution for fraud.
In order to secure a loan, and invest in a multi-unit structure, a person is required to meet all eligibility requirements. In most cases, FHA loans offer low interest rates –especially when compared to conventional loans. But as always, the better your credit score is, the more cash you will likely save on interest rates.
How to Prepare For Your Loan Officer
Just like any other financial institution, a loan officer is going to be needing some very basic information from you – show up prepared with:
- Proof Residency – A two-year minimum is required.
- Social Security Verification – Your Social Security Card (if not damaged or sealed in plastic) is perfect.
- Employment Verification – A two-year minimum is required; prepare your current employer (i.e. ask for a letter, prep them for questioning, etc.) and bring your W-2s.
- An Estimated Value of Your Assets – What you have, and how much it’s worth.
- Your Current Checking & Saving Account Info – Bring all relevant bank information; print out your statements.
- Appraisal Information About Real Estate – The current value of your property and house.
Caution, Loan Approval In Process
Many have made some pretty horrific mistakes when trying to get help from the Federal Housing Administration. There are several ways to really screw things up – avoid the following:
- Credit Cards – Stop charging; you may charge if you’ll immediately be paying off your debts; whatever you do, do not max your cards out.
- Auto Loans – No new or used car purchases while the loan process is underway.
- Stay At Your Current Job – Nothing so much as ensures rejection like switching jobs while in the middle of insurance-loan processing.