First of all, what is FHA? It stands for the Federal Housing Administration, which was established in 1934 due to the troubling house market started in the Great Depression. A lot of people had trouble keeping up with payments during these tumultuous times. It gave people mortgage insurance when they couldn’t afford to purchase homes,. This created a resurgence to the market and gave people more hope to be a homeowner. As of recently, the market is just starting to revive due to the crash in 2008. Here are a few things to watch out for regarding these plans in 2014:
Reducing Loan Limits
This was actually going to take place after the market crash in 2008. However, the rocky economy proved otherwise. With a less unemployment and jobs becoming less scarce, the government wants to take advantage of this situation reducing the credit it allots. As a result, borrowers in higher end properties will see a reduction in loans how much they can actually receive. For example, the single-family loan limits will go down to $625,500 from the previous ceiling of $729,750. This means homeowners will have to invest more into properties around this price. Instead of a conventional loan which may require a 20% down payment, a 3.5% down payment on homes will be for your federal loan.
FHA Streamline Refinance Eligibility
If you are having some issues with your mortgage, you can apply for a Streamline Refinance. Homeowners with existing federal loan mortgages can refinance their homes even if what they owe is double the price of what their home. It comes as a fixed rate pay plan of a term 15 years or 30 years. You will not be penalized for having an underwater mortgage. However, it’s required you have at least a perfect 3 month mortgage payment history before you apply. They want to ensure a lower risk loan situation. Also, they want to ensure borrowers make 6 mortgage payments on their current FHA-insured loan. A wait period of 210 days will be required before Streamline Refinance eligibility.
Don’t focus solely on your credit score: Federal Government Loan vs Conventional Loan
If you are looking for a new home, it’s rather difficult to do so with a poor credit score for conventional loan markets. A federal government loan considers your credit score, but it’s not the end all, be all to determine your eligibility for home ownership. It’s always wise to go through your payment history and search online or a credit service to help you find out how to improve your credit score for other items. While a high credit score is ideal for most lenders, the current financial situation has a bigger impact for acquiring a loan. Remember, they need proof of your history to limit their risk.
Make Sure You Document Everything
The FHA is requiring a higher down payment with future homeowners. Make sure your paperwork from your W-2, credit cards, bank statements, and even gifts. Sometimes you need gifts to help you pay for your down payment. Even if it’s from a friend or your grandma, you have to make sure you account for everything. Any miscalculation or lack of source document will hurt your chances of getting your mortgage approved. When a mortgage lender goes through your statements, you want to make sure you can answer all questions about your deposits including gifts. Better statements mean less delays on loan eligibility.
Keep Your Spending Under Control
With limits reducing and a higher pay for the term of your loan, you may not even be considered if it’s well beyond your means. If you have credit card debt, student loans or any more expenses that take a significant value of your income, get those in order. Although, it is a good time to get a home, make sure it’s well within your means. You have to make a well thought out plan for your expenditures. If your general expense take half of your income, there’s little to no chance of receiving a mortgage. Under this service, you are allowed to use 29% of your income for housing costs and 41% in your housing expenses and other debt. Take your time to find a home more suitable in your budget. You’ll be able to keep up with the standards of maintaining home ownership and paying off other debt.
While the FHA hasn’t changed too much in the past 12 months, it is wise to always keep tabs on small and big changes in the market. If you are a budding homeowner, prepare to payout a hire amount for your new home. If you are stuck in a rut regarding your current home, realize you have options available. Take your time and evaluate the current situation.