FHA loans are great for certain borrowers. I look to FHA loans when my clients have credit scores of say 680 or less, little available cash for a down payment, and want a 30 year mortgage. FHA loans also can help a home buyer who has a higher level of other outstanding debt, as FHA guidelines allow slightly higher debt to income ratios.
FHA loans typically offer lower interest rates than conventional loans, but they do have some limitations. But now there is some movement in Washington to change some of these limitations. Let’s pretend that the federal government is Santa Claus. Here’s my FHA mortgage wish list:
- Rep. Maxine Waters, D-Calif has introduced the Making FHA More Affordable Act. This bill would repeal the “life of the loan requirement” for FHA mortgage insurance. Right now, if a borrower closes an FHA loan with a less than 10% down payment, the mortgage insurance is permanent – it never goes away. In contrast, the mortgage insurance is cancelled automatically on a conventional (non-FHA) mortgage when the outstanding principal balance reaches 78% of the home’s original value. In my opinion, this would be a good change for consumers who need FHA financing. I don’t think they should have to pay the mortgage insurance after they have 22% equity in their home.
- Under Ben Carson, the federal Department of Housing and Urban Development (HUD) issued a report signaling an easing in FHA requirements for condominiums. Currently, to close a FHA loan on a condo, the condo complex must be on the FHA approved list. Condos apply for FHA approval based on a number of FHA-specified criteria. If the complex is not on the FHA approved list, a buyer cannot obtain a FHA loan and must obtain conventional financing. The National Association of Realtors reported that of the 614,000 condo sales in 2016, only 4% were closed with FHA financing.
- In addition to loosening FHA condo complex approval guidelines, the administration is also indicating that it wants to revive FHA’s “spot loan” program. This program allows homebuyers to purchase a condo in a complex that has not been approved for FHA financing. Some estimates have claimed that without the spot loan program, 90% of condo projects cannot have buyers with FHA mortgages.
We mortgage lenders must work within the rules defined by the regulators – we don’t make the decisions. But I think the above changes would be very positive, as they would make home and condo ownership less expensive and more realistic for buyers who need the FHA loan program.
If you know a potential home buyer in Georgia who wants to know if they are on Santa’s, sorry, FHA’s, “good list,” have them contact me at Dunwoody Mortgage. We will work within FHA guidelines (and explore other potential loan options) to make sure they get the best deal on their mortgage, and hopefully enjoy some FHA guideline “gifts” from Washington soon.
Merry Christmas and Happy Holidays!!
