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Refinance Now to Avoid Ohio FHA Changes – June 3rd Deadline

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Ohio FHA ChangesKicking around the idea of refinancing? Maybe debating on purchasing a home? Maybe an FHA Streamline Refinance? It’s time to get off the proverbial fence. I hate to beat a dead horse, but Ohio residents now have less than 30 days before FHA changes when Monthly Insurance Premiums (MIP), what you and I call monthly mortgage insurance, can be cancelled.

Why is Ohio FHA making these changes? Simply put, FHA’s pot of money that they use to fund homeowner programs has a deficit of $16.3 billion for 2013.

So how will what does this change mean to us Ohioans? Bottom-line, a FHA mortgage will cost you more come June. Let’s look at a $150,000 purchase with 3.5% down payment:

Currently:
Interest Rate: 3.25%
APR: 4.462%
Interest Paid Over Life of the Loan: $106,414.97

After June 3rd:
Interest Rate: 3.25%
APR: 5.053%
Interest Paid Over LIfe of the Loan: $125,405.20

Almost $19,000 more expensive after June 3rd.

The Mortgage Bankers Association interest rate forecast for later this year shows rates rising to 3.9% in the 3rd quarter and 4.10% in the 4th quarter of 2013.

Complete my simple, free, Ohio FHA Interest Rate Quote form (no social security number required) to get a personalized interest rate quote in a matter of minutes. Or you can contact me anytime with questions.

Ohio FHA – Cancellation of Mortgage Insurance

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Ohio FHA Mortgage InsuranceOhio residents have less than 2 months before FHA drastically changes the policy on when FHA mortgage insurance premiums (MIP) can be cancelled.  In February I covered the changes in Changes to FHA Mortgage Insurance Cancellation. The changes are effective with FHA Case Numbers assigned on or after June 3, 2013. You can read HUD Mortgagee Letter 2013-04 for the technical explanation.

Don’t wait until the last-minute.  Generally lenders get back logged the week before a major FHA change, so it could take longer to assign an FHA Case Number.  And don’t forget, you probably want to shop around for the best deal.  All adding valuable time on to your mortgage search, and thus, when your FHA Case Number will get assigned.

I have been advising clients seeking a Ohio FHA mortgage, whether an FHA purchase mortgage, FHA refinance or FHA Streamline, that they need to plan on having a full application completed no later than May 23rd to insure that we can get their FHA Case Number assigned before the change.

To recap the change that is taking place.

Ohio FHA Mortgage Insurance (CURRENTLY)

  • Must pay for a minimum of 5 years
  • After 5 years, the FHA Mortgage Insurance is cancelled once your principal loan balance reaches 78% of the home’s value as determined by the last appraisal or purchase price

Ohio FHA Mortgage Insurance (new FHA Case Numbers assigned on or after JUNE 3, 2013)

  • FHA loan taken out is 90% or less financing, you will pay mortgage insurance for the first 11 years or until the end of the mortgage term (whichever is shorter)
  • FHA loan taken out is above 90% financing (which the majority are), you will pay mortgage insurance for the entire term of the mortgage or for the first 30 years (whichever is shorter)

This will add considerable costs to an FHA mortgage.  If you would like to review your options you can CONTACT ME or complete the simple and free Ohio FHA Interest Rate Quote form. And, unlike many mortgage consultants, I am available evenings and weekends, so give me a call.

Changes to FHA Mortgage Insurance Cancellation

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Ohio FHA Mortgage InsuranceLast week HUD issued 2 new Mortgagee Letters that will have a major impact for many homeowners and prospective homebuyers.

The first one was Mortgagee Letter 2013-04

This mortgagee letter revises FHA policies on when annual Mortgage Insurance Premiums (MIP) can be cancelled as well as increasing the annual MIP, which you can read about in FHA Increasing Annual Mortgage Insurance, Again.

Currently FHA’s annual MIP can be cancelled no earlier than 5 years and when the outstanding principal balance reaches 78% of the home’s value as determined by the last appraisal or purchase price. Currently a homebuyer who purchased a home for $100,000 and put 3.5% (the FHA minimum) down would pay $100.52 per month in annual MIP. On average, the homeowner would pay that annual MIP for 100-110 months.

The new guideline is effective for all mortgages with an FHA Case Number assigned on or after June 3, 2013. The new guidelines are:

FHA will collect the annual MIP for the maximum duration permitted under statute.

  • For all mortgages regardless of their amortization terms, any mortgage involving an original principal obligation (excluding financed Up-Front MIP (UFMIP)) less than or equal to 90 percent LTV, the annual MIP will be assessed until the end of the mortgage term or for the first 11 years of the mortgage term, whichever occurs first.
  • For any mortgage involving an original principal obligation (excluding financed UFMIP) with a LTV greater than 90 percent, FHA will assess the annual MIP until the end of the mortgage term or for the first 30 years of the term, whichever occurs first.

In layman terms,

If the Loan to Value Ratio (LTV) is less than or equal to 90%, FHA will collect the annual MIP for a minimum of 11 years or the end of the mortgage term, whichever occurs first.

If the Loan to Value Ratio (LTV) is greater than 90%, FHA will collect the annual MIP for the entire term of the mortgage.

FHA collection of annual MIP

TERMLTV (%)PREVIOUSNEW (6/3/2013)
≤ 15 yrs≤ 78%No annual MIP11 years
≤ 15 yrs> 78% - 90.00%Cancelled at 78% LTV11 years
≤ 15 yrs> 90.00%Cancelled at 78% LTVLoan Term
> 15 yrs≤ 78%5 years11 years
> 15 yrs> 78% - 90.00%Cancelled at 78% LTV & 5 yrs11 years
> 15 yrs> 90.00%Cancelled at 78% LTV & 5 yrsLoan Term

Instead of paying the annual MIP for 100-110 months, which equates to $10,052 to $11,057.20 in the example above, that homeowner would be paying the annual MIP for the entire 30 years, which amounts to $29,787.20. A huge difference.

Long story short, if you are in the market for an FHA mortgage, whether you are a homeowner seeking to refinance or a homebuyer looking to purchase a home, you have less than 4 months to act before you are subject to this guideline.

If you would like to explore your options with an FHA mortgage please complete the FHA Rate Quote Request Form and we can discuss your situation.

FHA Increasing Annual Mortgage Insurance, Again

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Ohio FHA ChangesHUD Mortgagee Letter 2013-04, released January 31, 2013 details HUD’s new increase for FHA mortgage insurance.

Effective with FHA Case Numbers assigned on or after April 1, 2013 HUD is raising FHA’s annual Mortgage Insurance Premiums (MIP), again.

Below is the chart showcasing the current MIP and the New MIP in April.

TERM > 15 YEARS
Base Loan Amt.LTVPrevious MIPNew MIP
≤ $625,500≤ 95.00%120 bps130 bps
≤ $625,500> 95.00%125 bps135 bps
TERM ≤ 15 YEARS
Base Loan Amt.LTVPrevious MIPNew MIP
≤ $625,50078.01% - 90.00%35 bps45 bps
≤ $625,500> 90.00%60 bps70 bps
ANY≤ 78.00%0 bps45 bps

These changes apply to all FHA mortgages except for FHA Streamline Refinances that were endorsed by HUD prior to May 31, 2009.   You can read more about that in my previous article published last year Ohio FHA Streamline Refinance Update

Ohio residents that want to act before FHA’s fees increase, fill out the Ohio FHA Interest Rate Quote form and we can discuss your options.

 

Ohio FHA Fees Set to Increase, Again?

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Ohio FHA Home LoansFHA has played a vital role in the housing market recovery, continuing to provide mortgages to consumers that may otherwise be unable to obtain a mortgage. Another important role that FHA stumbled on is bridging the gap between the 20% down conventional loans and the long gone subprime mortgages.  In 2007 FHA accounted for $44 billion in purchase mortgages, and in 2008 that number skyrocketed to $143 billion.  I’ll give you one guess when the subprime mortgage mess came to a head?

Along with FHA’s new-found fame, came more delinquencies. FHA must maintain a certain amount of reserves in their insurance fund, so with more delinquencies came more defaults, and more defaults equals more insurance claims.  So over the last few years FHA has increased their fees, both Up Front Mortgage Insurance Premiums (UFMIP) and the Annual Mortgage Insurance Premiums (MIP).

Ohio residents have seen FHA fees increase a number of times over the years. Here is a brief review of these increases.

FHA Mortgage Insurance History

EFFECTIVE DATEDOWNPAYMENTUPFRONT MORTGAGE INSURANCE PREMIUM (UFMIP)ANNUAL MORTGAGE INSURANCE PREMIUM (MIP)
Prior to July 14, 2008ANY1.50%0.50%
July 14, 2008Less than or Equal to 5%2.25%0.55%
More than 5%1.25% - 2.25% (dependent upon credit scores)0.50% - 0.55% (dependent upon credit scores)
April 5, 2010Less than or Equal to 5%2.25%0.55%
More than 5%2.25%0.50%
October 4, 2010Less than or Equal to 5%1%0.90%
More than 5%1%0.85%
April 18, 2011Less than or Equal to 5%1%1.15%
More than 5%1%1.10%
April 9, 2012Less than or Equal to 5%1.75%1.25%
More than 5%1.75%1.20%

A homeowner purchasing a $100,000 property with 3.5% down with a 30 year fixed at 3.50% has seen their payment increase by more than $100 per month with the current level of fees.

Currently a homeowner with an FHA mortgage will pay that Annual Mortgage Insurance Premium (MIP), similar to monthly mortgage insurance, for a period not less than 5 years.  This means that if you purchased a home in Cincinnati, OH with an FHA mortgage and put 20% down (yes, sometimes that makes sense), you could expect the mortgage insurance to fall off after 5 years (assuming the principal balance at the 5 year mark is 78% of the purchase price).

In its Annual Report to Congress, HUD (U.S. Department of Housing and Urban Development) made the following statements:

“beginning with new loans endorsed after the policy change becomes effective later in FY 2013, FHA will once again collect premiums on FHA loans for the entire period during which they are insured”

“Consistent with FHA’s continued efforts to balance its counter cyclical role in the nation’s mortgage market with its responsibility to manage the Fund, FHA will increase annual mortgage insurance premiums by an additional 10 basis points.”

“This premium increase –$13 per month for the average FHA borrower – which FHA will enact in 2013 will add significant revenue to the Fund and ensure that FHA does not take on additional market share, while at the same time being modest enough that it doesn’t impact borrower access to credit or threaten our emerging housing recovery.”

So it appears that we will see both an increase in the Annual Mortgage Insurance Premiums (MIP) and the ability for the Annual Mortgage Insurance Premiums (MIP) to be removed. The increase in MIP would increase a homeowners mortgage payment on a $100,000 mortgage by $8.33 per month.  Or roughly $500 over 5 years.

Ohio homeowners or homebuyers that would like to explore your options for an FHA mortgage, whether an FHA Streamline Refinance, an FHA Cash-Out Refinance, or an FHA Purchase take a few minutes to complete the FREE OHIO FHA QUOTE form.

Ohio FHA Mortgage Income Requirements

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Ohio FHA Income RequirementAre you in the market for an FHA mortgage? Are you looking to purchase your first home, or maybe looking at refinancing into an FHA mortgage? One question I am asked quite by my clients seeking an FHA

mortgage is ‘What are the income requirements?’.

One thing to always remember about FHA, and other loan programs, is that the insuring entity (in this case HUD) sets the minimum standards. Lenders can impose stricter guidelines.

Income is used to calculate your debt to income ratios. The two debt to income ratios that are calculated are:

    1. Housing Ratio – which is your gross (before taxes) monthly income compared to the proposed mortgage payment, including property taxes, homeowners insurance, and mortgage insurance.
    2. Total Debt Ratio – is your gross (before taxes) monthly income compared to all of the debt listed on your credit report plus the proposed mortgage payment, including property taxes, homeowners insurance, and mortgage insurance.

A Housing Ratio exceeding 31% may be acceptable if significant compensating factors are documented. While a Total Debt Ratio exceeding 43% may be acceptable if significant compensating factors are documented. However, an approval through the FHA TOTAL Scorecard (FHA’s version of Automated Underwriting System (AUS)) does not require documented compensating factors, even if ratios exceed the FHA guidelines.

In my experience FHA’s TOTAL Scorecard may approve mortgages up to a Total Debt Ratio of 56.99% (although I would never advise a client to apply for a mortgage with ratios that high unless there were other significant factors that made sense).

Lets look at some of the main sources of income and their documentation requirements for an FHA home loan in Ohio:

Ohio FHA Mortgage General Income Requirements

HUD requires that qualifying income be verified, stable and have a reasonable expectation that it will continue for at least 3 years.

This is determined by reviewing the borrower’s past employment record, qualifications for the position, previous training and education, and the employer’s confirmation of continued employment.

General documentation requirements are:

  • Most recent paystub, documenting at least 30 days of year to date income
  • Previous 2 years W-2s
  • Previous 2 years signed, dated Federal income tax returns including all applicable schedules

Ohio FHA Overtime and Bonus Income Requirements

A full verification of employment (VOE), completed by the employer will be required to document a 2 year history of the overtime and/or bonus income. The lender will then take a 2 year average of the income. The employer, also must state whether the overtime and/or bonus income is likely to continue. If it is not likely to continue, the income can not be used. Also, if either type of income shows a continual decline over the 2 year period, the lender may choose not to use the income.

Ohio FHA Part Time Income Requirements

Documentation that the borrower has worked the part-time job, uninterrupted, for the past 2 years.

Ohio FHA Commission Income Requirements

Commission income must be averaged over the previous 2 years

Commission income showing a decrease from one year to the next requires significant compensating factors. Also, unreimbursed business expenses (Schedule A of Federal Tax Returns) must be subtracted from a borrowers gross income.

Ohio FHA Retirement Income Requirements

Must be verified by the previous 2 years Federal Tax Returns

If any retirement income will cease within the first 3 years of the new FHA mortgage, the income may only be considered a compensating factor.

Ohio FHA Social Security Income Requirements

Must be verificed by the Social Security Administration or from the previous 2 years Federal Tax returns. The lender must obtain the current awards letter.A Mortgage Social Security Income Requirements

If any benefits expire with the first 3 years of the new FHA loan, the income may only be considered a compensating factor.

Ohio FHA Self Employed Income Requirements

A borrower with a 25% of greater ownership interest in a business is considered Self Employed for FHA home loan underwriting purposes. Self Employment income is considered stable if the borrower has been self-employed for 2 or more years, self employment between 1 and 2 years may be considered if the borrower is able to document at least 2 years of previous successful employment in the same line of work or related occupation.

Self Employed borrowers must provide:

  • Signed, dated individual tax returns, with all applicable schedules for the most recent 2 years
  • For a corporation, “S” corporation, or partnership, signed copies of Federal business income tax returns for the last 2 years, with all applicable schedules
  • Year-to-Date profit and loss (P&L) statement and balance sheet, and
  • Business credit report for corporations and “S” corporations.

If FHA’s TOTAL Scorecard approves the loan, the borrower is not required to provide business tax returns if ALL of the following conditions are met:

  • Individual Federal Tax returns show increasing self-employed income over the past 2 years
  • Funds to close are not coming from business accounts, and
  • The proposed FHA mortgage is not a cash out refinance.

If FHA’s TOTAL Scorecard approves the loan a business credit report for a corporation or “S” corporation is not required.

These are the general FHA guidelines for income. However, each borrower’s employment and income situation may be unique. Ohio residents that would like to discuss their situation can contact T.C. Strait at 513-777-8383 or complete the Free, No Obligation Rate Quote Request
to be contacted immediately.

Ohio FHA Interest Rates

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The news has been reporting record low mortgage rates for the past couple of weeks. I’m sure you’ve seen the reports, right? The question remains, how does that affect you?Ohio Refinance Rates

If you are in the market for an FHA mortgage, whether it is an FHA Streamline Refinance, a normal FHA refinance or an FHA Purchase a few factors will come into play when determining the interest rate you receive.

A few of the factors that lenders take into consideration are:

  • Credit Score – lenders will look at your middle credit score
  • Debt Ratios – monthly debt compared to your gross monthly income. The absolute max for an FHA loan is 56.99%, however some lenders have lower caps.
  • Loan Amount – some lenders impose adjustments (negative and positive) based on your loan amount

So let’s take a look at a couple of examples based on Ohio Mortgage rates as of June 1, 2012.

Ohio FHA Refinance

Mary in Cincinnati, OH are looking to refinance their primary residence into a new FHA mortgage. Their details are:

Middle Credit Score: 741
Amount Owed: $150,000
Property Value: $175,000
Location: Cincinnati, OH

Based on the above information Mary may opt to refinance at:

FHA 30 Year Fixed
Interest Rate: 3.5%
Estimated Principal & Interest & Mortgage Insurance payment: $835.35
Estimated Closing Costs: $950 + appraisal
Estimated APR: 4.10%

Now what if Mary had a 665 middle credit score?

FHA 30 Year Fixed
Interest Rate: 3.5%
Estimated Principal & Interest & Mortgage Insurance payment: $835.35
Estimated Closing Costs: $2300 + appraisal
Estimated APR: 4.178%

Notice the $1350 increase in the closing costs? That is the result of the credit score difference of 76 points. Mary would have other options to keep her closing costs lower, but they would involve a higher interest rate.

Homeowners that currently have an FHA mortgage that was endorsed by HUD before May 31, 2009 (translates to a closing no later than May 10, 2009) should begin thinking about taking advantage of the FHA Streamline Refinance changes that go into effect in less than 2 weeks.  The examples above do not take into account the lower FHA mortgage insurance requirements for Streamline Refinances starting June 11, 2012.

Homeowners need to keep this in mind when checking interest rates online or reading about them in the newspaper. Generally the mortgage interest rates that are reported are based on certain criteria (750 credit score, $200,000 loan amount, etc, etc.) and may not fit their situation.

Every individuals situation is unique, and that is where a good Loan Officer can be worth their weight in gold. They can help you understand all of your options.

You can contact me directly or request a rate quote if you would like to review your options.