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Mortgage Changes to Know in 2014

Tuesday, January 28, 2014

by Nancy Heim-berg

Homebuyers in 2014 will face sweeping new changes when it comes to obtaining a mortgage. The National Association of Mortgage Professionals has listed some of the top changes for buyers.

Lenders will now be scrutinizing buyers more carefully in order to ensure they are qualified to take out a loan. Buyers will now be required to undergo an Ability to Repay Mandate, which amounts to a new set of guidelines concerning assets, income and other financial obligations in order to obtain what is known as a qualified mortgage.

Those who were previously concerned about origination fees could possibly breathe a little easier in 2014. New laws dictate that mortgage origination fees may not exceed 3% of the loan’s value. This rule only applies to those who are taking out a “qualified mortgage,” so those who apply for other types of loans could nonetheless pay higher origination fees.

One of the biggest mortgage changes to know in 2014 involves FHA loans. Previously, borrowers could apply for FHA loans of up to $729,750, but the cap in 2014 will be limited to $625,000. This change is unlikely to affect people in most parts of the country, as the average home price is already much lower than that figure. Even so, homebuyers in areas that have a high cost of living could find themselves having difficulty obtaining FHA loans as a result.

Self-employed individuals will also have a harder time obtaining a mortgage loan in 2014. That’s because the new rules will make it more difficult for those without a W-2 form to prove their income and asset-to-debt ratio. As a result, a number of self-employed individuals might find they are unqualified for a mortgage, even if their credit score is well above average.

The goal of these new changes is to ensure that faulty lending practices do not result in another housing market crash, as the economy is still recovering from the bubble that burst a few years ago. Only time will tell whether the laws will be effective at doing so, or whether they will only make it more difficult for the average person to become a homeowner.

Types of Mortgages and Loans

Monday, July 1, 2013

by Nancy Heim-berg

With the barrage of information coming at first time home buyers from all directions, it's no wonder they often feel frustrated and confused when it comes to types of home mortgages and loans. Fortunately, many of the exotic loan types that surfaced before the housing market tumbled have been eliminated, and the buyer is left with fewer difficult or confusing choices. The remaining loan possibilities will be based upon the buyers need, credit history and resources. The first choice the buyer will face is whether to go with a fixed or variable interest rate. The second choice involves whether the loan will be conventional or government-backed. Here are some of the contributing details:

Fixed Rate

With this option the payment will be the same for the life of the loan. Although prime rates rise and fall, the mortgage payments and consumer rates will always remain the same. This certainly makes it easier to budget, and if the prime rate falls dramatically, it is possible to re-finance, although that means a new loan with new closing costs and possibly appraisal costs. Fixed rate loans are available for various time frames, but the most common are 15 and 30 year periods. This may be the best choice if the buyer intends to stay in the home for several years.

Adjustable-Rate Mortgages, or ARMs

These begin at a set rate and then adjust periodically at pre-determined intervals. They are generally easier to obtain than fixed rates, and often offer lower interest rates than fixed rates in order to attract buyers. These factors make this loan type popular with buyers that intend to sell in a few years. The downside is that the rate will most often increase, possibly by as much as six percent. ARMs come in several packages.

Conventional Mortgages

These types of Home Mortgages and Loans are created in the private sector, usually from a bank, with no government backing and are known as conventional loans.

Government-backed Loans

This loan will be created in the private sector, but insured by a government agency such as the Veterans Administration or the Department of Housing and Urban Development. These loans include Veterans Administration loans, Federal Housing Administration loans, and USDA loans.

The most important thing to remember is - ask questions, and make sure they are all answered fully. A reputable real estate agent is happy to review any concerns the buyer has, and can always recommend a local, reliable lender or broker. Communities across the country are sponsoring first-time home buyer classes to help buyers understand the process.

real estate mortgage tips home buyer loan home loans home mortgages types of loans types of mortgages buyer

FHA Loan Changes

Friday, April 26, 2013

by Nancy Heim-berg

The Federal Housing Administration has been insuring U.S. mortgage loans since 1934. The insurance helps protect lenders against loss by providing claims to lenders in the event an FHA-insured homeowner defaults on a loan. Though it makes the payments to lenders, the program is really provided for the benefit of American homebuyers.

The FHA program helps extend the American dream of owning a house to lower income Americans and people who could not otherwise meet traditional lending requirements. Instead of requiring 20% down, FHA qualified buyers can purchase a new home with 3.5% down. Homebuyers must qualify for the program, however, and they – not the lenders – pay for the insurance as part of their monthly mortgage payments.

The program worked well throughout history and made it possible for millions of Americans to purchase their own homes. The premiums paid by FHA borrowers were added to the program’s reserves, and those reserves were then used to pay lenders in the event a borrower defaulted on a loan. Unfortunately, the unprecedented number of defaults that occurred from 2000 to 2009 greatly reduced the FHA’s reserves and led to a number of significant changes that went into effect on April 1, 2013. Specifically, the program’s down payment requirements, annual insurance premiums, and eligibility requirements changed.

Beginning in April 2013, buyers who obtain loans above $625,500 will be required to put 5% down, instead of 3.5%. Annual mortgage insurance premiums will go up by 0.10% for loans under $625,500 and by 0.05% for loans above $625,500. Borrowers with credit scores below 620 will also be required to have a debt-to-income ratio of at least 43%. Additionally, fixed-rate “Standard” reverse mortgages will no longer qualify for FHA insurance.

Additional changes are scheduled to take effect in June. Beginning on June 3, 2013, payment of the required mortgage insurance will extend from a period of five years to the life of the loan in most cases. This change, while small, means buyers will end up paying significantly more to take out an FHA-insured loan in June 2013 and beyond than they paid in the past. Thankfully, there’s still time to obtain an FHA loan before the final change takes effect.

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Mortgage Changes to Know in 2014