One month left before FHA mortgage insurance is permanent…SO WHAT??

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Borrowers not wanting to have FHA mortgage insurance as part of their mortgage payment for the life of the loan have about thirty days to take action. This shouldn’t be a reason to panic. 🙂

Effective FHA case numbers issued June 3, 2013 and later, FHA mortgage insurance will become a permanent part of the FHA mortgage payment.

Why do I say “SO WHAT?”

An FHA loan is not a life sentence for the home owner. Most home owners never pay their mortgage to term for 30 years…especially an FHA 30 year fixed mortgage. Odds are, an FHA 30 year fixed mortgage will be either paid off with a refinance to a conventional mortgage once there is enough equity or the home will be sold.

Don’t get me wrong, FHA mortgage insurance is expensive. And I don’t blame FHA borrowers for wanting to avoid having FHA mortgage insurance “forever” by getting their FHA case number by May 31, 2013 (prior to June 3, 2013).

FHA mortgage insurance remaining on the life of the loan should not be “THE reason” for avoiding an FHA mortgage. Currently USDA rural mortgages also have their form of mortgage insurance for the duration of the loan.

Why should someone NOT get an FHA mortgage?

A reason a potential borrower should avoid an FHA mortgage would be if they can qualify for a different program with a lower mortgage payment or less down payment.

Programs like the Home Advantage Mortgage program offers conventional financing at greatly reduced mortgage insurance rates to home buyers with credit scores of 660 or higher and who meet the income limit of $97,000 (note – co-borrowers income can be removed if needed to meet this limit). This program often has less funds due at closing and a much lower payment when compared to FHA minimum down… and yes, the mortgage insurance will eventually drop off with this conventional mortgage program.

For home buyers who are considering FHA because of the low down payment of 3.5%, there are other low down payment programs available.

Home owners who currently have an FHA mortgage and are considering refinancing into an FHA streamline may want to consider seeing if they can make the switch to conventional financing IF they have enough equity. Unlike an FHA streamlined refi, they will need to have an appraisal if switching from an FHA mortgage to a conventional mortgage. The maximum loan to value allowed is 97%.

Even for home owners who are doing a conventional rate term refinance, conventional financing is available up to 97% with pmi. If the home qualifies for a HARP (Home Affordable Refi Program) mortgage, there are no loan to value restrictions. Click here for more information on HARP.

Why would a borrower get an FHA mortgage?

Currently FHA offers a higher loan limit in the Seattle/King County area than what is allowed for conventional mortgages. In King, Pierce and Snohomish counties, the FHA loan limit for a single family dwelling is $567,500. The loan limit for a conforming mortgage in King, Pierce and Snohomish county is $506,000. I have a complete list of loan limits at the bottom (the footer) of this web page.

FHA is also more forgiving than conventional guidelines for potential home buyers who had a short sale or foreclosure on their previous home. FHA only has a 3 year waiting period following a short sale or foreclosure as compared to up to 7 years for conventional (varies depending on down payment).

Borrowers wanting to buy a 2 – 4 plex with minimum down payment as their primary residence may find an FHA loan as an attractive choice.

Also, those borrowers who currently have an FHA mortgage and are considering doing an FHA streamlined mortgage may still benefit from sticking with FHA. Especially if their existing FHA mortgage was endorsed by HUD prior to June 1, 2009 as they will continue to have reduced mortgage insurance (both upfront and annual/paid monthly).

Investors who currently have an FHA underlying mortgage on their rental property may also benefit from an FHA streamlined refi (no appraisal or loan to value limits).

The FHA mortgage is still a great program. Like any mortgage, it just needs to be suited for the borrower’s needs and the borrower should make sure they know what their options are.

How do you get an FHA case number and beat the deadline? 

You need to have a bona fide transaction before June 3, 2013. This means an accepted purchase and sales agreement along with a full application for a home purchase or a full application for a refinance should be provided to your Mortgage Originator ideally by Memorial Day. This will give your mortgage originator a couple days “wiggle room” to make sure they obtain a case number from HUD.

If you are wanting to get the case number to beat having FHA mortgage insurance on the life of your loan, do not wait until June 3, 2013 to confirm your case number. Ask your loan officer to provide you your case number and make sure you have it no later than May 31, 2013… or you’ll have FHA mortgage insurance premiums for the life of the loan (i.e. until you refinance out of an FHA mortgage, sell the home or win the lottery and pay off your mortgage…it could happen!).

When clients contact me wanting an FHA loan, I provide other available options based on their financial scenario and goals. If I can help you with your mortgage needs for homes located anywhere in Washington state, please contact me! Click here for a rate quote.

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