If you need a low-down payment mortgage and you don’t have the best credit score, an FHA home loan can help you get the keys to homeownership. The FHA home loan program has been around since 1934 making homeownership affordable for many.
With the new year underway, the Federal Housing Administration recently announced changes to its program for 2015—changes that benefit many would-be buyers and anyone refinancing to an FHA home loan.
1. Reduced Mortgage Insurance Premiums
FHA home loans only require a 3.5% down payment, which has been a godsend for borrowers who can’t save the traditional 20%. Unfortunately, anyone who puts down less than 20% is required to pay an annual mortgage insurance premium (MIP), which is paid over 12 installment payments and included in the mortgage payment. Borrowers who pay MIP have higher monthly payments than those who don’t, but there’s good news for anyone who closes on an FHA home loan after January 26, 2015.
On January 9, 2015, the Federal Housing Administration announced an upcoming reduction in annual mortgage insurance premiums. For borrowers, this means more money in their pocket every month. This change applies to mortgages greater than 15 years. The reduction of 5% will reduce current mortgage insurance premiums from 1.35% to 0.85% for borrowers to put down less than 5%, and from 1.30% to 0.80% for borrowers who put down more than 5%.
2. Elimination of Post-Payment Interest Charges
Some conventional mortgage loans charge a prepayment penalty, which is a fee borrowers pay their lender for paying off the mortgage in full within the first two to three years. FHA home loans have something similar, called a post-payment interest charge.
Basically, if you pay off your mortgage early either by selling or refinancing, your mortgage lender might charge interest for the entire month, regardless of when you actually paid off the mortgage. For example, if you paid off a mortgage on September 3, your lender would charge interest through September 30. New rules, however, get rid of this extra cost. Post-payment interest charges are eliminated beginning January 21, 2015. Lenders can only charge interest up until the date a borrower pays off his loan.
3. Advance Notice for Rate Adjustments
Adjustable-rate mortgages typically start with a rate lowered than fixed-rate mortgages. Unlike a fixed-rate, which has a set rate for the life of the loan, an adjustable-rate mortgage has a temporary fixed rate — one to five years — and then the rate adjusts annually depending on the market. Previously, FHA home loan lenders gave borrowers a 25-day notice of rate increases. Effective January 10, 2015, lenders must give borrowers with an FHA-insured adjustable-rate mortgage a 60- to 120-day notice of any changes to the monthly payment. This provides borrowers additional time to prepare for higher mortgage payments.
Buying a house is arguably one of the most expensive transactions you’ll ever make in your life. And unfortunately, lack of funds is a home buying hurdle for many people. However, with an FHA home loans, affording a property has become much easier.