Cool Tools News Spool

Tag: mortgage insurance

  • USDA up-front fee increasing; reason unclear

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    USDA is raising its guarantee fee for the Rural Development home loan program on Oct 1st. The Rural Development program is one of the few no-money-down loan programs. It’s only available in areas USDA considers rural in nature, but that definition includes a lot of exurbs of major TX cities.

    The guarantee fee is up-front mortgage insurance due at loan closing. Most borrowers choose to roll the fee into the loan amount rather than pay it at closing.

    The fee is rising from 2% to 2.75% of the initial loan amount. On a $150k home, that will raise the monthly payment by about $5.50 at today’s interest rate.

    The reason for the change is puzzling. USDA claims the increase is to cover old loan losses. However, we’ve been told USDA has a low default rate, and in 2011 it claimed loan losses were declining. USDA recently testified to Congress that the guaranteed loan program has a negative subsidy, meaning that it’s charging more money than it needs to cover losses. Thus, it sounds like the increase really is just another way the administration has found to raise money for the general fund, and this time the tax falls on rural homebuyers.

    USDA is not changing its monthly mortgage insurance rate, called the annual fee, which remains 0.5% of the loan balance.

    Please note that USDA will apply the change based on the date it commits to the loan, not the date the borrower applies. In order to beat the change, a homebuyer really needs to find a home this month as it generally takes about 30 days from contract signing to USDA loan approval.

  • FHA says it won’t lower MI

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    A big issue of late for all real estate industry professionals has been the dearth of first-time homebuyers. Analysts have suggested a number of possible reasons for this from excess student loan debt to millennials’ unwillingness to make a commitment. Today, we’re going to discuss another possible reason: higher FHA mortgage insurance rates.

    In Apr, 2013, FHA raised its mortgage insurance rate for the 5th time since 2010. As we’ve discussed in the past, the changes have priced some homebuyers out of the market. NAR claims the higher rates prevented 125,000 and 375,000 renters from qualifying to purchase a home last year.

    The reason for the changes was simple. Due to lax loan standards during the last decade, the FHA Mutual Mortgage Insurance Fund was going broke. To shore it up, FHA figured it would raise prices. For homebuyers with good credit, the FHA MI rate is now more than double the rate offered by private MI companies. So, homebuyers who can cobble together a 5% down payment have moved over to conventional loans. Those who can’t are paying the higher FHA rate or sitting on the sidelines.

    Unfortunately, first-time homebuyers are those least likely to have down payment money, and recent analysis shows that the vast majority of FHA borrowers are first-time homebuyers. Thus, a logical conclusion would be that higher FHA MI rates are reducing the number of first-time homebuyers.

    FHA has indicated it has no intention of reducing its MI rates any time soon. The only relief we may see in the near term is a reduction for first-time homebuyers who receive homebuyer counseling. Longer term, industry pundits think FHA may finally reduce the rates once its insurance fund recovers to its Congressionally-mandated level. Watch for the FHA actuarial report later this year for FHA’s projection of when that will occur.

  • USDA RD changes coming Oct 1st

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    USDA is making some significant changes to its rural development (RD) mortgage program starting Oct 1st. If you don’t know the RD program, it’s worth learning more. The program requires no down payment and has much lower monthly mortgage insurance than FHA.

    The first change concerns that mortgage insurance. For all loan commitments after 9/30, USDA is increasing its monthly rate from 0.4% to 0.5%. That still makes it a bargain compared to FHA. For a $150k loan, the difference in total housing payment between USDA and FHA is more than $100. In fact, a homebuyer could get a $170k home, $20k more home, for the about same housing payment.

    But before you load your customer in the car to look at USDA-eligible properties, know that for homebuyers with good credit, FHA allows higher debt ratios than USDA. I’m hearing USDA will not accept a debt ratio above 48% whereas I’ve seen FHA approvals as high as 56%. On net, your customer may be able to qualify for more home with an FHA mortgage, but that comes with a higher housing payment.

    USDA bases the MI rate on the date it commits to the loan, not the date the homebuyer applies. If you have customers considering a USDA loan, they need to apply soon to beat the deadline.

    The second change concerns USDA property eligibility. The RD program targets “rural” areas, but rural includes many of exurbs of the major TX cities. The new maps carve off a few of those exurbs. The USDA eligibility Web site, which I linked at the end of my blog, lets you compare the new and old maps. The main changes I noticed were the expansion of ineligible areas in Pflugerville, Round Rock, and San Marcos in the Austin area and Denton and McKinney in the DFW areas. In addition, the ineligible area on the west side of Ft. Worth expanded significantly. San Antonio and Houston escaped mostly unscathed.

    USDA bases property eligibility on the date it receives the loan file. For most lenders, this will be a couple weeks after loan application. So, again, homebuyers need to act soon to beat the changes.

    USDA property eligibility maps.

  • HAWK program still leaves FHA MI rates too high

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.