Why canceling the FHA rate reduction was the right move

 Loan Programs, Residential Mortgage  Comments Off on Why canceling the FHA rate reduction was the right move
Feb 042017
 

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

By G. Steven Bray

I’m sure you know by now that the Trump administration cancelled the FHA mortgage insurance rate reduction put forward in the waning days of Obama’s term. This caused moans from most of my housing industry friends, but I think it was the right move.

First, keep in mind that FHA MI provides insurance against defaulted FHA loans. By law, the insurance fund must be at least 2% of the FHA’s loan exposure. The fund last year exceeded the 2% threshold for the first time in many years. Given that economists are predicting a housing slowdown this year, wouldn’t it make more sense to let the fund grow a little before chopping the premium?

Second, I don’t believe the premium reduction would have resulted in many additional homebuyers. Instead, I think it simply would have transferred business from private mortgage insurance companies to FHA. I’ve never seen an honest analysis from HUD to justify its MI rates based on its risk exposure. Moreover, FHA also has up-front MI and never cancels its MI, unlike conventional loan mortgage insurance. If FHA wasn’t just trying to increase its market share, maybe it could have tweaked those characteristics.

In conclusion, I’m not convinced the move by the outgoing administration wasn’t intended to make the incoming team look bad. Personally, I think it makes them look prudent.

More leverage for investment properties

 Investment, Loan Guidelines  Comments Off on More leverage for investment properties
Oct 312016
 

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

By G. Steven Bray

Since the financial collapse almost a decade ago, rental property buyers have been stuck with a minimum 20% down payment for conventional financing. Not only had Fannie Mae and Freddie Mac not forgotten about all the high-leverage loans they purchased that went bust, but the mortgage insurance companies also got burned. And for conventional financing, you need mortgage insurance to go higher than 80% leverage.

That has changed. Mortgage insurance companies have an appetite for rentals again. At this time for buyers with 680 or better credit, we’re able to accept a 15% down payment.

Of course, you’ll pay a premium for the mortgage insurance. Your MI rate would be roughly 50% higher than what one would pay when buying a primary residence. On a $200k loan, that equates to a monthly MI payment of about $102 assuming good credit. However, it only takes about 5 years to pay the loan down to 78% of the purchase price, at which point the mortgage insurance gets cancelled.

USDA to make its loans more affordable

 Loan Programs, Owner-occupied, Residential Mortgage  Comments Off on USDA to make its loans more affordable
May 072016
 

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

By G. Steven Bray

The USDA recently announced that for fiscal year 2017 (which begins on Oct 1st) it’s dropping the fees it charges for its guaranteed rural housing loans. Currently, USDA charges an upfront guarantee fee of 2.75% of the loan amount and an annual fee, or monthly mortgage insurance (MI), of 0.5%. On Oct 1st, those rates drop to 1% and 0.35%. That really is a huge change.

So, how would that affect a potential homebuyer? Let’s say you’re trying to buy a $180k home. Remember the USDA program doesn’t require a down payment, and most folks roll the upfront guarantee fee into the loan, so we have a roughly $185k mortgage. Using today’s fees, the monthly principal, interest, and MI payment would be about $908.

Okay, what if the fees are at 2017 levels? The monthly payment drops to $869. Over the life of the 30-year loan, that $39/m adds up to more than $14k in savings.

I find the timing of the announcement interesting. Based on our experience, USDA has lost of lot of market share to FHA, which lowered its mortgage insurance rates last year. While I suspect the announcement will shut down use of the program for the summer, maybe it will build some anticipation for it again in the fall.

USDA making housing loan a bit more expensive

 Loan Guidelines, Loan Programs, Residential Mortgage  Comments Off on USDA making housing loan a bit more expensive
Aug 052015
 

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.

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, you really need to find a home this month as it generally takes about 30 days from contract signing to USDA loan approval.

FHA ends policy of charging extra interest

 Loan Programs, Residential Mortgage  Comments Off on FHA ends policy of charging extra interest
Feb 132015
 

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

By G. Steven Bray

For loans that closed after 1/20 of this year, FHA is ending its policy of charging a full month of interest when you pay off the loan. Here’s how this has worked in the past. With other loan programs, when a homeowner sells a home, the seller pays interest up until the date of closing. However, sellers with FHA loans had to pay interest through the end of the month of sale. Thus, if the sale closed at the beginning of the month, the seller could lose several hundred dollars, even though the FHA loan had been repaid in full. As a result, home sellers with FHA mortgages often scrambled to close their sales at month end to limit the amount of extra cost.

With the change, the FHA loan program falls in line with the rest of the industry and, more importantly, comes into compliance with recent government regulations.

It’s important to remember that the change applies only to new loans, those that closed after 1/20 of this year. For loans from previous years, the old rule still applies.

Does lower MI make FHA better than conventional loan?

 Loan Programs, Residential Mortgage  Comments Off on Does lower MI make FHA better than conventional loan?
Jan 102015
 

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

By G. Steven Bray

The folks over at FHA probably shuddered in Dec when Fannie Mae and Freddie Mac announced they were lowering their min down payment to 3%. Buyers with stronger credit already were shunning FHA. Its only advantage was its lower down payment requirement, and that now was gone.

But FHA is fighting back. It announced this week a reduction in its mortgage insurance rates. (If FHA, Fannie, and Freddie all weren’t owned by the government, you’d think capitalism had broken out.)

The change leaves FHA looking good again. For a $200k home purchase, the monthly payment for an FHA loan would be roughly $100 lower than for a conventional loan. The difference is the result of the lower MI rate and lower interest rates for FHA loans. This analysis assumes a buyer with a 720 credit score.

The two remaining advantages for conventional loans are a slightly lower down payment – $1000 lower in this case – and lower total mortgage insurance. FHA still requires up-front MI, and its monthly MI lasts for the life of the loan. For conventional loans, MI automatically ends after about 11 years.

FHA lowers mortgage insurance rates

 Loan Programs, Residential Mortgage  Comments Off on FHA lowers mortgage insurance rates
Jan 092015
 

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

By G. Steven Bray

FHA officially announced today it’s lowering its max monthly mortgage insurance premium from 1.35% to 0.85%. That’s great news for folks looking for a low down payment loan. The change is effective for FHA loans registered on or after Jan 26th.

But, what if you have an FHA loan already in process? Can you take advantage of the lower MI rate? Yes, you can. FHA says that for the next 30 days it will allow lenders to cancel active registrations – FHA calls them case numbers. Once the case number is cancelled, your lender can re-register your loan with the lower MI rate.

The MI rate change only applies to loan terms greater than 15 years. The MI rate for 15-year loans remains 0.45% for down payments of 10% or more and 0.7% for smaller down payments.