Week after week I write about different topics that affect your purchasing or refinancing of your home. This week I want to discuss some changes in the mortgage lending guidelines that will directly affect you if you are purchasing or refinancing. These changes will make it more difficult to qualify for a mortgage because the monthly payments will possibly be higher and/or the closing costs may be higher. Most mortgages being applied for, approved and closed today are either FHA, FNMA (Fannie) or FHLMC (Freddie) mortgage loans. The changes that I am speaking about will affect these loans.
Let’s begin with the changes to FHA.
There was an important announcement from FHA. As of this coming April 18th, minimum down-payments are still 3.5%, but the monthly Mortgage Insurance Premiums will increase slightly for FHA loans.
For example, on a $400,000 sales price, with the minimum down-payment the mortgage will increase approximately $61 per month.
However, this change will help strengthen FHA, which is important since some estimates show that FHA loans represent nearly 50% of all loans being done today.
Even though FHA has slightly increased their rates, the FHA loan is still a good value for clients with little to put down. Rest assured that the FHA loan is still a very viable option worth considering.
Higher Fees Coming From Fannie and Freddie!
What Will This Mean to You?
Do you have less than 25% down to put on a home?
Do you need a loan-term longer than fifteen years?
Is your credit score less than exceptional?
If you answered yes to these questions, you could soon be paying more to get a mortgage.
Fannie Mae and Freddie Mac are raising risk fees that are charged to lenders for the first time since 2009, and these increases will affect most loans sent to Freddie Mac (beginning March 1) and Fannie Mae (beginning April 1).
Here's an example: Say you are purchasing a $250,000 home, putting 20% down, and your credit score is 720. Your risk fee will now be $1,000 (versus $500 before). And if your credit score is 680, the fee will now be $3,500 (versus $3,000 before).
Lower credit scores will directly impact your mortgage rate or closing costs. It is therefore very important to know what your credit looks like in advance of purchasing a home to make sure that you carefully review you credit report and optimize your credit score.
This last change is a good one!!
PMI Tax Deductibility Extended Through 2011
There's great news for homeowners! Congress recently extended legislation making private mortgage insurance (PMI) premiums tax deductible through 2011!
So why is this significant? PMI can help people buy a home sooner, by enabling them to put less than 20% of the purchase price down when buying a home. This increase in purchasing power can sometimes be the difference between affording the home of your dreams...or not.
What's more, this deduction is not just for first-time home-buyers, so, it can be used by current homeowners looking to upgrade to a new home. However, it does only apply to "qualified" residences, which typically include a primary residence and a vacation home, but not an investment property.
It's important to note that PMI is only tax deductible for homeowners with adjusted gross incomes of less than $110,000. Borrowers with adjusted gross incomes up to $100,000 may be able to deduct 100% of their 2011 premiums. Deductions are phased out in 10% increments for borrowers with adjusted gross incomes between $100,000 and $109,000.
As with any deduction, be sure to consult your tax advisor if you have any questions.
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