Hooray for the FHA!

Hooray for the FHA!

In case you missed it, last summer Congress passed H.R. 3700, The Housing Opportunity Through Modernization Act of 2016. By the way, the bill passed unanimously in both the House and the Senate– not an easy feat, right?

This law, among other aims, is supposed to help ease homelessness and improve “ . . . low-income tenants’ access to low-poverty areas with less crime and well-performing schools,” according to Barbara Sard, vice president for housing policy with the Center on Budget and Policy Priorities.

While those aspects of the Act are certainly worth a look, one is of particular interest to folks hoping to purchase a condo using an FHA-backed loan. These buyers typically include older Americans, those with low incomes and first-time buyers, so making condos easier to finance makes the dream of home ownership a reality to these groups of Americans.

The U.S. Department of Housing and Urban Development (HUD) offers condo communities a complex and lengthy process to become FHA-approved. It is so challenging, in fact, that many homeowner associations don’t bother pursuing it. Therefore, there are not as many condos available to FHA buyers as the industry would like to see. Because of this, FHA condo lending has been steadily down trending over the past few years. In fact, it fell an additional 8.6 percent during the first quarter of 2016.

One of the criteria for a condo community to become approved is that 50 percent of the units must be owner occupied. H.R. 3700 changes that requirement to 35 percent, opening up many more communities to possible FHA approval, providing more condos for buyers.

That was then. . .and this is now

While all of the above changes took place several months ago, there was even more good news released recently. If you obtain an FHA-backed mortgage you will be required to pay both an upfront mortgage insurance premium and a monthly premium for the life of the loan. Not, that’s not the good news.

The good news is that the amount of the premium is going down. As of January 26 of this year, FHA’s MIP will be cut from .85 percent to .60 percent of the base loan amount.

HUD estimates that this will create at least 250,000 new homeowners and save them, on average, $900 per year (or $75 per month). Sure, that may not sound like much, but for the buyer on a tight budget, that $75 a month helps buy groceries or put gas in the tank.

The reduction in the cost of the mortgage insurance premium applies only to loans with case numbers assigned on or after January 26, 2017. So, if you recently closed on a home, using an FHA-backed mortgage, it won’t apply to your loan. The only way for current homeowners with FHA loans to receive this reduced MIP is to refinance.

Questions? Get the answers, here, or speak with your lender.

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