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It’s a new year and a new chance for many people to become homeowners. There are several mortgage products that are designed for first-time buyers; the FHA loan is especially helpful. Here’s what you need to know about them and the changes that have been made for this year.

What is an FHA loan?

It stands for a Federal Housing Administration loan, meaning it is backed by the U.S. government. It is not made by a government agency. You deal directly with a mortgage lender or broker to get the loan, but the FHA will typically buy the loan from the lender after it is made or guarantee the lender against loss. They require lower down payments and credit scores than most conventional loans, making them a clear favorite among first-time buyers.

What Are the Terms?

These loans can have terms of either 30 years or 15 years. The interest rate is fixed for the entire loan length. As long as borrowers have a minimum credit score of 580, they only have to contribute a down payment of 3.5%. Closing costs run between 3% to 5% of the loan total and up to 6% of those can be paid for by sellers, builders, or lenders. 

FHA borrowers do have to pay mortgage insurance premiums for at least 11 years, not just until they reach 20% equity like with conventional loans. At the outset of the loan an upfront premium of 1.75% of the loan amount is due but can be financed into the overall mortgage. Then every year, the borrower will be responsible for an annual premium of between 0.45% and 1.05%, that is divided by 12 and paid monthly with the mortgage. If borrowers get tired of paying mortgage insurance, after a few years of timely mortgage payments and earning equity, they may be able to refinance into a conventional loan.

What Are the Qualifications?

To qualify for an FHA mortgage, home buyers need a FICO credit score of at least 500 and a 10% down payment, or a score of 580 or higher and a down payment of 3.5%. These loans also require a two-year employment and income verification and must plan to use the property as their primary residence. If they have had a bankruptcy, they must wait one to two years before applying and three years after a foreclosure. Lenders will also require that a borrower’s debts (mortgage expenses plus all other debts) are no more than 43% of their gross income.

What Are the Loan Limits for 2022?

Each year the Federal Housing Finance Agency sets loan limits for all government-backed mortgages. The limits are based on the average cost of housing in the country and certain regions. In 2022, for most parts of the U.S., FHA borrowers can take out a loan for up to $420,680, an increase from 2021’s limit of $356,362. For the priciest areas in the nation, like Hawaii, California, and Washington D.C., the loan limits are even higher: $970,800 this year, up from $822,375 last year.

With higher loan limits and currently low mortgage interest rates, an FHA loan might be the perfect tool to help you get into a home in 2022! Contact us today to find out more.

Since the COVID-19 pandemic hit, millions of Americans lost jobs and many homeowners have had a hard time keeping up with their mortgage payments.

According to the Consumer Financial Protection Bureau, around 3% of all residential mortgage borrowers are now behind in their payments by at least four months, more than at any time during even the 2008 subprime mortgage crisis. “We have never before seen this many borrowers so far behind on their mortgages,” said Dave Uejio, the bureau’s acting director.

Four months is the point when foreclosure proceedings typically begin, but thanks to extended federal moratoriums, mortgage lenders have been held back on starting any new foreclosures for the past year.

However, for the health of the mortgage industry and the housing market and the general U.S. economy, that situation cannot last forever, and the current homeowner protections are set to expire on July 31, 2021. In order to stop a wave of foreclosures from starting on that date, the CFPB has issued a new rule that will take effect one month later, on August 31, and will be valid through the rest of the year.

Lenders will temporarily have to take extra steps before foreclosing on delinquent borrowers. Mortgage companies will be able to begin proceedings only if the home has been abandoned, or if the borrower has been unresponsive to contact for at least 90 days, or if they have thoroughly evaluated the borrower and no foreclosure prevention options are viable.

Banks will be allowed to immediately start processing foreclosures on any borrowers who were already 120 late before March 1, 2020, when the pandemic started causing financial problems.

The new rule also makes it easier for mortgage lenders to help borrowers into loan modifications. Delinquent homeowners will not be required to submit full paperwork for these streamlined loan changes, hopefully allowing lenders more flexibility to work with these borrowers. According to the new rule, no loan modification can increase borrower payments though, or extend their loan term by more than 40 years.

The CFPB’s goal is to avoid “preventable” foreclosures, according to Diane Thompson, a senior advisor at the bureau, by giving those homeowners time to make important decisions about resuming payments, modifying their loans, or selling. To borrowers who haven’t been making payments during the pandemic, she says its “important to understand that you’re going to need to figure out a plan for how to address that in the not-too-distant future. People need to be assessing their options.”

If you are behind on your mortgage payments, there are several options you can try right now to avoid a looming foreclosure. First contact your lender and explain your situation. The sooner you contact them, the better your chances of getting help, including mortgage forbearance, loan modifications, or altered mortgage terms. Second, you can ask for foreclosure avoidance counseling through the US Department of Housing and Urban Development (HUD), for more ideas. Third, you could try to sell your home before foreclosure proceedings start. The housing market is still hot right now, with rising prices and limited inventory, so there is a good chance you good sell for enough money to pay off your back payments as well. If you do not have enough equity, you could ask your lender for a short sale. In any case, involve your lender right away to avoid the worst consequences.