You can take your pick from privately funded and federal government-initiated loans if you are looking for a home loan to apply for. However, the government is currently enforcing new requirements to lenders which are a bit stricter than usual – and this is bound to affect you as a borrower.
The Basics about Federal Government-Funded Loans
If it is a federal government-initiated loan that you would like to take advantage of, what options do you have? For this, your first choice would be the mortgage loans offered by the Federal Housing Administration. It is lenders who are qualified by the FHA who are providing such loans for borrowers.
Basically, the goal of FHA loans is to make it possible for low-income American households to borrow money from the government to fund their home purchase. Depending on your income bracket, you can take advantage of these FHA loans and be entitled to a lower deposit requirement, lower interest rates and generally more borrower-friendly terms for the loan that you will obtain.
Why the FHA is Implementing Stricter Requirements to Lenders
Although lenders, the federal government, financial institutions and maybe even borrowers themselves have, in one way or another, contributed to the downfall of the economy – there are things which are currently being done about it. One of them is the FHA enforcing stricter requirements for the lenders.
Unfortunately, as a result of the crash of the housing industry during the past few years, part of the blame was placed on the almost ‘no deposit’ requirement of the FHA for homeowners who are taking advantage of mortgage loans. The agency is actually backing up about 50% of all new mortgages, and more than one-third of all new mortgages. As a result, any changes that they will implement will affect majority of home buyers.
So what is the result of the stricter requirements that this federal government agency has enforced? Take a look at the following list:
1. FHA loans will include higher insurance fees.
2. The FHA will enforce higher closing costs with a cap of 3% for home buyer contributions.
3. Borrowers who have lower credit scores would have to pay a higher down payment. If your credit score is lower than 580, you will be required to submit a down payment of at least 10%. However, borrowers who have higher credit scores would not have to pay any more than the current 3.5% down payment.
4. Instead of the previous 1.75%, insurance costs will rise to 2.25%.
Despite the fact that the FHA has taken most of the brunt of criticisms for the downfall of the housing industry, the fact that they also helped with the recovery process is something that cannot be denied.
As you can see, there are a lot of new changes that the FHA has enforced which will somewhat affect you as a borrower. For all the home buyers out there, make sure to learn about what these new rules are so that you can determine if applying for such a loan is a good move for you or not.
Rob K. Blake, mortgage expert and author, educates mortgage shoppers on finding local providers by state like Idaho Mortgage Brokers and Lenders and provides reviews of national companies like Aegis Mortgage.
