Federal Housing Administration (FHA) mortgages are set to increase by .25% this April. This follows an increase last November from .50% on 30 year fixed rate loans to .85%. For 15 year fixed rate loans those figures were from .55% to to .9%. That brings the new rates to 1.1% for 30 year fixed rate loans and 1.15% for 15 year fixed rate loans.
Although this is not an interest increase, it’s effect is virtually the same. For a home costing $157.000 (the average FHA purchase loan) the monthly payment will increase by $33. While this does not sound like an insurmountable increase, it will put buyers into a higher DTI (Debt to Income) bracket. This is one of the most important numbers in loan qualification. This increase could put some buyers out of the market.
FHA loans are generally used by those unable to qualify for conventional loans or make the down payment required by them. FHA allows a down payment of only 3.5% while Fannie Mae requires 5 to 15% on the typical loan. FHA also allows for lower credit scores: a minimum of 500 vs. 580 minimum for Freddie Mac and Fannie Mae loans. The banks and conventional lending are often looking for a minimum of 680-720.
The effect of the increase has is amplified because of the typical borrower using the loans. Those that can more easily absorb the increase are getting their loans elsewhere. In today’s market more and more buyers are using the FHA backed loans, so the impact of the increase will be greater than past instances.
Our take on what it means to YOU? If you are thinking about buying in the very near future, this is your get moving call! Remember, it’s not just the extra $33 a month you will be paying for the same thing (although that is pretty good incentive to most of us), this increase could increase your DTI to the point that you will have to let go of your dream house and settle for something lower in price. How much does it effect you? Call us today to find out. 530 315-2808
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