|
 
March 2005
Index of all
past
Affiliate Corner columns
More changes with government loans
By Ann Abraham, Wells Fargo Home Mortgage
Once again, the industry is seeing some major changes with government loans.
For instance, a bill was signed on Dec. 8, 2004, eliminating refunds of upfront mortgage insurance on FHA loans. The only exception is an FHA streamline refinance. The omnibus appropriations bill, which the President signed, eliminated FHA refunds except when the borrower refinances into a FHA loan within three years.
Previously , FHA borrowers could get a refund for up to five years. FHA borrowers who refinance into a conventional loan are not entitled to any refund of the 1.5 percent upfront MIP.
Without a refund, borrowers are going to have to consider the upfront premium as a permanent expense, which makes FHA loans less competitive with low-downpayment conventional loans.
Another new law allows higher limits to VA borrowers. Changes under the law mean veterans will be able to get no-downpayment loans of up to $359,700, which includes the financing of the VA funding fee. The previous ceiling was $240,000. Exceptions will apply on refinances, so make sure you check with your lender first.
Better Adjustable Rate Mortgages (ARM) programs are being offered to both VA and FHA borrowers. VA will only allow the 3/1 (it's locked for three years and then goes to a one year ARM) and the 5/1. However, FHA will offer not just the current one-year ARM, but a 3/1, 5/1, 7/1, and 10/1. Unlike the one year ARM, the new ARMs will be qualified at the starting note rate instead of the presumed first adjustment rate of one percent. For example, with a start rate of 4.25 percent, a lender would need to qualify the borrower at 5.25 percent.. Why would buyers want their rate to adjust yearly when they can have a rate locked in for a longer term and save hundreds of dollars per year? Think of the safety on this type of program as well. Currently the rate for a 3/1 is 4.625 percent. Your buyer will have lower monthly payments. Buyers can qualify for a larger loan amount. Borrowers will have a flexible, streamlined refinancing process.
|
