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FHA and USDA Home Loans Have Changes You Need to Know



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By : John Cutts    99 or more times read
Government home loans are still relatively the most affordable loans in the country. There was even a time in the early months of the foreclosure meltdown that they were the only home loans being offered to borrowers by banks as these loans were guaranteed by the federal government.

The FHA loan, the most popular for first time home buyers today, now features changes after federal officials and lawmakers expressed their concern about the declining level of FHA reserves.

Among this is the mortgage insurance premium, which will increase from 1.75 percent of the base home loan amount to 2.25 percent starting April 5. If you are planning to buy a home using an FHA loan, start saving for your insurance premium now.

Be prepared also for a possible increase in mortgage rates, as the Federal Reserve has decided to stop buying mortgage securities by March 31. The Fed mortgage purchase program has been largely responsible for the stability of mortgage rates.

The FHA has also proposed to make its lending program more rigorous for applicants in order to weed out those who cannot pay in the long term. The FHA needs to cut down its mortgage delinquency rate, which has already reached 9.4 percent of all FHA home loans as of January.

Almost 560,000 FHA mortgage loans were already in default by more than three months as of the last week of January.

The FHA has also overshot its budget for mortgage loans. As of the first week of March, it only has $3.6 billion in its reserves, a teeny weeny bit when compared to the $658 billion it has allotted for residential mortgages.

Under the new proposal, only loan applicants with credit scores above 580 will qualify for FHA loans with 3.5-percent down payment and those with scores below 500 will be rejected.

On the other hand, the U.S. Department of Agriculture has not made any significant change in its home lending program. It is still among the most affordable home loans, but it is not as known as FHA loans because of one requirement: that the house to be purchased is located in one of the rural development eligible areas in the country.

When planning to buy a property in a small town, check if your desired home is located in a rural-development area as USDA home loans require no down payment and no price limit and also come with other attractive options.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.

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