FHA Changes for 2014: New Rules & Updates

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If you've been researching the FHA loan program lately, you've probably read about a number of FHA changes coming in 2014. It's true. The Department of Housing and Urban Development has made many updates to the program over the last year or so. For your convenience, we have compiled some of the most significant FHA rule changes for 2014 below. You'll also find the corresponding "mortgagee letter" where you can learn more about each of these updates.

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Note: This is only a partial list of HUD's updated guidelines. It includes the changes that affect home buyers and homeowners, since they are the primary audience of this website. Some updates have been omitted, such as those that contain adjusted filing procedures for lenders and other "non-consumer" issues. For a complete list of FHA changes for 2014, refer to the Mortgagee Letters section of the HUD website.

FHA Changes Designed to Reduce Risk, Bolster Reserves

All of the FHA changes implemented over the last few years are intended to serve two goals. First of all, HUD is trying to prevent future losses resulting from homeowner defaults and foreclosures. They are trying to restore their capital reserves, which were seriously depleted after the housing crisis.

When the housing market crashed, and millions of homeowners went into foreclosure, the Federal Housing Administration took a huge hit. They insure mortgage lenders in the case of default. So when all of those homeowners started defaulting on their loans, the FHA had to make an unprecedented amount of payouts to mortgage lenders. This prompted many of the changes we've seen over the last few years.

HUD officials are trying to prevent this sort of thing from happening again, while also rebuilding the cash reserves that were severely depleted in the wake of the housing collapse. That's a bit of background on the changes and updates made over the last few years. Here's what you can expect in 2014.

Loan Limits Reduced for 2014

The biggest FHA change for 2014 has to do with loan limits. Each year, HUD issues new loan limits for the Federal Housing Administration's mortgage insurance program. These limits basically put a cap on the size of mortgage loan you can obtain when using the FHA program.

At the end of 2013, HUD announced a 2014 FHA change regarding loan limits. They reduced the limits for 2014, which came as a surprise to some lenders and borrowers. As a result, home buyers and borrowers who use the program in 2014 will encounter lower maximum loan sizes, compared to borrowers in 2013.

In 2014, the maximum loan size was changed from $729,750 to $625,500. But this is just for the most expensive housing markets in the United States. In many areas, the 2014 loan limits are much lower than that.

So that's one of the biggest FHA changes for 2014. Home buyers won't be able to borrow as much, compared to last year.

Details: To learn more about this change, refer to HUD Mortgagee Letter 2013-43. To find loan limits for the county in which you reside, visit https://entp.hud.gov/idapp/html/hicostlook.cfm.

Changes to Mortgage Insurance (MI) Cancellation Policy

Another FHA change was introduced last year, and will remain in effect throughout 2014. It has to do with the cancellation of mortgage insurance or MI.

When you use an FHA loan to finance the purchase of a home, you will have to pay two types of mortgage insurance premiums. There is an upfront premium, as well as an annual premium that gets rolled into the monthly mortgage payments. Previously, borrowers were able to cancel the annual mortgage insurance once they reached a certain level of equity in their homes. But this was changed last year with the publication of HUD Mortgagee Letter 2013-04.

This is another big FHA change the 2014, because it will require many borrowers to keep mortgage insurance for the life of the loan. Borrowers who put down less than 10% could end up paying the annual mortgage insurance for as long as they hold the FHA loan (until they either pay it off, sell the house, or refinance the mortgage).

Details: To learn more about this new rule, refer to HUD Mortgagee Letter 2013-04, which explains the "Revision of Federal Housing Administration policies concerning cancellation of the annual Mortgage Insurance Premium (MIP) and increase to the annual MIP."

No Change to FHA Down Payments in 2014

There have been rumors of another FHA change for 2014, where down payments are concerned. I have received emails from several of our website visitors who asked if HUD was going to implement a 5% minimum down payment in 2014. But this is simply not true. I don't even know where this rumor originated.

As far as down payments are concerned, the FHA loan program has a two-tiered system. The absolute minimum down payment is 3.5%. That's for borrowers with credit scores of 580 or higher. Borrowers with credit scores below that either won't qualify for the program, or they'll be required to make a down payment of 10%.

So, just to be clear, there have been no FHA down payment changes announced for 2014, nor do I expect to see any such changes announced in the near future.

HUD Mortgagee Letters

If you want to know how this program has changed in recent months and years, do a Google search for "HUD mortgagee letters." Every time HUD makes a change to the FHA program, they issue one of these letters as an industry-wide update for mortgage professionals. But the letters are also available to the public. They are organized by year and can be found on the official HUD.gov website. So if you want to keep tabs on any future FHA changes for 2014, you can check out the mortgagee letters.

A word of caution though. It's best to get your information directly from the source, which is the Department of Housing and Urban Development. For every mortgagee letter that is issued, there are hundreds of rumors generated. Anyone can publish anything online. But that doesn't mean it's true. There is only one official source for 2014 FHA changes, and that is the mortgagee letters issued by HUD. Everything else is secondhand information.

Disclaimer: We make every effort to keep this website current by incorporating changes and updates made by the Department of Housing and Urban Development (HUD). Despite these efforts, there is still a chance that portions of this website may become outdated or inaccurate over time, due to the ongoing evolution of the FHA loan program. For the most current information available, visit HUD.gov, email [email protected], or call (800) CALL-FHA (225-5342).