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Will there be a bunch of FHA rule changes for 2014?

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I have purchased a home before, but it was with a conventional home loan. So I'm not very familiar with the FHA program. I am planning to purchase a home in 2014 and would like to use an FHA loan to reduce my upfront costs (smaller down payment). In doing research, I've encountered quite a few stories about new FHA rules for 2014. Does that mean all of the current rules will be replaced next year? Is there a list somewhere of the new guidelines that will be used in 2014? I just don't want to read a bunch of outdated information, or go into the process more confused than I am now. Thanks.
asked 2 days ago in Mortgage Loans by anonymous

1 Answer

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Actually, most of the FHA rules that were in place in 2013 will be carried over to next year. HUD made several changes to the program over the last 12 - 18 months. These changes will apply to mortgages originated in 2014, as well.

One example is the revised MIP cancellation policy. Going forward, most borrowers who use FHA loans will have to pay mortgage insurance premiums (MIP) for the life of the loan. Previously, borrowers could cancel MIP when their loan-to-value (LTV) ratio reached a certain level.

There was another rule introduced for borrowers with credit scores below 620 and debt-to-income ratios above 43%. Borrowers in this "zone" must undergo a more thorough underwriting process. See Mortgagee Letter 2013-05 for more on this one.

The big FHA rule change for 2014 has to do with another rule, known as the Qualified Mortgage or QM. It goes into effect on January 10, 2014. The QM rule will eliminate certain risky loan features, like balloon payments. It also requires borrowers to have a debt-to-income ratio no greater than 43% (there's that number again). HUD recently stated that they will apply the QM rule definition to FHA loans in 2014. So it seems to be setting the bar for all mortgages across the board.

If you really want to get into the nitty-gritty of FHA rules for 2014, I recommend reading through HUD Handbook 4155.1. There are several sections that explain the basic eligibility requirements for borrowers. Also, don't hesitate to speak to an FHA-approved mortgage lender. They will be able to answer all of your questions, and can explain how these rule changes might affect you when you apply for a loan.

I hope this answers your question, at least in part. Feel free to post any other questions you have.
answered 2 days ago by qmbrandon99 (340 points)