Tag Archives: Kansas City FHA Loans

New FHA Requirements Increase Minimum Down Payments For Many Kansas City Home Buyers

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Checking The Pulse Of The Kansas City Real Estate Market

For the past several years it’s become more difficult for home buyers to secure financing. There’s been an obvious over-correction in the market as lenders went from giving your dog a loan for his dog house to not giving a self-employed borrower with 50% down and an 800 credit score a loan. But things have opened up enough now that solid buyers can secure loans and purchase a great home. But just when we need some more good news, FHA comes out this month with requirements making it more difficult for borrowers to secure an FHA loan.

If you’re credit score is anywhere below 500 you can not get an FHA loan any longer. Period. Though when I asked a few lenders just how many borrowers this would affect, they all said very few… because they weren’t giving loans to sub 500 credit score buyers in the past, even though FHA would have allowed it. The real change is for the borrowers with credit scores in the 500 to 579 range. Those borrowers must now have a TEN PERCENT down payment — rather than the 3.5% minimum down payment that previous borrowers with the same credit score needed.


Posted by Jason A. Brown

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FHA Loan Changes Will Reduce Up Front Costs But Raise Annual Premiums For Kansas City Home Buyers

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Checking The Pulse Of The Kansas City Real Estate Market

Back in April up-front FHA mortgage insurance premiums were raised from 1.75% to 2.25% of the loan amount. This was done in an effort to replenish the FHA reserve funds and keep the program afloat. Considering that more than half of loans being done today are FHA loans, I can’t think of anything more important right now than making sure FHA doesn’t cease to exist. Unfortunately the increase to up-front insurance premiums hasn’t gotten FHA completely healthy and now the powers that be are implementing a new plan.

Beginning October of this year, new FHA changes will include lowering the up front mortgage insurance premiums all the way down to 1% and then raising the annual premiums paid by FHA borrowers significantly. The new higher annual premiums will follow the following guideline: .90 basis points on loans with 5% or less down payments and .85 basis points for loans with more than 5% down payments. These changes will not have any affect on FHA loans already in progress.

Under the current structure, a $100,000 FHA loan would cost the borrower $2,250 in an up front mortgage insurance premium and then around $550 a year in yearly premiums. Under the new structure going into effect in October, the same borrower would pay $1,000 in an up front mortgage insurance premium and then around $900 in annual premium. If you analyze this for a short while, you’ll see that at some point around year 2 of the loan, you’ll be at a break even point either way. But after year two, you’ll be paying about $350 more per year (for every $100,000 amount borrowed)  thereafter.


Posted by Jason A. Brown

Choosing Between A Fannie Mae Underwritten Loan And A FHA Backed Loan When Buying A Home

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Checking The Pulse Of The Kansas City Real Estate Market

Neither Fannie Mae or FHA provide borrowers home loans. Rather than providing loans, both institutions BACK the loans that are being made by local mortgage lenders. So, in other words, they’re what’s making the loans possible. In the future, when you hear the words “Fannie Mae”, you should think conventional loans. When you hear the term “FHA”, you should think government backed loan. FHA loans don’t have the exotic loan type options available on Fannie Mae backed loans (i.e. ARMS) but what they do have is less restrictive guidelines for qualifying for the loan. For this reason, FHA loans have more costly up-front fees than your typical Fannie Mae underwritten convention loan.

Fannie Mae is an investor who buys the notes from the mortgage lenders making the loans. This minimizes the risk the lender has in providing a loan, as long as the mortgage lender runs the borrower through the Fannie Mae underwriting system.  If the borrower’s debt-to-income, credit scores and the property in question all meet Fannie Mae’s guidelines, the borrower is on their way… assuming they have a minimum 5% down payment and at least a 720 credit score. For borrowers with 800 credit scores and a 20% down payment, I can’t think of any reason they’d want to go the FHA route.

The FHA loan program is one where the loans are being guaranteed by our government. The closing costs are higher on a FHA loan, but there’s plenty of reasons a buyer may choose to go this route. One of the big reasons is because FHA loans only require a 3.5% down payment and an upper 500’s credit score. And, unlike Fannie Mae’s cut and dried underwriting process, FHA may take a deeper look into your circumstances when deciding whether you qualify for a FHA loan. Also, many borrowers who have a foreclosure or bankruptcy on their record can qualify for a FHA loan quicker than they’d qualify for a Fannie Mae backed loan. Another advantage of FHA loans is that a borrowers relatives can gift them the money used for the down payment in purchasing the home.

Posted by Jason A. Brown

Get That 3.5% Down Payment Together Before You Head Out To View Homes

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Hands On The Heartland
Checking The Pulse Of The Kansas City Real Estate Market


Unless you’re paying cash for a home or have VA loan eligibility, there’s no point in heading out to view homes if you aren’t able to make a 3.5% down payment. On a $200,000 home that means you need to have $7,000 saved up. That’s what FHA requires and it’s 1.5% less down payment than you’d have to have if doing a conventional loan. I was surprised to read this week that FHA is currently backing 25% of all mortgage loans in today’s market! That’s about double what they were doing less than a year ago. My first reaction was that FHA is playing an important role in trying to pull our real estate market out of the funk it’s in. My second thought was they sure are taking on a lot of risk at time when few are willing to step up. My fears were eased when I saw that the average  FHA buyer’s credit score had jumped from 630 to 690 – that’s a huge jump. FHA is still taking on some risky buyers with credit scores below 500 but the risk involved with a potential default is lessened by their requirement that these buyers have a 10% down payment.

This leads to me to a question I often here from Kansas City home buyers… “Should I get an FHA or conventional loan?”.  If you’re a buyer who is scraping together a down payment, there’s a huge advantage in the 3.5% minimum FHA down payment versus the 5% minimum conventional loan down payment. And that’s the main reason many buyers go FHA. Yet Conventional loans are still the most popular loans made today and that’s because their less complicated all the way around.  Yet there are many distinct advantages to going FHA as well and here ‘s some random FHA loan versus Conventional loan thoughts to consider…

  • The maximum FHA loan amount for the Kansas City area is currently $271,050.
  • Conventional loans USUALLY don’t have a pre-payment penalty; FHA loans NEVER have a pre-payment penalty.
  • FHA loans require about TWICE as much effort on the borrower to provide the lender with necessary supporting documents on employment, income, etc.
  • Although proving qualifications is harder, the actual qualifications for an FHA loan are less restrictive than on a conventional loan.
  • FHA allows up to 6% in Seller concession (i.e. seller payed buyer closing costs); Conventional loans only allow up to 3% in Seller concessions.
  • FHA loans require a 3.5% minimum down payment; Conventional requires a 5% minimum down payment.
  • Unlike conventional loans, the down payment on an FHA loan can be gifted by a relative.
  • To get roughly an equivalent interest rate on a conventional loan, you’d need a 10% down payment (although only 5% is required); Conventional rates are often better than FHA rates if buyer has more than a 10% down payment.
  • Conventional loans with less than 20% down payment go through TWO underwriting procedures (one for the loan and one for the PMI); FHA loans go through just one underwriting procedure.
  • Conventional loans have no up-front PMI; FHA loans have a significant up-front PMI fee of 1.75% of the loan amount (the fee can be financed into the monthly payments).
  • FHA loans have a streamlined refinance process and the loans may also be assumable by another buyer later.
  • Contrary to many rumors FHA loans are not just for First Time Home Buyers.
  • There are no income minimums or maximums to qualify — yes, Donald Trump can go FHA.
  • FHA won’t make loans on homes that were involved in a sale within the past 90 days.
  • FHA won’t make loans on homes with major structural or condition issues.
  • Seller’s don’t like FHA loans because the appraisals are more strict and take longer to fund at closing.
  • Appraisers are held to strict FHA guidelines for declining markets (which has been just about every market).
Posted by Jason A. Brown
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