This blog will cover changes to HUD guidelines on FHA loans for 2023. Changes To HUD Guidelines on FHA loans for deferred student loans are one of the most important changes that have taken effect. Homebuyers considering purchasing a new home this year or refinancing their current homes need to know about changes to HUD guidelines on FHA loans. Alex Carlucci of Gustan Cho Associates explains the changes to HUD guidelines on FHA loans for 2023.
HUD guidelines have become more lenient concerning deferred student loans. HUD has announced changes to the FHA mortgage insurance premium that homeowners will be charged on their home loans.
Getting an FHA loan will be more expensive. Another major setback for loan applicants is that they might be obligated to pay FHA mortgage insurance for the life of the FHA mortgage loan. This article will discuss and cover the changes to HUD guidelines on FHA loans for 2023.
Changes To HUD Guidelines on FHA Loans Mortgage Insurance Premium
Below are the new FHA mortgage insurance premium charts that explain the upcoming changes to HUD guidelines on FHA loans that compare previous and new mortgage insurance premiums. The new FHA mortgage insurance premium guidelines go into effect for all new mortgage loan applications originated on or after April 1, 2023. Dale Elenteny of Gustan Cho Associates said HUD, the parent of FHA, has lowered the FHA annual mortgage insurance premium for 2023, effective immediately.
HUD announced the annual FHA mortgage insurance premium had been lowered from 0.85% to 0.55%, effective immediately. The substantial drop makes the FHA annual mortgage insurance premium competitive with conventional loans.
FHA Mortgage Insurance Premium on 15-Year Fixed-Rate FHA Loans
HUD has changed the FHA mortgage insurance premiums over the years. In the past, FHA mortgage insurance premiums were cancelable. Let’s return to the old HUD guidelines on FHA loans years ago. If you had a 15-year fixed rate FHA-insured mortgage home loan with a loan-to-value of 78% or better, you used to have no longer to pay FHA mortgage insurance. This is a major saving for borrowers with an FHA mortgage loan. This is because the FHA insurance premiums are 1.25% of the mortgage amount. The 78% Loan to Value mortgage insurance exemption will change beginning June 3, 2013.
Can FHA Mortgage Insurance Premiums Be Cancelled?
Homeowners with a 30-year fixed-rate FHA loan have a one-time upfront 1.75% FHA mortgage insurance premium plus a 0.55% annual lifetime FHA mortgage insurance premium. The annual FHA mortgage insurance premium on a 30-year fixed-rate mortgage cannot be canceled. Here is how homeowners can cancel the FHA annual mortgage insurance premium, explains Michael Gracz of Gustan Cho Associates:
The only way the annual FHA mortgage insurance premium can be canceled is by paying off the FHA loan by refinancing with another loan program, paying down the FHA loan balance, or selling the home and paying off the current FHA loan.
Homebuyers who aim to buy a house this year must consider the changes to the HUD guidelines on FHA loans.
HUD Guidelines on FHA Loans on MIP And Deferred Student Loans
HUD Guidelines on FHA loans regarding FHA mortgage insurance premiums were first updated on January 26, 2015. FHA Mortgage Insurance Premium got reduced to 0.85% from 1.35% for the FHA annual mortgage insurance premium. The second large decrease in FHA mortgage insurance premiums is now effective, from 0.85% to 0.55%.
The upfront FHA mortgage insurance premium is 1.75% of the FHA loan balance, which is rolled into the FHA loan balance. The annual FHA mortgage insurance premium of 0.55% cannot be canceled during the 30-year fixed rate FHA loan.
Deferred Students Loans deferred longer than 12 months are no longer exempt from debt-to-income ratio calculations on FHA loans. Under HUD 4000.1 FHA Handbook, deferred student loans are no longer exempt. Deferred student loans need to be counted on DTI ratios.
Updated HUD Guidelines on FHA Loans For IBR Payments
Student loans in deferment are no longer than 12 months and are no longer exempt from debt-to-income ratio calculations. If you have deferred student loans longer than 12 months, you still need to use 0.50% of the student loan balance as a hypothetical debt. John Strange of Gustan Cho Associates advises if a borrower has a student loan balance in deferment, they can contact the student loan provider and do the following.
Tell the student loan provider they are applying for a mortgage. Tell the student loan provider they need a fully amortized monthly payment over an extended plan. The monthly amortized student loan payment may vary but may be under 0.50%. If the student loan provider does not provide this written statement, then 0.50% of the student loan balance will be used as a monthly payment.
Borrowers With IBR Payments on Student Loans
There are changes to HUD guidelines on FHA loans for income-based repayment plans. HUD now accepts income-based repayment plans that are higher than zero monthly payments. Conventional loans also accept IBR payments. Borrowers with higher student loan balances may need to convert to income-based repayment on conventional and FHA loans.
The team at Gustan Cho Associates can help borrowers with high student loan balances on income-based repayment plans qualify for a mortgage. If you need a higher loan limit that exceed FHA loan limit, we can help you qualify for a conventional loan. Conventional loan limits are higher than the FHA loan limits.
Borrowers who have questions on this topic or need to get qualified for FHA loans can contact us at Gustan Cho Associates at 1-800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com. The Team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.
April 19, 2023 - 4 min read