New rules put in place because of the housing collapse are starting to take effect. Some started this month, and more will in October.
To find out what’s changing and how it might affect you as a home buyer, watch the report from Stacy below. Then read on for links and advice on getting your best mortgage deal despite the new rules.
First, let’s recap the changes from the story above and provide a bit more explanation.
- Loan officer income is shrinking. A rule change that went into effect April 5 – after two mortgage industry groups lost a legal battle to block it – may cause homebuyers to pay more, even though the intent of the rule is to protect them. The idea was noble: Keep loan officers from steering clients toward loans that paid them more commission but charged borrowers higher rates or fees. The way mortgage brokers are compensated is now more restricted – and especially in the case of smaller loans, often less lucrative. Unintended negative side effect? In the past, loan officers could divert part of their commission to help the borrower qualify for a loan. Now that is also against the rules.
- Higher-risk borrowers face higher rates. Another change that went into effect this month – again, meant as a protection to keep people from getting into mortgages they can’t afford – will result in borrowers with lower credit scores ending up with higher rates from mortgage guarantors Fannie Mae and Freddie Mac. In short, the bar has been raised, meaning those with lower scores will face higher interest rates and bigger down payments.
- FHA insurance premiums are up. As of April 18, loans insured by the Federal Housing Administration (which helps lower-income buyers afford housing) cost one-quarter of a percent more. This means about $30/month more out of the average homeowner’s pocket, according to the U.S. Department of Housing and Urban Development. They call it a “marginal increase” that will “strengthen the Federal Housing Administration’s capital reserves.”
- Loan limits are dropping. While this won’t take effect until Oct. 1, the limit for loans guaranteed by Fannie Mae and Freddie Mac in high-cost areas is scheduled to drop from $729,750 back to the 2008 level of $625,500. What this means is that people wanting bigger loans will face higher interest rates.
All of these changes mean borrowers will pay more for a mortgage. But the ways to save are the same, and we’ve been discussing them here in the past few weeks.
Start by shopping hard for rates and fees with the Money Talks mortgage rate search, then learn more by checking out these stories:
- Follow These 3 Steps to Save Thousands on Your Next Mortgage
- Buying a House? Pick the Right Pros
- Mortgage Rates 2011 – Predictions From 6 Experts
- Ask Stacy: Should I Buy a Mortgage Acceleration Program?
- How to Steal a House – 4 Steps to Buy an REO