In this edition of “Ask Nick”, Nick explains when the new FHA changes kick-in, how much buyers typically need for a down payment, and lender “lock-in” periods.
Q: Tanya: My question is regarding FHA’s upcoming change taking effect on June 3, 2013 that will no longer allow you to cancel MIP. Do you have to close on your loan before this date?
We are under contract to buy a Beazer home but will not be able to close until 90 days before the completion date of our new home, which will be sometime in October/November 2013.
A: Thank you for your question! The change in the ability to cancel the annual mortgage insurance premium (MIP) is effective with new FHA case numbers issued on or after June 3rd. As long as your lender has obtained your FHA case number prior to June 3rd, you will not be subject to this new rule. You simply want to check with your lender to confirm that they have obtained your case number before June 3rd.
Q: Sandy: How much do I really need to have as a down payment?
A: It depends. If you are eligible for VA financing or USDA financing, you could purchase a home with $0 down payment. If you are not eligible for one of these programs, you may qualify for a conventional loan with as little as 3% down, or an FHA loan with 3.5% down. For borrowers with excellent credit, and their own funds for the down payment, the conventional loan would probably be the best option.
Q: Jessica: I recently went through the mortgage process and was a little confused by the following: When are rates “locked in” or are they? If we get quoted one rate when we sign the contract, what are the chances/risks of that rate changing before closing?
A: This is an excellent question, and the answer is not a short one! In general, lenders quote rates that they can lock for 30, 45 or 60 days at no charge to the customer. Beyond 60 days, there is generally a substantial cost associated with locking-in a rate. Some lenders offer extended rate lock options, and these options often include float down provisions.
It’s best to look at an example-
Suppose today’s FHA rate is 3.25% – this is the rate the lender would offer you if you were locking in for 30 or 45 days. If you need to protect your rate for 6 months, the lender may offer you a rate of 3.75%, with the option to float down (relock) at the current rates 30 days before closing. There may be a fee (maybe 1% of the loan amount) associated with this extended rate lock.
This is just one potential example – each lender will have different pricing, and different options. What you need to consider is that rates can change every day – and in volatile markets rates can move up very quickly. A long term lock in option should be viewed as an insurance policy – you limit your exposure to an increase in rates, but to do so you will have to spend some money. The other option is to let your rate float until you are within 60 or 45 days from closing, but if you choose this option you should watch rates carefully so you can take action if they start to creep up.
We’re always taking your questions! You can email them to us at AskNick@beazer.com. Nick answers every question, so you’ll be sure to get a personal response. Every week, we’ll post some of the “Ask Nick” questions and answers on our blog, Facebook, and Google Plus. Don’t forget to follow along on Twitter with the hashtag #AskNick.
* Beazer Homes is not acting as a mortgage broker or lender. Homebuyers should consult with a mortgage broker or lender of their choice regarding mortgage loans and mortgage loan qualification. ©2013 Beazer Homes