2014 Will Bring Changes to Mortgagaes

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The Federal Savings Bank forecasts changes to the mortgage market for 2014.

VA and FHA home loans at The Federal Savings Bank

The Federal Savings Bank

Gone are the days of getting a mortgage with interest under 4 percent.

As 2013 is winding down and the housing market has seen great strides in its recovery, there are a few changes coming to mortgages next year that The Federal Savings Bank wants for borrowers and homeowners to know right now.

Rising rates
One of the biggest changes that borrowers will come across next year is an increase in mortgage rates. Gone are the days of getting a mortgage with interest under 4 percent. With the Federal Reserve's decision to taper stimulus spending on the horizon, it is likely that interest rates will rise to 5 percent. However, with higher home prices, fewer foreclosed homes and more homeowners regaining equity in their homes, higher rates are likely to absorb in the market without affecting affordability.

Federal Housing Authority lowers loan limits
After months of debating whether or not the FHA would lower loan limits, the decision has been made to reduce limits next year. By lowering the loan limits, the FHA will encourage more borrowers to take out home loans in the private mortgage market. The new limits will take effect Jan. 1 and will affect 650 high-cost areas.

"As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play," said Carol Galante, the FHA Commissioner on Realtor.org. He continued with "Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still underserved."

FHA mortgages allow many homeowners to receive a low cost mortgage with a down payment of as little as 3.5 percent. In comparison, other lenders may require a down payment of up to 20 percent, a figure that is unaffordable for many first-time homebuyers.

According to the Department of Housing and Urban Development, the loan limit for areas that are considered low cost will remain the same at $271,050. For the most expensive areas in the country, the loan limit will be reduced from the highest loan of $729,750 to $625,500. The loan limit changes will affect only certain areas of the country based on home prices.

Borrowers who already have an FHA mortgage will be unaffected and can continue to use the refinance program regardless of the size of their loan. Higher limits were first introduced in 2008 with the Economic Stimulus Act to help more Americans become homebuyers. Currently, there are over 5 million mortgages with the FHA. A reduction in the loan limit was expected to come a long time ago, but Congress extended the higher ranges over the years.

Federal Housing Finance Agency loans
Last month, the Federal Housing Finance Agency announced that it will keep the same loan limits for conforming loans heading into 2014. For most areas in the U.S., the conforming loan limit was $417,000 in 2013. In areas where the cost of living and home prices are significantly higher, such as New York City, the limit is $625,500.
Reducing loan limits would bring borrowers away from the government-backed loans and into the private market. Since the recession, the number of loans guaranteed by government-sponsored enterprises Fannie Mae and Freddie Mac has grown substantially, taking over the majority of the mortgage market.

Contact the Federal Savings Bank, a veteran owned bank, to explore low rate mortgage options.

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