The Latest Changes in New Jersey Mortgage Regulations: What You Need to Know
There have been several important changes to mortgage loan programs and regulations in 2023. The first set of changes implemented have been designed to help first-time homebuyers by making their mortgage more affordable. The second announcement is NJ-specific and regarding the New Jersey Home Ownership Security Act of 2002, which is updated annually by the New Jersey Department of Banking and Insurance. The third is an increase to the maximum loan amount that Fannie Mae, Freddie Mac, FHA, and VA (government agency loans) will offer to borrowers in 2023.
Fannie Mae and Freddie Mac, the two government-sponsored entities that create and maintain guidelines for Conventional mortgage loans, announced that they will be reducing the Loan Level Price Adjustments (LLPA’s) for mortgage loans that they purchase beginning May 1st, 2023.
How does this impact you? If you are first-time homebuyer, you will receive a 0.125% - 0.625% lower interest rate than if you are a non-first time buyer. Fannie and Freddie define a first-time buyer as someone that has not owned a home in the last 3 years. Additionally, if your income is average (at or below the median income for your area according to census statistics,) you will qualify for an even lower rate. These LLPA changes also disproportionately HELP borrowers with lower credit scores, and harm borrowers with higher credit scores. The idea is that instead of a lower credit score borrower paying MORE for their mortgage than a higher credit score borrower (as it has always been in the past), Fannie Mae and Freddie Mac are now charging perfect credit borrowers higher interest rates. After reading this article, hopefully you have many questions - Do I want to have a high credit score or a low one to get the best interest rate? Do I want to show as much income as possible, or the least amount possible to get the best interest rate? These questions are perfect examples of why you want to choose a highly-rated NJ mortgage broker (on Google, Yelp, and Zillow) for your next home purchase.
FHA announced some major changes on February 22nd, 2023 to help reduce costs for all borrowers pursuing FHA loans (the vast majority of which are first-time buyers). Specifically, FHA reduced the cost of their monthly Mortgage Insurance Premium (MIP) by 35% for buyers with 3.5% down payment, and 41% for buyers with 5% or greater down payment. The goal of the Department of Housing and Urban Development was the same as Fannie Mae and Freddie Mac – to help make homeownership more affordable for first-time home buyers. These changes became effective March 20, 2023.
If I have an FHA loan currently, should I refinance to take advantage of the new lower mortgage insurance premium rates? The answer is, it depends on your exact scenario and you should definitely speak with your trusted NJ Mortgage Broker to confirm your best option.
The NJ Homeownership Security Act of 2002 is designed to protect NJ homeowners from predatory lending and high-cost home loans. The law became effective in November of 2003 and limits the interest rates, fees, and loan costs that can be included (financed) into your mortgage loan. The key change that was made on January 5th, 2023 is that loans over $527,669.59 are no longer applicable for this law. If you are pursuing a home loan of greater than $527,669, you need to be more cautious about selecting a lender or NJ Mortgage Broker as this law will not offer you protection. This is yet another reason to speak with a highly-rated mortgage professional that can provide truly consultative advice about your mortgage.
The final noteworthy change for 2023 is the increase to the Conventional (Fannie Mae and Freddie Mac), Veteran’s Administration (VA), and Federal Housing Administration (FHA) loan limits. A loan limit determines the maximum amount that these government entities will allow for loans to meet their strict criteria. Conventional loan limits were increased to $726,200 for 1 unit properties nationwide, and $1,089,300 for high-cost areas. VA loans are not subject to loan limits (you can theoretically get a VA loan of any amount, although most NJ Mortgage Brokers limit the loan to $3 million dollars), although VA eligibility is calculated using loan limits (especially for veterans with more than one concurrent VA mortgage). FHA also announced increased loan limits of $726,200 and $1,089,300 to align with the Conventional loan limit announcement (although it is more complex for FHA loan maximums due to a calculation of ‘loan limit floor’). Here are some additional questions to ask your NJ Mortgage Broker – What is the loan limit for the area where I want to purchase? What type of loan should I pursue? What is the difference between a Jumbo loan and a loan above $726,200 in a high-cost area?