Home Loan

About the FHA New 40-Year Loan

The Federal Housing Administration (FHA) announced that beginning May 8th of this year, they will be adding a new 40-year financing option. But, the FHA’s new 40-year loan is not exactly a loan, but a modification to the standard 30-year FHA loan program. The FHA, acting with guidance from the United States Department of Housing and Urban Development (HUD), introduced the 40-year modification option to aid borrowers that have fallen behind on their mortgage payments, describing it in their press release as, “loss mitigation home retention”. With the loan modification option only being available until May 31st, there is not much time for borrowers to act. However, the FHA disclosed that they will be considering permanently adding the 40-year option, after this 24-day period. Let’s explore more about this new FHA loan option!

Pros and Cons

With the goal of making a borrower’s mortgage payments more manageable, the 10-year extension does just that. Borrowers who decide to opt into the 40-year modification option will see a significant decrease in their monthly payment, as it will then be distributed across the remaining of the 480-month period, instead of the standard 360 months. 

On the other hand, taking more time to pay off your home is not something many people would look forward to. With the average age of a first-time home buyer in the United States being 33, the 40-year loan option would then be completed when the average-aged borrower is 73. Another aspect that damages the outlook on this new loan option is the idea of paying a remarkable amount in interest. Interest is not something favored by any borrower and will always be looked to be minimized. 

Despite the pros and cons, the 40-year loan option has a purpose – reduce the burden of mortgage payments for those financially recovering from the economic impact of the past few years. The FHA’s new 40-year loan option achieves that, but it is still not for everyone. The HUD’s press release specifically described, “This new loss mitigation home retention option is designed to help those borrowers who cannot achieve a minimum targeted 25 percent reduction in the Principal and Interest portion of their mortgage payment through FHA’s existing 30-year mortgage modification with a partial claim.” 

For Example…

Calculating the difference between the 30-year and 40-year mortgage loan options, the homeowner/borrower would save about $200 a month after they switch to the 40-year loan option.

To Sum it Up!

The FHA’s new 40-year loan modification option will go into effect this coming May, but will not be staying long (at least for now). It poses benefits in its purpose, if used in the correct application, but still may not be the most ideal home financing option for you. To discuss your loan scenario or explore the FHA options, contact LenderFi.co and speak with an expert loan officer!

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Ryan Thaler

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