FHA Changes in Lending Policy!
In December 2009 we started to hear “noise” that HUD would make changes to different aspects of FHA lending guidelines. HUD has acted. Change has occurred. I am providing the changes along with some insight on impact:
1) Seller paid concessions will be reduced from 6% of sales price to 3% of sales price. This is the biggest change. Six percent seller contributions usually meant a buyer to have 3.5% down payment and seller contributions would normally cover all closing cost and prepaids. Impact- buyer will need to have more money at closing.
2) MIP (Mortgage Insurance Prem) is being raised from 1.75% to 2.25%. This is not as big of a deal as it seems. It goes into effect in April. This amount is financed into the base loan amount 99% of the time. It will not affect buyer’s cash to close at all and will have minimal impact on raising their monthly payment. When I first got into the business in 1991 the Upfront MIP was 3.75%. Over the years it has gradually ticked down to 1.75%. 2.25% is still one of lowest percentages in FHA Upfront MIP over the last 20 years. Please do not let your buyer get hung up on this change. This change allows lenders to finance with only 3.5% down payment. Impact- perception may be big but reality it is not.
3) 90 Day Flip Rule has been TEMPORARYLY lifted. This means investors buying homes do not have to wait 90 days to sell if buyer is obtaining FHA financing. This is great as it will expedite transactions! Just keep in mind this is temporary, so stay in tune with industry updates. Impact- fewer headaches and more closings. Additionally this should invite more investors into the market to buy, fix up and sell homes. Good move by HUD.
4) FHA creates floor on credit scores. Most (but not all) lenders had already created a minimum credit score higher than HUD’s newly created score floor. Most lenders have a minimum score of 620 or higher. I highlight this change only to clarify the difference. Impact- minimal.
First Time Home Buyer Tax Credit Extension is Approved!
The First-time home buyer tax credit WILL BE EXTENDED for contracts written on or before April 30, 2010 and closed by June 30, 2010. The Bill added two other noteworthy items. The first is a tax credit for existing home owners on new purchases up to $6500 (must have resided in current residence for the past 5 years). The second addition to this Bill was that it raised the income limits from $75K for single taxpayers to $125K and joint taxpayers from $150K to $225K.
It appears that our elected officials in Washington finally understand that this is one of the stimulus ideas that has actually worked. The first-time home buyer tax credit has truly stabilized home prices over the past several months and a lack of an extension of this credit would have certainly driven home prices 5% to 10% lower over the next 90 to 120 days. The addition of a tax credit for existing home owners should only enhance the power of this economic stimulus package in the real estate area.
To see answers to your frequently asked questions, visit http://federalhousingtaxcredit.com.
Tax Credit Deadline for First Time Home Buyers - Flirtn' with Disaster!
Not managing expectations of the first time home buyer regarding the urgency to close before Dec 1st in order to realize the tax credit is like “flirtn’ with disaster!” As of today, there are only 26 business days left until Dec 1st - Veteran’s Day, three days during Thanksgiving, and not counting the last day of the month reduce the actual number of business days from 31 to 26. And, November only has 30 days in the month! To learn more about setting expectations for the buyer, to view tips, a proactive timeline, pertinent questions and answers and important information on FHA financing and the FHA flip rule, please read this full article.
Mortgage Insurance: Friend or Foe
"The trend of 95% conventional loans is disappearing and a new trend of second homes and investment properties requiring 20% down is in full swing. This shift requires a renewed perspective of MI and MI purpose. Please click here to find out how to educate home buyers on how to better understand and appreciate MI, as well as how to get rid of it down the road. Also learn how to contact HUD to get calculations for MIP refunds which can be shown to seller when running the net sheet!"
FHA Loan Limits Changing!
FHA Loan Limit is changing back to $346,250*
New limits go into effect on any closings starting mid February, 2009.
*The limit for some of the counties outside of the Metro Atlanta area will be changing as well. Feel free to contact me if you would like information on a specific county or if you have any questions. I always look forward to the opportunity to serve you and your clients.
Soft Market Classification!
Swiftly and without notice the mortgage landscape is ever changing. The latest curve ball that could blindside a buyer just hours before closing and stop any qualified buyer in their quest to purchase a new home is the requirement for an additional 5% down payment. When could this happen? When lender receives a conventional appraisal classified with “soft market” conditions.
Most of metro Atlanta has now been tagged as a “SOFT MARKET” area. Declining purchase prices and over six months of inventory are but only two examples of what might show up on a conventional or jumbo appraisal. The result is that if a buyer is pursuing max financing and attempting to put as little down as possible, the appraisal (which usually is received only a few days before a 30 day close) could dictate the buyer must put an additional 5% down. Independent of the financial strength of the buyer, a purchaser could be required to put more money down only a couple of days or hours before closing.
Do not let this soft market shocker be a last second spoiler for your purchase transaction.
As industry leaders and professionals we have to educate our buyers on the front end of the financing process. Buyers must know that if they are pursuing financing with the minimum amount down, they must be prepared to either put more money down or switch to FHA financing once the appraisal is received. Buyers in the jumbo market may not have the luxury of FHA being plan B.
Here is a quick scenario-
Buyer is putting 5% down on a sales price of $323,000 on a property in Metro Atlanta.
Buyer should know in first stages of financing conversation that based on appraisal the property could be subject to soft market classification.
Buyer could:
- Pursue exception with lender and mortgage insurance company to still only put 5% down payment. Buyer must realize that 5% down for conventional financing is the exception not the rule and closing delays could be experienced as this attempt for exception is now in the hands of a mortgage insurance company
- Buyer could put an additional 5% down and still go with conventional financing terms.
- Buyer must understand 80/15/5 financing is about as hard to find as a dinosaur
- Buyer to consider FHA financing
In the end FHA is usually the wisest choice numerically and emotionally. The fact that FHA usually has a higher rate tricks borrowers to thinking it is a bad choice but the numbers do not lie and buyer can put 3.5% down going FHA, the monthly mortgage insurance factor for max financing is about half with FHA vs. conventional. Even though the FHA rate is normally higher the buyer puts 1.5% less down, has a lower mortgage insurance payment and minimal difference in PITI. Emotionally there is less uncertainty going FHA which allows expectations to be managed and an overall smoother buying experience.