Upcoming Changes to FHA Lending – Should You Buy Now?

Posted by Jeff Edmisten on January 22, 2010 // 0 Comments

I wanted to write this post to let our readers know the changes that are taking place very soonwithin the FHA lending program that will have an effect here in the Fredericksburg real estate market.  Why is changes to FHA lending important?  Because approximately 80% of current home purchases are FHA loans.  Most people use FHA because they require a substantially smaller down payment than conventional loans and allow for more help from the seller.  Until these changes take place that is.
 
For anyone who is looking to purchase a home within the next 6 months to a year, they might want to consider stepping up their time table.  For any loan application/home purchase that is using the FHA is not in underwriting by April 5, 2010, the new FHA rules will apply.  Our initial understanding of the changes are primarily this:

• The funding fee charged by FHA, which currently stands at 1.75% of the purchase price, will increase to somewhere between 2% and 2.25%.  Most people roll the funding fee into their loan, which increases the principle of the loan.  On a $200,000 home that means the funding fee increases from $3,500 to between $4,000 and $4,500.
• Secondly and possibly a critical issue for many home buyers is the change to the seller concessions.  Seller concessions is the term used for money the seller allots to the purchase to pay their closing costs and other fees.  Many people who use FHA need anywhere between 3% and 6% of the purchase price in seller concessions to make the loan/purchase doable.  FHA currently allows up to 6% in seller concessions.  For any transactions not in underwriting by April 5, 2010, the seller concessions will be reduced to a maximum of 3%.  That is huge.  Again on a $200,000 home, the seller concessions just went from $12,000 to $6,000.  Many potential buyers won’t have the extra cash to pay for closing costs that exceed the 3%.
• The down payment requirement of 3.5% of the purchase price will remain the same, with some caveats for specific situations.

So, again, if you know of anyone who is wanting to buy a home sooner rather than later, please pass this information along to them.  You or anyone you pass this on to may call or email me with questions.  Or you may call the mortgage planner that we partner with Kim Thagholm at (540) 295-6674. We want everyone who is capable of taking advantage of the existing program to do so before it soon changes.

Category : Blog