FHA financing rules will make loans harder to get and require more upfront cash; here are a few of the changes headed our way.

CHANGE 1: SELLER-PAID CLOSING COSTS
Sellers will no longer be able to pay up to 6 percent of the buyer’s closing costs to help purchase the home. New rules will roll back seller’s contributions to 3 percent maximum, similar to Fannie Mae or Freddie Mac conventional financing guidelines.

For example, on a $100,000 home loan, sellers can currently contribute up to $6,000 (6 percent) toward buyers’ closing costs, reserves and repairs, as long as the buyers have 3.5 percent of their own funds for the down payment.

Under new rules, only $3,000 (3 percent) would be allowed, requiring a buyer to have more upfront cash at closing. This change reduces the lender’s risk that seller concessions could artificially inflate property values, and FHA would start out by insuring a home already under water.

CHANGE 2: MORTGAGE INSURANCE PREMIUMS
Mortgage insurance is a capital reserve fund that protects lenders if the buyer defaults. Buyers pay into this reserve with an up-front fee at closing and in each monthly mortgage payment. With our recent foreclosure crisis, this reserve has been strained. Effective beginning this month, FHA can make the following fee changes:

• Reduce the upfront fee from 2.25 percent to 1 percent of the loan amount. At first glance this reduction would seem a beneficial step. However, you will notice this change in the monthly payments.

• For loans with 5 percent to 20 percent down, the annual mortgage insurance premium increases from 0.5 percent to 0.85 percent. For loans with less than 5 percent down, the premium increases from 0.55 percent to 0.9 percent.

For the average buyer, this charge will continue as part of the monthly mortgage payment until the loan-to-value reaches 78 percent and mortgage payments have been made for at least five years.

CHANGE 3: CREDIT SCORES
FHA’s lenient rules previously let buyers with low credit scores qualify for a home loan without an overt penalty. Now FHA will mirror other conventional financing. FHA will increase the interest rate for buyers with low credit scores. Additionally the major banks have added overlays requiring a minimum 640 FICO score (some will require a 660 FICO score)

Additionally, your credit score will not only affect your interest rate, but it could increase the amount of the down payment required by your lender up to 10 percent. On a $200,000 loan, the minimum 3.5 percent down payment of $7,000 would increase to $20,000.

CHANGE 4: CONDOMINIUM APPROVALS
A national requirement for more intensive reviews of individual condo projects is under way and could hold up your purchase if an association is not proactive before new requirements are put in place. FHA Condo approvals can take up to 6-weeks after approval of all the necessary documents. These must be submitted by an approved lender to the FHA HOC – they will then issue an approval. If the condo community does not have approval no FHA loan can be used.

A couple of the must-have criteria include that at least 70 percent of the units be owner-occupied and less than 15 percent of the units in foreclosure. Without financing approval for a condo project, the only real sale possible is with seller- financing or cash.

EVEN WITH THE CHANGES BUYING NOW IS A GREAT STRATEGY

So those are just a few of the risks of inaction. Once the real estate market bottoms out, look for interest rates to start rising. Because most people focus on what their monthly payment is, you will find yourself purchasing fewer homes to keep the same monthly payment. For every 1 percent increase in interest rates, you lose 10 percent in borrowing power.

So in essence the longer you wait, the less you will be able to borrow if you want to keep the same monthly payment.

The times when virtually anyone could obtain a home loan are gone. As these and other FHA changes take effect, your ability to obtain a home loan could get even more difficult in the future.

Rates for Today:
Rates are subject to change and are based upon a standard 1% origination fee 0% Discount (Non FHA loans of $417,000 with 760+ FICO at 75% LTV and FHA Pricing is based upon $303,750 at 96.5% LTV – rates vary with loan size, FICO score and LTV). Note some loan transactions will take more than 30-days to complete ask us for details.

30 YR Fixed – 4.250%
30 YR FHA – 4.375%
15 YR Fixed – 3.875%
5/1 ARM – 2.875%
7/1 ARM – 3.125%
30 YR Fixed JUMBO – 5.125%
7/1 ARM Jumbo – 4.375%
10/1 ARM Jumbo – 4.750%

If you need help buying a home in Charlotte, NC, please contact a real estate agent at Henderson Properties today!