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Happy Friday!

Wow!  The Federal Housing Administration is raising fees and tightening lending standards in an effort to shore up its strapped finances and to avoid a taxpayer bailout!  The policy changes were announced two days ago on January 20, 2010 and are to become effective in the spring and early summer of 2010.

FHA Commissioner David Stevens has declared the changes “AMONG THE MOST SIGNIFICANT STEPS TO ADDRESS RISK IN THE AGENCY’S HISTORY”….that accounts for almost 40 MILLION mortgages since 1934!  On January 20, the Austin American Statesman quotes Howard Glaser to say “mortgage lenders will find the new rules PAINFUL but NECESSARY”. Mr. Glaser is a mortgage industry consultant and former housing official during the Clinton administration…that was 1993 through 2001…not like that was just yesterday!

Now if I did not know better, this news would be very alarming.  I may begin thinking that I just may not be able to buy a house in 2010 because of the new regulations.  Well guess what??

You still can.  There are three main changes that are slated to soon be implemented.  The first two of the “MOST SIGNIFICANT STEPS” most likely will not even be noticed and the 3^rd would not be what I call “PAINFUL” but it will be necessary.

The following examples will explain my statement.

Change #1

FHA has always charged an up front fee for mortgage insurance which is rolled into the loan. For the past five years or so, that fee has been 1.75% of the loan.  Prior to that, the fee was 2.25%. When the fee was decreased about five years ago, it made no difference at all as to what one would qualify for nor was it ever a factor considered in the decision making process of the purchase!  The reason is this…on a home sold for $175,000 (approx. average sales price in Central Texas) the current fee of 1.75% is $3062.50 which again, is rolled into the financed amount of the home. The new proposed fee of 2.25% (.5% increase) is equal to $3937.50.  Simple math tells us the difference is an increase of $875.00 in the amount financed.  At the current rate of 5.0%, on a 30 year fixed mortgage, the payment difference is $4.70 per month!

That is hardly what I would consider painful and as you can see, most likely will not even be noticed!

Change #2

Credit scores, commonly termed FICO scores, will need to be 580 minimum in order to be approved for an FHA loan with the minimum 3.5% down payment.  If under 580, a minimum of 10% will be required for the down payment.  Here’s where it gets confusing and why I previously stated that it most likely would not be noticed.  Even though FHA policy states that the score must be at least 580, approximately 99% of all FHA lenders will not even consider approving an FHA loan unless the credit score is at least 620!

Bottom line…the new guideline has no effect on the lenders current requirements!

Change #3

The seller’s currently are allowed to pay up to 6% of the borrowers closing cost.  In most cases, that is enough to cover the entire cost.  The new regulations are slated to reduce the maximum seller concessions to 3%.  In some cases, notably on small loans under $100,000, this will not be enough to cover the entire closing cost and the borrower will be obligated to pay a small portion of the closing cost in addition to the 3.5% down payment.

I do not consider this as “painful” and I have some great ideas to help alleviate the pressure that this may cause.

The Good News!

The good news is that as scary as the changes appear on the outside, they are very minor in terms of making any significant difference in the current buying process.  If a borrower qualifies for an FHA mortgage now, they will still qualify once the changes are implemented!

I suggest getting pre-approved immediately if you are considering the purchase of a house in the near future.  If you have not owned a home in the past 3 years, the $8000.00 tax credit has been extended through April 30^th.  You must have a contract by then to qualify for the $8000.00 and must close by June 30^th.

There is a major influx of buyers expected so the sooner you have a contract, the better chance you have of closing before the deadline!

Contact us and make your FHA application today!

Read my published articles HERE