It comes to no surprise that FHA is going to be changing it’s lending requirements in the upcoming new year. With Federal Housing Administration playing a crucial roll in propping up the housing market, they too are facing possible shortages in cash and who else to raise money from than new home buyers.
Changes For Buyers
None of these are set in stone, but the bottom line is it will be more expensive to buy a home from the loan side. From the seller side of the transaction, if buyers can’t qualify the pool of buyers shrink making it harder to sell the property.
Here is what at stake:
- Talks of mortgage insurance premiums going up. Right now, buyers pay 1.75% on the overall loan amount that can be rolled into the loan or paid upfront plus a yearly fee until the mortgagor has reached a certain equity position. Here is a simple example, if a home costs $200,000 there is a $3,500 fee. If the fee increases to say 2.25%, that fee increases to $4500. An extra $1000 out of pocket to buyers.
- A new credit floor, FHA has always been more lenient when it comes to qualifiying for a loan. Better be ready to really get your credit score shored up. Pay off some cards before or bring down the percentage owed on the overall credit limit.
- Sellers can currently contribute up to 6% for closing costs, the traditional is 3% but looks like the anchoring that down is what they are after.
- More money for a down payment. FHA requires a minimum of 3.5% for a down payment
- Give the boot to crappy lenders that abuse.
If this is a “recovery” we are currently in, let’s hope they don’t destroy it.
For The Good
If most of these happen, it will be for the good. Of course many Realtors(r) might not agree, but they should. Home ownership needs to be sustainable again, a lot of people may have been ill-equipped when it came to owning a home.
When a small down payment is used, the odds are that the new homewoner doesn’t have large cash reserves. It’s easier to walk away from a home when only 3.5% was used for the initial investment than say 10% or 20%.
Here’s to another interesting 2010 when it comes to the mortgages!
