Recently we discussed FHA changes (please review them here), but there are some important points to take away from the changes. (The changes include higher MIP up-front, higher credit score needed for a lower downpayment, a cap on seller concessions and more lender reinforcement.)
First of all, the changes in upfront Mortage Insurance Premium to 2.25 percent will matter earliest. Our lender sources have informed us that this change is taking place April 5. The other changes follow this summer, according to the FHA. Translation: more money up-front.
Basically, this means don’t wait. If you’re buying, don’t wait. If you’re selling, don’t wait. The tighter the restrictions, the more difficult the process. Here’s a few things other folks are saying:
- Remember, there’s a cap on the amount of seller concessions at closing (closing costs.) This will not be an issue for some, but for others it will. Depending on the cost of the house, a 3% limit might not be much. But it might make the difference between affording a house or not. This affects buyers and sellers! Sometimes those closing costs can give sellers the opportunity to get the buyer into the home, even if it costs you more in closing costs.
- Not a time for fence sitters, buyers or sellers. Sharon Natarus, my lender, is recommending that buyers don’t wait. (If tax credits weren’t already enough reason to consider buying now.) Sharon says, “we know what we can do today, we don’t know what tomorrow will bring.”
- A huge increase in FHA loans. According to USA Today, FHA loans account for 30% of home buyer loans up from only 3% in 2007. This is a huge difference! It can help us understand why the FHA would be tightening the restrictions. And it’s also important to point out how much less restrictive an FHA loan is than a conventional loan. (One reason they have gained in popularity, along with the new tax credits.) SO, they need to adjust the aspects of the loan to keep a the reserves at a level required by law.
- Watch your credit score. If you’re buying down the road and will be a part of these tighter restrictions, keep your credit score high in order to receive the most relaxed down-payment requirement. (And, a good idea for financing anyway — read our tips.)
- Perspecive: These changes aren’t as drastic as they could have been, according to some. Rumors had been flying around for a while about MAJOR FHA changes. Mortgage pro Justin McHood wrote on one of the big Real Estate Blogs: ”while it is true that in the future it will make it more expensive for someone to get an FHA loan, my first thoughts after reading it were: It could have been worse.” He went on to say “FHA loans are still gaining momentum as a financing option for many home buyers and I expect that these changes will not slow that down at all,” but will just make it a little more expensive.
So, don’t panic. Like other changes throughout this housing correction — inconvenient, more expensive, more difficult to get approval — but not the end of the world. But, why put yourself in the position to be subject to the new restrictions if you are ready to buy now?
Here’s more about these FHA changes from some other sources. You really should keep reading and talk to people you trust if you have concerns about these changes. More importantly, if you have concerns about qualifying for FHA financing already, DON’T WAIT.
- Dan Green’s The Mortgage Reports blog (One of my trusted contacts.)
- Wall Street Journal
- The New York Times
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