FHA Announces Policy changes to address risk equal more money out of pocket for your closing

In this economic climate, every penny is being evaluated. From federal to local governments to kitchen tables across the country, ways to save money are being discussed daily.

So, it's understandable that the Federal Housing Administration (FHA) needs to strengthen its reserves and bring back private lending. The question is: are the FHA's pending changes going to make that a reality or will it stagnate the housing market to a screeching halt? The FHA has insured more than 37 million mortgages since 1934. Once 'the ugly duckling' of loans, FHA loans are now the darling of loan officers. They are truly the loans moving the marketplace.

I've semi-formed my own opinion but I want you to be the judge. Let's take a $250,000 home as an example. Joe wants to buy a home for $250,000. He calls me this week and wants to start his home search. I link him with a lender to get qualified and he receives a qualification for $275,000. Living under his means like the wise man he is, we find a home for $250,000 and calculate the money he will need to close on a home. Under current guidelines, he will have to pay 1.75% of the sales price for his Mortgage Insurance Premium (MIP). That would equal $4,375. In the spring, that amount will go up to 2.25% of the sales price which equals $5,625 or $1,250 more!

FREE MONEY! That got your attention right? Well, seller's concessions are a little like that - costs the seller's are willing to contribute to your bottom line. Currently, sellers are able to provide up to 6% of the closing costs. On a $250,000 sales price that equals $15,000. That's a great amount to help cover those costs!

Well, welcome to the new FHA policies where seller concessions are reduced to 3%!! That means you can receive up to $7,500 total from the seller. Now, let's do the math...you can receive $7,500 and your up-front MIP amount equals $5,625 - well that leaves only $1,875 towards your closing costs. Remember your closing costs include your lending fees, recording fees, escrows (for taxes and insurance), attorney fees (generally $450), etc.

You do the math. And, remember, this is in addition to the downpayment that you need to have.

Trust me, I agree that buyers should have skin in the game and lenders should responsibly issue loans to deserving borrowers but this does NOT seem like the path to making home affordable and keeping the housing market in motion.

So, I step down from my soapbox today to say that if you are mulling over, contemplating, toying around, or even have an inkling of a clue that you may want to purchase a home ~~ Talk to a lender NOW. Call me, NOW.

Remember, that I am always here as 'Your Advocate & Resource in Real Estate.' Contact me with your questions, inquiries and comments. I'd love to hear them all!

Yours in Success,
Christan