FHA Guidelines set to change

FHA, the most popular loan program available is going to change soon.

  • FHA currently allows the buyer to put as little as 3.5 percent down. Changes in FHA guidelines will require that the  buyer put at least 5 percent down-a significant increase of cash reserves required of the buyer at the closing table.
  • Another  FHA guideline set to change  is that a one time, up front mortgage insurance premium will increase from 1.75% 2.25% of the loan amount.
  • The monthly mortgage insurance is going to increase.  This insurance is calculated by multiplying the base amount of the loan times .055 and then dividing that number by twelve.  The exact increase is unknown but may go up to as much as .1 rather than .055.  This insurance is mandatory for 5 years on FHA loans.
  • Some real estate  experts say that FHA guideline changes will happen April 5th 2010. Others sources like Realty Track claim changes will take place  in the summer.
  • Another important FHA guideline change is that the maximum allowable seller credit has been reduced from 6 percent to 3 percent.  So, the buyer will have to come to the closing table with more cash because sellers can only credit the buyer (at close) up to 3 percent for closing costs. (rather than 6 percent)

The consequence of these changes is that money is more expensive to borrow and more cash is needed at the closing table.

Loan Limits for Feddie Mac, FHA and Fanny Mae are expect to be extended.

Good news for the Real Estate Industry and especially those buyers trying to get financing on homes in the upper end price ranges.   More than 80 percent of loans are financed through Fannie Mae, Freddie Mac, and FHA.   The loan limit was temporarily made to go up to 125 percent of the local median home sales prices or up to $729,750.00  This limit was set to expire at the end of the 2009, but now it is expected to be extended to 2010.   This will help those buying in the  move-up, and high end markets.  The overall effect will help stabilize prices because more buyers will qualify for financing.