Waiting a few extra days or weeks to purchase a home this spring could cost buyers thousands of extra dollars as the office of Housing and Urban Development (HUD) implements several changes for loans guaranteed by the Federal Housing Authority (FHA).
Imortant events and dates to keep track of:
March 14, Spring Ahead! Change your clocks forward
March 31, Feds cease current MBS purchasing policy
April 30, contract deadline for homebuyers’ tax credit
April 5, FHA new FHA financing deadline
Coming just weeks before the April 30 deadline for the Home Buyer Tax Credit and just days after the March 31 expiration of the Federal Reserve Board's mortgage backed securities purchase program (which has kept home loan rates artificially low for over a year), these FHA changes make it even more important to act now to save big.
Firstly, let me explain why FHA financing is so vital today, whether you are a seller or a buyer,
FHA will do loans when the cedi scores are as low ad 560 in some cases
FHA has a rehab loan (203K) available for purchases or refinances with loan to values up to 96.5%
FHA allows for down payments as low as 3.5%
Here are some examples of FHA financed loans:
Right now in my office I have just gotten an FHA 203K loan approved. My client lives in a 3-bedroom home with no dining room. They also have only one bathroom. They wanted to add on to their home, a dining room, a bathroom and another bedroom. They are doing a lot of the work themselves so the cost is low, but they didn’t have the money. Their home is worth approximately$ 260,000 and they owe now $230,000. They cannot take money out of their home unless they did this construction mortgage. They are borrowing $310,000, well over the current value and with a cash-out to do the construction.
Another example. I took an application this week for a man who inherited a home. He and his sisters are 50% owners of their home and both live with their families in this 3-bedroom home. Now the sister wants to move out and on, so my client has to purchase her interest out of the home. The problem is, his credit score is only 630. Only FHA will do this loan at a very low rate.
Here are some of the changes to be aware of.
On April 5th, the cost of required up-front mortgage insurance for loans guaranteed by the FHA will increase from 1.75% to 2.25%. For a borrower purchasing a $200,000 home with a $7,000 down payment, the up-front mortgage insurance will increase by $965. Up-front mortgage insurance is typically financed in the final loan amount so the impact to a monthly payment will be minimal but overall, the increase is still borne by the borrower both upfront and monthly.
It is important to note that in order to be eligible for the lower cost up-front mortgage insurance, a lender has to order a case number from the FHA before April 5th. A case number can only be generated for loan applications where a property is involved and a fully executed purchase contract exists. Homebuyers who have been pre-approved but are not under contract will not be eligible for the reduced premium effective April 5th.
Later this spring, the amount of money that a seller can return to the buyer from their sale proceeds will be reduced from 6% to 3%. The reduction in these "seller concessions" can increase the amount of cash a buyer will be required to pay at closing by $6,000 for a home purchase of $200,000.
There is only one way to avoid being affected by all of these costly changes that lie ahead – submit all FHA mortgage applications by the last week of March.
If I can answer any questions you may have about how these changes could impact you, call me. I appreciate your business.
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