FHA Loans - Higher Costs & Tougher Standards are Coming Soon: An FHA Loan is insured by the federal government, guaranteeing its payment in case of default by the borrower. FHA Loans, due to their low down payment requirements and other relaxed guidelines have become popular the past couple of years. It was recently discovered that the Federal Housing Authority's reserves had dropped below their required limits and their solvency may be in jeopardy. In response to this peril, HUD Secretary Shaun Donovan made it clear last week that buyers using FHA backed loans will be facing increased costs and tougher credit standards in early 2010. How will this affect you? Although the changes have not taken place yet, here is what's coming soon: 1) An increase in the minimum down payment. Currently home buyers can buy a home with a down payment of only 3.50% of the purchase price. Congressional critics want to see the minimum down payment increased to at least 5%. 2) Seller concessions" to be cut in half -- from the current 6% down to 3% of the loan amount -- and maybe even lower. 3) Higher "Mortgage Insurance Premiums." The FHA currently charges what it calls an "Upfront Mortgage Insurance premium" of 1.75% of the loan amount in order to get the loan. That could go a lot higher, maybe even to 3%. 4) An increase in the "annual" Mortgage Insurance Premium charged by the FHA, which gets tacked onto borrowers' monthly payments. Currently that premium is set at 0.55% of the loan amount, but Donovan is asking Congress to raise it. Bottom Line: Sometime early in 2010, it's going to get pricier and tougher to get financing through FHA. If you are planning on buying a home with an FHA backed loan, call me today to find your next home and get your loan application in sooner rather than later.
The Ongoing, Short Sale Conundrum: As we near the end of 2009, the enigma of the real estate market has gone from "foreclosures" to "short sales." Entering December, the inventory of available homes continued to be dominated by short sale listings. In Folsom, 108 of 243 homes (44%) were short sale listings, in EDH, 139 of 311 homes (45%) were short sale listings and in Sacramento County, 3,570 of 5,682 homes (63%) were short sales. The Problem: The banks are approving the short sales at a snails pace, rarely allowing more than 10% of the short sale listing inventory to close escrow in any given month. Interestingly, the majority of the short sale listings on the MLS have in fact already had a buyer and the seller agree to a sale. However, since the banks have to approve the deal for it to become binding, the short sale listings remain in "Active" status on the MLS, instead of being changed to "Pending," (where the home buying public would no longer see them). Because they remain "Active," home buyer perceptions are that inventories are plentiful, prices are cheap and time is not of the essence. The Reaction: Buyers make offer after offer on short sales because they have the lowest asking prices (who doesn't want a deal?). Then they sit and wait, and wait, and hope that the banks will one day approve the short sale. In the meantime, the banks slowness continues to confuse and frustrate home buyers and exponentially increase the work of all those involved in the process. The Reality: Home inventories are at their lowest levels since May of 2005 in both Folsom and El Dorado Hills. When the market does turn (and it will), unless inventories rise, both the eyes and pocket books of home buyers will be rudely opened. All it will take is the banks approving all the contingent short sales and allowing them to sell. It would instantly halve the inventories of homes, put a bottom in prices, and create a "sellers market" across most of the country...
November Housing Real Estate Statistics in El Dorado Hills, CA: The average sales price in November was $502k and tha average dollars per square foot was $161. There were 43 sales, 20 were bank owned homes, 6 were short sales. In all, entering December, there are 311 homes for sale, 20 are bank owned homes, 139 are active short sale listings and there is a 7 month supply of home inventory.
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