A large percentage of home buyers in the Greater Rochester area finance their homes with FHA mortgages. FHA loans are a great product for many individuals due to their low down payment requirement. In recent years, as conventional loans have experienced drastic changes and increasingly strict eligibility requirements, FHA loans have also emerged as a very stable form of financing.
In the mortgage and real estate industries, we've been hearing whispers about upcoming FHA changes for a while now, but it wasn't until recently that those changes were officially announced.
FHA announced changes in the following areas:
- The upfront mortgage insurance premium (UFMIP) will increase to 2.25 percent up from 1.75 percent. Contrary to reports, FHA will continue to allow the financing of the UFMIP.
- Borrowers with a credit score below 580 will be required to have at least a 10 percent down payment. The minimum down payment will remain at 3.5 percent for all other borrowers.
- Seller concessions will be reduced to 3 percent from 6 percent.
These changes will go into effect on April 1, 2010.
According to individuals I've spoken with in the mortgage industry, the changes aren't nearly as drastic as many feared. Don't hate me for this, but honestly, I think they make sense.
At 2.25%, the mortgage insurance premium will still be much lower than it used to be. Considering that buyers can still wrap it into their loans rather than being responsible for it upfront, the increase won't have much of an effect on borrowers.
Increasing the down payment requirement for buyers with lower credit scores also makes sense. If someone hasn't proved that they're able to handle other lines of credit, why should they be able to take on something as large as a home loan without showing the bank they have some funds available? Most conventional loans won't lend money to someone with a credit score below 580 at all, so FHA is still ahead of the curve.
Finally, reducing the seller concessions to 3% of the purchase price will have the largest impact on borrowers, but it too makes a lot of sense. In the past, when a buyer asked for 6% seller concessions, they would often "bump up" the purchase price to above the asking price in order to come to a consensus with the seller. In recent years, tightening appraisal rules have made that difficult, since the properties often didn't appraise for the higher price! That caused issues as transactions neared closing and sometimes led to deals falling apart. 3% is a much more manageable number and should help stem the tide of appraisal issues.
It all boils down to this. I'm a huge believer in the benefits of home ownership. Purchasing a home is often the most rewarding step individuals can take in their lives. BUT... and this is a big but... only if it's right for them! A few years back, when subprime mortgages were running rampant, scores of people purchased homes who shouldn't have been able to afford them, and many of those people have since become victims of foreclosure. That's not the way it should work. Some people are just not ready to own homes.
That's why these FHA changes are actually a positive step. People who can't handle the increased down payment requirements or need additional seller concessions may not be at the point where they should be thinking about buying a home. If they take a year or two to save up some money and clean up their credit scores, they should be able to qualify for any loan without a problem.
If you're considering purchasing a home in the Rochester area and don't know if this is the right time for you to buy, don't hesitate to contact me. I'd love to sit down with you and examine the pros and cons!
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I am proud to help buyers and sellers in the Greater Rochester, New York area find the homes of their dreams. If you are considering purchasing or selling a home in the Rochester area, don't hesitate to contact me. I pride myself in providing the best possible service for my clients!
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Contact:
Kristen Wahl
Realtor Associate
(585) 455-5524
KWahl@RealtyUSA.com
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