FHA Loan Requirements- How changes will effect the real estate market.
It was recently announced that FHA is going to change the current guidelines for FHA qualifications. One of the big changes is the reduction of seller assistance. The current seller contribution for a seller assist by FHA is 6% of the selling price of a home. The newly proposed cap on seller assistance is 3% and are scheduled to take place in spring of 2010. Many people think this will lessen the likelihood that a seller will go int foreclosure because they will be more vested financially into the sale.
So why change FHA loan requirements? The reason FHA wants to set a standard of lending guidelines is because Congress mandated that FHA has to maintain a cash reserve of at least 2% of it's outstanding loans. Currently, FHA's cash reserve is below 0.5%. They feel they have to do something to strengthen their finances.
Some other proposed changes include a minimum credit score of 580 and MIP (mortgage insurance premium) to be raised from 1.75% to 2.25% of the loan amount. This change is to take place on April 5, 2010. Many lenders already have a minimum score of over 600 and charge 2.25 MIP.
I feel the people who these changes will effect the most will be the first time home buyers. Many first time buyers struggle to come up with the thousands of dollars it takes to buy a home. They rely on a seller assist to help pay for some of the costs. The reduction of seller assist imposed by the new FHA loan requirements will keep many first time buyers from purchasing a home until they are able to save the additional 3% needed to pay for their closing costs. With these changes a buyer purchasing a home for $200,000 will need to save an additional $6,000 for closing costs. With the real estate sales down, these changes could have an even greater slowing effect on the real estate market.
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