Although the government is often viewed a carefree spender of taxpayer money, even the FHA is feeling the pinch these days, and so, has developed some new rules which will impact Liberty Hill buyers. Come spring, buyers will have to have higher credit scores to get in on FHA's low downpayment requirements, as well as pay higher mortgage insurance fees and possibly more closing costs.
FHA, which has traditionally backed about 3% of homes, has been overwhelmed with lending requests these past few years. Currently, FHA backs 30% of mortgagees and 20% of refinancing deals for homes up to $729,750. FHA reserves are at their lowest reserves in 35 years and projected delinquencies will take them even further down. The agency wants to keep itself in a position to help homeowners, especially disadvantaged ones, while managing it risks and supporting economy recovery.
The new policies flesh out HUD Secretary Shaun Donovan's concern voiced in October that borrowers need to put more "skin in the game" and contribute more to the cost of acquiring their home loan. To accomplish this, the first measure is to require higher credit scores from potential buyers who will now need scores of 580 or above to be able to put down the minimum 3.5%. Anyone with lower score will need a 10% downpayment. This requirement might be a burden to some marginal potential buyers who are struggling to get 3.5% together, but in reality, most banks have required scores of 620 or above for some time from buyers who hope to get a loan.
What will affect all Liberty Hill buyers are increased mortgage insurance premiums (MIP's). Currently set at 1.75% of the loan, the new premium will be 2.25%. The money will be due upfront, though in future years, it is expected to be spread out over the term of the loan. Unlike some other provisions of the plan expected to go into effect in late spring or early summer, the increase in MIP's takes effect April 5, during the last few weeks the home buyer's tax credit is in effect, Buyers who close between April 6 - June 30, 2010 may get the tax credit but will have to come with an extra $1,000 on a $200,000 loan.
Within a few months, buyer will no longer be able to count on sellers contributing 6% of their closing costs; 3%, which is actually the maximum in private lending, will be the norm. While buyers might regard this as a bargaining tool with sellers, the practice lead leads to higher than market value appraisal on property. In the long rule, this could help buyers when they were ready to sell., but hurt htem when they were buying and strapped for cash.
The final part of the policy tightens requirements for banks to make loans to credit-worthy borrowers, increase their reserves, and be accountable for bad loans. Non-complying banks will be dropped from the program.
FHA Commissioner David Stevens defends the new policies: "When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency's history. Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing market's recovery. Importantly, FHA will remain the largest source of home purchase financing for underserved communities."
He continues, "Striking the right balance between managing the FHA's risk, continuing to provide access to underserved communities, and supporting the nation's economic recovery is critically important..." For that reason, FHA is committed to developing policies that address current the housing situation, including distress and underwater homeowners, while making FHA more stable.
It's hard to argue with the intent of the new policies but in the short run, they may throw an unplanned curve ball to homeowners hoping to buy over the next few months. We at the Shane T. White Team encourage you talk to us today to time buying so you can avoid higher fees AND reap tax credit dollars.
If you've been waiting for the right opportunity to get into the market, now's the time. The tax credit is an important incentive that will help stabilize our local housing market, stimulate the economy, and create new jobs in central Texas. Call the Shane T. White Team at ReMax Town and Country Realty today to get started in buying your LIberty Hill new home. We can even sell your existing home.
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