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FHA Loan to Value guidelines - new down payment amount

FHA today released information about the implementation of the higher down payment requirement that was established with the new housing law.

The old down payment was 3%, and allowed certain of the buyer paid closing costs to be used to meet the down payment requirements. In many cases the actual loan to value could be 97.75%, if the buyer paid closing costs in the amount of at least .75% of the sales price.

The new guidelines institute a higher down payment requirement of 3.5% and remove the consideration of buyer paid closing costs.

The maximum loan to value for FHA purchases will be 96.5%. This will be effective as of January 1, 2009.

Here is a link to the mortgagee letter announcing this implementation.

In the mortgagee letter, FHA also addresses yield spread premium. The language will require some interpretation.

"FHA will continue to permit premium pricing, as described in paragraph 1-9J of handbook HUD 4155.1 REV-5, to pay the closing costs and prepaid expenses."

This does not indicate that there has been a change to payment of yield spread premium, but it does indicate that the purpose is for paying borrower closing costs. The letter does not address the similar premiums, called service release, that are paid to lenders who fund their own loans.

The big news here is that the effective date on the new down payment requirement is January 1, 2009. As October 1 approaches, we should expect additional mortgagee letters to publish guidelines for implementation of the many changes in the housing law.

Richard Smith
American Acceptance Mortgage, Inc
Toll Free 888-474-9920 Cell 423-280-0345
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

FHA, VA, Rural Development, Reverse Mortgages, Construction Permanent, Renovation, FHA Renovation
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rsmith@aamonline.com

Posted by Richard Smith Mortgages Home Loans FHA TN GA AL on 09/11/2008 10:05 PM

Comments (8)

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Originally posted at: Richard's Real Estate Thoughts: FHA Loan to Value guidelines - new down payment amount

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8 Comments on FHA Loan to Value guidelines - new down payment amount

SEP

2008

thanks for the update. I know a lot is going tobe changing but have not heard what the actual deal was.

Richard.... I hate when HUD puts out vague letters. In this letter, it isn't clear that the refinances will still be at 97.75% for the LTV. It says that you won't need a 96.5% LTV, but it doesn't say 100% if it still holds the same as in the past. Overall, I wonder how this will affect the market. On a 300k property, that is another $1,500 that the buyer needs to come out of pocket. A 200k property, another $1,000. Another reason why we will need to keep the DPA's alive now.

Jeff Belonger

SEP

2008

Richard, I agree with Jeff on the refi. The purchase is different than I expected. Good info. Thanks

Richard,

Thanks for the post. For far too long too many have been precluded from joining in the American dream. Some of these new legislative measures may make the pursuit of homeownership more difficult, but the balance will be in the DPAs, as they are nearly assured continuance.

Jeff,

This letter is especially vague, and the refinance example is atrociously vague, and it not really clear whether it is a cashout or rate term. The explanation backs into the LTV calculation, The maximum LTV information refers to a previous mortgagee letter which is not much better, but I did check it out.

Here is the link.

I can only guess that 96.5% is max for rate term and 95% is max for cashout, but the example indicates different. It shows an apparent rate term refinance maxed out with an LTV of 100%, counting the UFMIP. As long as the required fees justify the loan amount. It clearly shows a refinance LTV higher than ever would have been allowed previously.

Surely there will be more clarification to follow. The 100% LTV limit on purchases is a joke, as it can never be reached if the LTV is 96.5% and the UFMIP max is 3%, but the 100% LTV limit would make sense, in a goverment logic way, if it truly applies to refinances.

Such a calculation might actually help some refinance transactions, especially given slow value increases.

Its just so different and was not clearly explained on any conference call I was on.

The big, clear news for me is the higher down payment is not in effect until January case numbers.

Thanks,

Richard

Good information Richard...thanks

SEP

2008

Richard: I understand that the move on capitol hill to salvage DPA is growing stronger at least as far as Nehemiah is reporting and there is a strong chance that HUD may be willing to negotiate a solution with a few tighter controls. Are you are aware of such a move? Possibilities for success?

Steve,

There is a lot of feeling that Rep Frank and some others are working through HUD's issues with DPA.

Most think that DPA will be saved, and as part of the negotiations, FHA will be allowed the tiers MI pricing.

Frankly, tiered MI pricing makes perfect sense to me.

HR 6694 is scheduled for markup on the 16th, which determines if the bill will go before the full house. I think the way has been paved, but there are still many hurdles and steps.

Some reports that Sec Paulson and HUD have decided to support the passage, but I think officially no such statement has been made.

I have a post on the status if you would like to read it.

http://activerain.com/blogsview/683353/FHA-Seller-funded-downpayment

Brian Brady and Jeff Belonger have also posted good information about the movement of HR 6694.

How are things going in your parts with the hurricane.

Richard