Just as we suspected would happen, FHA has now had some major changes and it is now going to cost you more out-of-pocket money to purchase a home.
New - Sellers concessions are limited to 3% of the purchase price.
New - Upfront mortgage insurance premium is increased to 2.25%.
Here is an example of what the lower sellers concessions to the buyers will look like for you:
If you are purchasing a $50,000 home the seller will only be able to contribute $1500 to help you with closing costs, pre-paid items and/or tax prorations. (This same purchase before the new FHA guidelines would have meant $3000 in help to you.)
Many of you are thinking of using your income tax refunds to help you purchase your first homes this year. Often you think that it will be more than enough money with some extra for furnishings, repairs, etc. That may not be the case anymore. You may need every last dime of that refund for your FHA down payment (3.5% of the purchase price) PLUS money for closing costs and pre-paid items.
When you receive your income tax refund tuck it away in your savings account. Have a conversation with your mortgage lender about how much you will need to bring to the closing table for that new home purchase. Save every penny that you can - you're going to need it.