Many first time home buyers have been marveling at the availability of homes on the market and the great prices. They realize they can get more home for their money and are sitting on the fence waiting for the prices to further decline, thinking they can jump off the fence and make a big score.
The rules of the game have changed. It is not a rise or decline in prices, but a change in the mortgage arena. A new set of rules, regulations and policies have been and will be implemented. Homebuyers will face rising fees, costs and rates. These changes will make buying a home harder and more expensive.
Is it still possible to purchase a home with a down payment of less than 5 percent? Yes, the FHA loans require a minimum of 3.5 percent down payment. However, the mortgage insurance premium rates have gone up on the government insured mortgages. In February, HUD announced, effective April 18, 2011, an increase in the mortgage insurance premiums by 0.25 percent. Prior to April 18th a $200,000 loan with a monthly MIP (Mortgage Insurance Premium) rate of 0.90%, the amount would have been $150. After April 18th the same loan with a rate of 1.15% the monthly MIP would increase to $192 - an annual increase of $500.
Borrowers who have a mediocre credit score (640-700) and a small down payment will be subject to higher interest rates on conforming loans (those loans that are less than $729,500) that lenders can sell to Fannie Mae or Freddie Mac. The rates could rise as much as 0.25 percent to 0.50 percent. This increase in rates is due to the higher credit risk a bank presumes a mediocre borrower presents.
In October, the maximum size mortgage loan that will be purchased by Fannie and Freddie will be $625,500 from the present limit of $729,750 for a single family home. In high cost cities, like San Francisco and New York, this new limit will render ineligible ten percent of the properties currently on the market for Fannie and Freddie approval. This will force those buyers to seek jumbo loans, for which they will pay a higher interest rate. The current ceiling of $417,000 for moderately priced areas will remain the same.
Due to the mortgage disaster, there are new regulations being implemented in an effort to prevent a repeat of the mayhem of the past several years. However, these regulations may ultimately increase the cost of obtaining a mortgage for the borrower.