HR 3221, the Housing and Economic Recovery Act of 2008, will make several changes to the FHA insured loan program. FHA loan program is a government insured loan program designed to assist low to moderate income (not so much any more) borrowers obtain home ownership. So let's start with the good changes:
1. FHA loan limits will be permanently increased to 115% of the local median home price up to a maximum of $625,500 for some high cost areas. Current max loan limit for Metro Atlanta is $346,250 for a single family residence. I will post any updates to the max loan limit as they become available.
2. FHA instituted a FHA Risk Based Pricing on July 14, 2008. The risk based pricing created higher up front FHA mortgage insurance premiums and monthly premiums for lower credit score borrowers. The bill will place a moratorium on the risk based pricing from October 1, 2008 through September 30, 2009. This will allow the low credit score/higher risk borrowers to obtain lower up front MIP and monthly premiums.
Some of the new changes could be considered "bad" depending on how you perceive the changes. I personally think that the changes will eliminate the extreme risk borrowers and create greater safety net for to the FHA loan program so that we do not end up with another repeat of the recent debacle. So on with the "not so good" changes:
1. Seller Funded Down payment Assistance Programs (Nehemiah, AmeriDream) will not be allowed. Borrowers will have to come up with their own down payment or gift from relatives instead of increasing the price of the home and having the seller contribute the down payment. What a concept! Borrowers having to come up with their own down payment! Some will view this as a huge blow and creating additional challenges to home ownership but keep in mind that according to FHA, borrowers who utilize DAP have a 3 times greater foreclosure rate than a borrower who puts their own money down.
SIDEBAR: If a borrower is really having a tough time coming up with their own down payment, there may be another solution by utilizing the tax credit provision of the same bill. Call me or mail me to discuss my solution.
2. Currently, FHA requires the borrower to make a 3% minimum cash investment into the transaction. This minimum contribution will be increased to 3.5%. HUD has not clarified how this 3.5% should be calculated. Once I receive clarification, I will post it here.
Again, the entire bill is over 700 pages and it will take additional time to decipher all of the information. I will post any and all updates so check back often or simply subscribe to this blog.
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