When President Bush signed HR 3221 into law on July 30th, 2008, he took what may be the most damaging step to actually hurt the housing market. I say this because he has completely done away with the FHA Down Payment Assistance program and raised the minimum percentage of funds that the borrower must contribute towards the purchase of the home.
Until September 30th, 2008, homebuyers will be able to take advantage of the current program-but if they are not in escrow by then-they can kiss the 3% seller contribution good bye, unless there is some sort of reprieve in the courts.
Prior to the departure, homebuyers could obtain a 97% loan to value for the purchase of a home and then if the seller agreed to participate, the FHA would allow a 3% seller contribution towards the buyers down payment. There were several entities administrating these programs in accordance with the FHA guidelines. Two of the most common in Southern California real estate market is the HART Program and the Nehemiah Program. These programs are referred to as "Down Payment Assistance" or DPA.
Well, in October, 2008 they will be gone, under the provisions of the law.
In addition, the 3% requirement has been raised to 3.5% required down payment for a buyer to qualify for a Federally Insured FHA loan..
The FHA had just initiated a program on July 14th that would save better qualified borrowers money and pass on the cost of riskier loans to the borrowers at risk.
Because FHA loans are for such a high percentage of the value of the real estate it collects a Mortgage Insurance premium on all of it's loans with an loan to value ratio of 80% is exceeded. Under the original program the FHA collected 1.5% premium from all borrowers and then 0.5% premium per month added to the mortgage payment. The new rule was more generous to those who were not as high a credit risk. With risk-based pricing initial premiums ranged from 1.25% to 2.25%. The difference between these rates on $150,000 loan is approximately $7 per month.
The President was for the risk based guidelines, but Congress got their way. The President also wanted to lower or even eliminate the 3% down payment requirement and instead Congress raised it by half a point to 3.5%.
According to HUD, 35% of all new home purchases in 2007 included the DPA whereas seven years ago, less than 2% of similar loans included down payment assistance.
What Does This Mean?
Bottom line if you are in the market for an owner occupied home-or even think about getting into the market in the next few months now is the time to jump.
First you need to get yourself pre-qualified with a lender like Joey Aszterbaum and make sure that you can get into a FHA loan. Believe me, anyone who is qualified to do an FHA program is seeing a big spike in activity right now-so don't delay and get yourself on the bottom of the pile.
Once you have been pre-qualified have the lender continue to work on pre-approval and obtain underwriter approval. In the meantime, work with your local REALTOR® to find that great home you have wanted-and get ready to write an offer and then start packing, because you will be moving very soon.
Blessings to all who read,
John Occhi, REALTOR®
Hemet - San Jacinto Valley
951-927-9473
Servicing THE REO Needs of Asset Managers, Banks and Lending Institutions in the Hemet - San Jacinto Valley, Temecula, Murrieta, Winchester, Wildomar, Menifee, Sun City, Perris, Lake Ellsinore, Moreno Valley, Romoland, Homeland, Nuevo, Banning, Beaumont, Cherry Valley, Yucaipa, Redlands, Mentone, Loma Linda and throughout South West Riverside County and The Pass Areas of The Inland Empire in Southern California. If you are a buyer, investor, first time home buyer or are just interested in REO real estate, please contact us at the above website or phone number.
This blog and the contents written here is the intellectual property of John Occhi, Hemet California REALTOR®. The views and opinions expressed are just that - views and opinions of John Occhi and those who comment. Please note that I am not an attorney or a tax professional and any time I discuss either topic, I suggest you consult with the proper professional for relevant assistance. This blog is part of the ActiveRain Real Estate Network, which is a social network highlighting the best of Web 2.0. Information is provided with the intent of educating and assisting home owners, home sellers, home buyers and real estate investors with information the can be used to make better real estate decisions. I am proud to be a full time REALTOR® with Century 21 Crest and the CrestREO Division who is proud to be a contributing member of the ActiveRain community.
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