Beginning January 1, 2009 the minimum investment requirement for an FHA mortgage will change. Currently a borrower is required to have a 3.0% minimum cash investment. At least 2.25% of this amount must go toward down payment. The remaining 0.75% could go towards closing cost. As of the first of the year the minimum cash investment will increase to 3.5% all of which must go toward down payment.
What does this mean?
Take for example an FHA buyer is purchasing a home for $150,000. Under the "old rules" the minimum cash investment required would be $4,500.00. Of this amount $3,375.00 was required for down payment and the remaining 1.75% or $1,125.00 the minimum required investment could go toward closing cost.
When the new rules go in to effect on the same $150,000 house the minimum cash investment will become $5,250.00. All of this amount must go towards down payment. This new rule increases the down payment required by $1,875.00, in this example.
Why do we care?
One of the factors of slowing housing sales, in my opinion, has been the restriction of low to no down payment financing. As I have often said, if I can get a customer past credit qualifications and debt-to-income guidelines then invariably the challenge is cash for closing. On the other hand is a customer has ample cash many of the credit issues and debt-to-income restrictions can be overcome.
One of the adjustments we are going to have to make is understanding that for some prospects the buying cycle will be prolonged from what we grew accustomed to. Many of our prospects will need time to save or arrange the additional funds needed for down payment.
What do we need to do?
There are numerous things we can do, but let me mention just a couple.
•Ø Make sure your prospect consults with a reputable mortgage consultant as early in the process as possible. If the prospect is immediately qualified, isn't life grand, go find them a home. If not, the mortgage consultant can advise that prospect what they need to do and determine a time table by which those steps can be accomplished.
•Ø Lead follow up. Database the prospect and develop a marketing campaign until they are ready to buy. You may be surprised, but many potential buyers think they are to work with the agent whose name is on the sign of the home they are considering. If we let the lead go cold we will find out too late they purchased using a different agent/lender.