Lake Forest Buyers: New FHA Changes Coming

FHA IconA friend of mine and mortgage lender sent me and a few other Realtors the following words about FHA buyers are having to deal with.  The first part deals with upcoming tighter restrictions, but there is good news at the end of his message.  That is that FHA buyers will now be allowed to bid on homes that investors purchased at auction, repaired and flipped back on the market without giving non-FHA and cash buyers a 90 day head start. Read on:

 A quick review on what you need to know about the upcoming changes to FHA:

So, raise your hand if your client is fully Pre-Approved with a quality FHA Loan. Now, keep your hands up if you think they are treated as fairly as they should be. I am only guessing that the hands have come down. I have had too many conversations to count with buyer’s agents frustrated that their FHA buyers are just not getting the respect and fair chance as they should. It seems to be that Listing Agents want Cash, Large Deposits, FILL IN THE BLANK TYPE and THEN FHA Borrowers. We might just find ourselves in a market that is truly changing, and changing, and changing.

With all that said (and thank you for allowing me to vent) I would like to share the pending and upcoming changes coming to FHA. While none of these is already in action, it’s important that we always keep up to date with these things.

1. HUD will require a 10% down payment for borrowers with a FICO score below 580:  Well, so would I. Considering that almost all investors and banks now require a 620 FICO on all FHA transactions (640 FHA Streamline) and that the average FICO score for today’s FHA borrowers is over 680, this really won’t have an effect on about 99% of our business. 

2. FHA Fees to Increase: MIP (Mortgage Insurance Premium) to increase from 1.75% to 2.25%.  Although they (HUD) may split the increase between the upfront MIP and the MMI (Monthly Mortgage Insurance), the cost of FHA Loans are going to increase slightly. There was originally talk about increasing the down payment from 3.5% (From 3.0% in 2008) to 4.0% but it soon turned out that HUD was going to play with the MIP and MMI instead. Whatever they end up doing, change is coming. FHA required reserves have taken severe hits, FHA volume continues to increase, so they need to firm up the lending pool with these small changes. The good news here is that these updated rules should have little effect on how borrowers will qualify.

 3. Total seller concessions will be lowered from 6% to 3%:  This is an effort to help property values from being inflated when buyer and sellers negotiate seller paid closing costs and the final purchase price. Total closing costs rarely exceed 3-4% of the purchase price unless the value is extremely low so the borrowers will still be able to get into a property with 3.5% down payment and minimal cash out of pocket for closing costs. Per FHA guidelines they can still get a family gift when needed and remember that can be 100% of the down and closing costs too. AND, since we are on that topic of gifting, remember, there are NOT any reserve requirements for FHA buyers.


 4. FHA AND 90 DAY FLIPPING RULE:  HUD takes action- FHA guidelines regarding “90 Day Flipping” to ease effective February 1st under a temporary HUD waiver good for one year!!

 The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

 A) All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.

 B) In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.

 C) The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program. This may be a great new way to get FHA back to the most popular kid on in school. More to follow next week when we approach the February 1st Date. * Being that this is a very quick change, stay tuned for more info. Although FHA has lifted this requirement, there is the possibility for investor overlays.

 The rules are continually changing.  Buying real estate nowadays is NOT business as usual.  I am continually employing new and creative methods so that my buyers have the highest chance of success in beating the competition and securing a home before prices have a chance to go up any further.  Take a look client testimonial letters….then be sure to select an agent who thinks outside the box so, in this competitive housing market,  you don’t find yourself living in one!

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