This week the FHA announced changes for FHA home loans. The good news is the changes were not as drastic nor potentially devastating to the housing industry as what they could have been.
1. Maximum seller contribution to buyers closing costs reduced from 6% to 3% of the sales price. Of the three changes to FHA home loans, the reduction in the amount sellers can contribute to a buyers closing costs has the biggest impact. But even the impact of this change is going to be small.
A few years ago, it was common practice for buyers to essentially roll their closing costs and prepaids into their loan but these were the good old days. With the extra scrutiny on appraisals, buyers are no longer able to add the 4% to 5% in closing costs and prepaids on top of the sales price and still have the house appraise.
2. Upfront Mortgage Insurance Premium raised from 1.75% to 2.25%. The 0.5% increase will be a small increase in a home buyer’s monthly payment. For example on a $150,000 loan the $0.5% increase would be $750. The Mortgage Insurance Premium can be added to the loan amount.
So at today’s interest of 5%, an increase of $750 in the loan amount would increase a home buyer’s monthly payment by $4.03. Less than the cost of a combo meal at the majority of fast food restaurants.
3. If a borrower’s FICO score is below 580, the borrower would be required to put 10% down instead of 3.5%. Requiring borrowers to have a higher credit score to qualify for a minimum down payment of 3.5% is going to be of moot impact. The majority of lenders already require borrowers to have a minimum credit score of 600 or 620 to qualify for a FHA home loan. Even if the borrower was willing to put 10% down there are very few lenders who are willing to give him a loan.
If you are going to be a first time home buyer and planning on getting an FHA loan what does all these changes mean to you?
If you are planning on buying before summer, these changes will not impact you. The changes would have been made after you purchased your home in Spring Texas.
If you are planning on buying a home after spring, then you better be ready to bring more money to the closing table. Because the sellers will only be able to contribute a maximum of 3% to your closing costs and prepaids which will leave you footing the tab for the remaining 1% to 1.5%.
Let me just start by saying that Jill made the daunting process of both selling my old home and finding... read moreLet me just start by saying that Jill made the daunting process of both selling my old home and finding my current one more pleasant than could have been expected. Throughout the entire process she was honest, easy to communicate with, and patient. When it came time to sell my old home, I contacted Jill and she met me at home at took the time to get to know me, why I was wanting to move, my timeframe. She showed me the comps she already prepared, and explained the entire process. We then did a walkthrough of house where Jill identified items that needed to be addressed to make the house more appealing (paint, fixtures, minor repairs). Once those issues were addressed, and the house was listed, it received multiple offers and Jill took the time to narrow down the best options and then explain what each one meant in detail with regards to the offer amount, type of financing and what it could mean down the road when it came to inspections and appraisals. Once we came to a decision on the right offer, the rest of the selling process moved along smoothly and Jill was quick with updates each step of the way.As the closing date of my old home approached, the focus shifted to finding a new home. Jill was very accommodating during this time as my fiancé and I had a very small window of time during each day where we were both available for showings. Jill was routinely able to get the showings scheduled during this time, often on short notice, and was helpful at pointing out things both positive and negative that we may not have noticed otherwise. No example better illustrated this than when we found a home that appeared to check all the boxes. During the showing, Jill pointed out the proximity to a major road, and the road noise during morning and evening traffic, and even brought up potential future expansion of road and surrounding area. Despite this warning, we were so enamored with the house that we went ahead and put in an offer. While waiting to find out if the offer would be accepted, I heeded Jill’s advice and checked into expansion projects, and decided to drive back by the house during rush hour to check on the road noise. We ended up pulling the offer and Jill seemed genuinely relieved. I appreciated the fact that she was willing to be as adamant about the issue as she was when she could have easily let us make that mistake, and made the sale. A short time later we did find the home that checked all the boxes without any road noise or any other issues, and the purchase process went as smooth as the selling process had been for my old home. Even months after closing, Jill continues to be helpful as she was able to provide quality handyman references for some small projects that I needed done. I’ve thoroughly enjoyed working with and getting to know Jill and I can’t recommend her enough. read less