Home Buying Series – FHA Changes May Harm Home Ownership

Here are some FHA Loan requirement changes that you may wish to be aware of if you are planning on an FHA backed mortgage loan!

Article From HouseLogic.com

By: Natasha Altamirano
Published: April 16, 2012

If you’re house-hunting with a loan backed by the Federal Housing Administration (FHA), you may be on the hook for higher costs.

Recent and pending changes to FHA-backed loans may increase barriers to home ownership and hamper the housing market recovery.

Right now, sellers can pay 6% of the buyers’ closing costs. That helps first-time home buyers who often struggle to come up with enough cash for a down payment plus closing costs. Sellers use closing costs as a way to get buyers to buy their home.

FHA is asking home owners and those in the housing industry what they think about limiting closing cost help (http://www.ksefocus.com/billdatabase/clientfiles/172/3/1464.pdf) to 3% or $6,000, whichever is greater. FHA thinks having buyers put up more cash at closing will make them less likely to default later on their mortgages.

The problem is that making home buyers pay more at closing could slow down the real estate market recovery – particularly in areas of the country with high closing costs (that means you, home buyers in California, New York, Texas, and Utah – states with the highest closing costs, according to the NATIONAL ASSOCIATION OF REALTORS®). Seller concessions are critical in these and other areas to allowing the borrowers to buy a home without depleting all of their savings.

The closing cost proposal comes on the heels of an increase in FHA mortgage insurance premiums that took effect April 9:

•The up-front mortgage insurance premium for most FHA borrowers increased to 1.75% of the loan from 1%.

•FHA also raised its annual mortgage insurance premium for loans under $625,000 to 1.25% from 1.15%.

Meanwhile, another fee increase is scheduled to take effect on June 1, 2012: Home owners with FHA loans exceeding $625,000 will see their mortgage insurance premiums rise to 1.5%.

To be fair, the insurance premium increases will help balance FHA (http://www.houselogic.com/home-advice/issues-affecting-home-owners/fha-support/)’s books, keeping it healthy so it can continue to provide mortgage insurance at low rates, often where the private sector doesn’t want to go. Today’s FHA allows borrowers with good credit to buy a home with as little as 3.5% down and to refinance easily.

It’s a popular program in a tough mortgage market. Roughly 40% of all new mortgages for home purchases in 2011 were backed by the FHA.

Although ensuring the agency’s soundness and stability is critical to the nation’s economic recovery, so too is a strong real estate market fueled by home purchases. And if higher home ownership costs keep buyers out of the market, that puts our recovery at risk.

So it’s important to not change the seller closing cost concessions and make sure that the insurance premium increases go back to normal levels once FHA finds its financial footing again. Otherwise, it just becomes more expensive for consumers to buy homes. And as the last few years have shown, when home prices fall, the private sector money flees the mortgage market.

How do you feel about these FHA changes?

Visit houselogic.com for more articles like this. Reprinted from HouseLogic with permission of the NATIONAL ASSOCIATION OF REALTORS® Copyright 2012.  All rights reserved.

About gvenice

I have over 25 years of electrical engineering and business management experience. I previously owned and managed a multi million dollar engineering firm. My work took me all over the globe, managing the construction of manufacturing plants where I built a reputation of providing superior service, getting projects done on time and within or under budget. My dedication to the fine details and logical approach to accomplishing tasks provide a huge benefit to my Real Estate clients. After selling my business and retiring to this area, I found a new passion in the Real Estate business and I bring to this business the same level of professional skill and conduct that has made mr successful in the past. My global exposure and extensive travel are also an asset when dealing with a customer base that is located worldwide. An avid boater, I have a thourough understanding of the waterways of East Tennessee and the intricacies involved in dealing with the TVA and the Army Corps of Engineers.
This entry was posted in Chattanooga, East Tennessee, First Time Home Buyer, Home Buyers, Home Buyers Series, Home Sellers Series, Knoxville, Property Investment, Real Estate, Watts Bar Real Estate and tagged , , , , , , , , . Bookmark the permalink.

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