FHA Changes: It Could Have Been Worse

 Loan Guidelines, Owner-occupied, Regulations, Residential Mortgage  Comments Off on FHA Changes: It Could Have Been Worse
Jan 272010

On January 20th, FHA announced changes in its residential loan programs designed primarily to prevent the insolvency of the FHA insurance fund. The fund insures lenders against loss when FHA loans go bad. More than 14.4% of FHA loans were delinquent (payments more than 30 days late) at the end of the third quarter 2009, and another 3.3% were in the foreclosure process. In its most recent audit, FHA reported that its capital reserves had fallen below the congressionally-mandated two-percent of its loan portfolio, and some industry experts are concerned that the fund eventually will require a bailout from the Treasury.

The changes designed to head this off include:

– An increase in the upfront mortgage insurance fee (UFMIP) paid by borrowers at closing from 1.75% to 2.25% of the loan amount;

– An increase in the minimum down payment for borrowers with credit scores below 580 from 3.5% to 10%; and

– A decrease in the maximum amount a property seller is allowed to contribute to the buyer’s closing costs (seller concessions) from 6% to 3%.

The changes could have been worse. Most buyers add the UFMIP to their loan balances rather than pay it at closing, so the UFMIP increase is unlikely to discourage buyers. Very few lenders currently approve loans for borrowers with credit scores below 580, so the higher down payment standard will affect few potential buyers. Besides, a credit report can have a few hickeys, and the score still can exceed 580.

The most significant change is the decrease in the maximum seller concessions. The change makes FHA’s guidelines consistent with conventional loan guidelines. It is said the change was aimed at arresting the practice of sellers increasing their sales prices to absorb buyers’ closing costs.

FHA left the monthly mortgage insurance premium rate as it is – for now. FHA indicated it would like to increase the rate, but this requires congressional approval. An increase in this rate will reduce the number of qualified buyers because a higher premium raises the buyers’ debt ratio, which, of course, is one of the primary loan qualifying factors.

 Posted by on January 27, 2010 at 7:26 pm

Buy a Home, Get a Tax Credit

 Owner-occupied, Residential Mortgage  Comments Off on Buy a Home, Get a Tax Credit
Jan 052010

In November, Congress passed an extension and expansion of the homebuyer tax credit. If you’re considering purchasing a home, read the details carefully. This program could put as much as $8,000 in your pocket.

The tax credit is available to both first-time homebuyers (haven’t owned a primary residence in the last 3 years) and so-called “long-time” homebuyers (have lived in the same home for at least 5 consecutive years in the past 8 years). Importantly, a buyer is eligible for the tax credit if he/she uses a co-signer, even if the co-signer is ineligible. (In other words, a parent can co-sign for a child.)

The credit is 10% of the home’s purchase price up to a maximum of $8,000 for first-time homebuyers and $6,500 for long-time homebuyers. The purchase contract must be dated on or before 4/30/10, and the transaction must close on or before 6/30/10. (A special provision extends the date an year for active military personnel.)

The buyer must purchase the home as his/her primary residence, and the maximum purchase price is $800,000. Multi-unit (2 to 4-unit) properties are eligible as are condos, manufactured homes, and new construction.

Income limits apply: $125,000 for single and $225,000 for married. (The credit is available up to $145,000 and $245,000 at a reduced amount.)

Important restrictions include:

  • Buyer must be 18 years or older;
  • Buyer cannot purchase the home from a close relative;
  • Buyer cannot be a non-resident alien; and
  • Buyer cannot purchase the home from a decedent.

The IRS has some okay information in its Web site. You have to poke around a bit. I found the “questions and answers section” particularly helpful.