HOW LOW CAN THEY GO?

The amount of the rumored change would drop the allowable amount of seller concessions from 6% of the sales price down to 3%, which is still enough to cover all the closing costs on a loan of approximately $250,000, but anything less than this will force buyers to pay at least some of their costs out of pocket.

WHY WOULD THEY DO SUCH A THING?

The FHA is making this change in an effort to protect the value of the homes it has loans on.  When a seller agrees to pay concessions and closing costs, they are really inflating the sales price (and loan amount) on the property to cover these amounts.  If the home in questions doesn’t end up appraising for the inflated value you are then going to start running into problems.  Furthermore, by lowering the percentage of allowable seller concessions, the FHA is really attempting to  lower their overall risk at the same time.

WHEN DOES IT HAPPEN?

In its most recent Register Notice, the FHA said that the proposed change would likely occur by “early summer” although FHA spokesman Lemar C. Wooley recently backtracked and confirmed that there had been no official Federal Register announcement as of yet.  So is it just a bunch of rumors?  Possibly, but obviously we will keep you updated as we come across any new information.

If you have any questions about seller concessions or the home buying process in general, don’t hesitate to CONTACT US and we will get back to you as soon as possible.  You can also FILL OUT THIS FORM and one of our loan officers will review your situation and see if we can help you out. 

]]> http://www.dfwmortgageguide.com/all-catagories/fha-seller-concessions/feed/ 1 http://www.dfwmortgageguide.com/all-catagories/fha-changes/ http://www.dfwmortgageguide.com/all-catagories/fha-changes/#comments Fri, 26 Feb 2010 17:30:02 +0000 Mortgage Mike - Admin http://www.dfwmortgageguide.com/?p=588

The FHA, who lately has originated almost a third of all home loans, is overhauling its system come April 5th of this year.  Why would this be done when its loan program is so successful, so popular?  Mostly this is being done in an effort to bolster it’s balance sheet and falling capital reserves.  In other words, the FHA is attempting to position itself better to ”manage its risk while continuing to support the nation’s housing market”.

Unfortunately this also means that it will become increasingly more difficult to secure an FHA loan.  Ugh.  So without further ado, here are the changes:

The good news is that the biggest expected change (the proposed increase for the FHA minimum downpayment) didn’t make the final cut.  Luckily this means you can still get into a home with 3.5% down.  Whew.

Also, the FHA’S NEW GUIDELINES institute a minimum FICO score of 580 to make this 3.5% downpayment, while requiring 10 percent down for any applicant whose credit score falls lower than this.  That being said, just because they say they will accept a score of 580 doesnt mean the lenders will too.  Individual underwriters, who are often more strict, will probably look to your file with much more favor if your FICO score is at least 620.  Just FYI.

Overall, the trick to securing a solid FHA loan will be finding the perfect bank or lender for your particular situation.  As always, you can CONTACT US and we will review your requirements and find the best loan for you.  One of the benefits of working with us (as Brokers) is that we work with over 70 banks, and we can often find the best lender for your case!

Before we get into this too deep, lets first get an idea of what this seasoning requirement originally entailed.  Basically, since 2003, the FHA has required that a house is “seasoned” on the market for 90 days before it is allowed to be resold.  This means that an investor or any other person who purchased a property had to wait for approximately 3 months before they were allowed to sell the house to an FHA insured buyer. 

More than anything, this was done to prevent people from buying a house and immediately selling it at an inflated price to a naive or uninformed buyer.  Luckily, over the past several years, most of the riff raff has been weeded out of the market, and this type of practice isn’t as widespread, or even really possible (as you will see from the rest of this article). 

So, this is obviously good news for investors, but why is it good for home buyers?  Well, per the official waiver:

“…the 90-day resale restriction often hinders community stablization and revitalization.”  They also said:

“FHA borrower, because of the restrictions we are now lifting, have often been shut out from buying affordable properties.  This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.” 

Basically what this means is that more houses will be put on the market that were otherwise just sitting there collecting dust.  Consequentally, this presents more options for people looking for the perfect house!

BUUUUUUT……before you get too excited, it should be noted that there are several specific nuances to the waiver that investors and homebuyers alike should both be aware of. 

4 IMPORTANT POINTS TO CONSIDER

1.  Seller MUST Hold Title

In other words, the person who is selling the house must legally and officially own the property, and thus, be on title.  In fact, FHA will expect to see the investor/seller as the owner of record as of the date the contract to sell to the FHA buyer is executed.  Long story short, no more back to back, same day closes to FHA end buyers.  Sorry. 

2.  You Still Need Short Term Funding

Basically what this means is that if the property doesnt sell immediately you need to be financially able to make the payments.  Be prepared to come up with short term funding for however long it takes to sell the house.  Luckily, in most cases, it is easier to find 30-60 day financing compared to 90. 

3.  Is There A Flipping Pattern?

This is an easy step.  FHA mainly wants to know that the subject property doesn’t display a history or pattern of previous flipping activity.  You can go and check the title from last year to see if the property has changed hands very often.  Best case scenario would be not at all. 

4.  The 20% Rule

If the sales price exceeds 20% of the previous purchase price, you will have to show proof that you actually made repairs making the property worth that much more.  This is done to ensure the sale is legitimate, and can include a full FHA inspection, or even a second appraisal.  The best way to combat this is to simply take accurate records as proof of what you did to enhance the value of the property.  Take plenty of before/after pictures, document the entire process, and you should be fine. 

Other Important Points:

 - All transactions must be arms-length

 - Assignments of a contract for sale will trigger a red flag.  No taking over deeds for people. 

LONG STORY SHORT, KEEP IT CLEAN AND STRAIGHTFORWARD! 

The better documented your case, the better chance you have of the process going smoothly.  As always, if you have any questions please don’t hesitate to CONTACT US and we will reply to your query as soon as possible.  I also urge you to read the original waiver from the FHA regarding the subject matter:

FHA WAIVER

Here at DFW Mortgage Guide we have numerous loan programs that can be custom-built to fit your situation, whatever it may be. We serve the Dallas Fort Worth area metroplex exclusively, so you know you are dealing with a company that knows the area.

We also work with over 20 lenders and have access to almost any loan program available.  These include:

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REFINANCE EXISTING MORTGAGES - If your existing mortgage payment is too high, it may be time for you to refinance.  Interest rates are at all time lows right now, and it is worth taking advantage of if you live in Dallas Fort Worth and want to lower your monthly bill!

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If you are ready to begin your home search, or if you have any questions about financing, don’t hesitate to CONTACT US and we will get back to you as soon as possible!