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The New FHA - Temporarily, we think
Okay, I know that you’re probably getting sick of hearing “Now is the Right Time to Buy!” So, let me try to provide you with a little more understanding and incentive to “step off of the proverbial fence” if you are still “waiting for the bottom of the market.” This is because of both the nature of recent legislation enacted by congress and because of that wonderful label of most of the entire Northern Virginia region – “Declining Market.”
You’ve watched the news and read about it in the papers. You know, the “credit crisis” and how buyers need 20 percent down in order to buy a home? And even if you found a buyer with 20 percent down, lenders aren’t making loans anyway. So, why bother, right? Wrong!
We’re right smack in the middle of what just might be the biggest disservice ever perpetrated on potential home buyers. It seems the press just can’t get enough of all the gloom and doom in the housing industry. The fact is that mortgage money is as available today as it was a year ago and loans are being made this very moment with little or no money down. And, no, platinum credit isn’t required. You just need to know where to look. Who are these lenders? They’re right down the street.
If you are like a lot of people who are looking to purchase a home, because of the relative high cost of homes (and living) in this area, you might not be able to come up with 5, much less 10 % for the down payment towards a home. The once popular conventional loans backed by Fannie Mae and Freddie Mac now require these amounts to come from the buyer in order to be approved for one of those loans.
Federal Housing Administration (FHA) loans are exploding onto the mortgage scene; recent estimates are that one out of five mortgages is an FHA loan. FHA loans never went away, their reemergence is a result of the collapse of the sub-prime market. FHA doesn’t technically have a minimum credit score, although, in practice, lenders won’t approve an FHA loan with a credit score below 500. But that’s a far cry from the notion that an 800 score is the only thing lenders care about. The New and Improved, recently passed FHA loans (March 2008) rival the conventional loan. Some of the provisions include:
a. It’s a simpler process, as the lender has control from application to closing
b. The consumer is more protected, as the interest rates are comparable to “prime” rates, and default assistance with more reachable loss mitigation dept.
c. Underwriting is not credit-score driven and with higher ratios than other products
d. Down payments are only 3%, and can still allow gifts from friends, family members, and employers.
By now, most of you have heard that the ceilings of these loans have been raised to $729,750. Of course the interest rate of anything over $417,000 is still higher. However, as of now, these rates are going back to $417,000 after Dec. 31, 2008. As of May 6th, the Senate has a bill on the floor that would no longer allow gifts as assistance for down-payments, terminate seller participation in DAPS (Down-Payment Assistance Programs) and to raise the minimum down-payment for FHA loans to 3 ½ % instead of 3. Though the Senate has been trying to end DAPS, the Federal Court Judges have thus far been able to prevent them from doing so. Up until now, sellers could also pay for discount points charged for the loan. These have enabled thousands of buyers to live in their new homes. That could change.
Perhaps by the end of the year the raised-limits will be extended, or even made permanent. Then again, that perceived “risk” to banking investors might prevent that. Interest rates will not stay in the 5 ½ - 6 ½ percent range forever. Like negotiations, let us hope that compromise and consensus can be reached without “pulling the rug out from underneath us.”
Please contact me if you have any further questions about FHA loans, would like to speak with one of my preferred lenders or if you would like help getting into your first home.
Stephen Adams www.NewPhaseRealty.com Stephen@NewPhaseRealty.com
Direct (703) 608-0090 Office (703) 669-0099 Fax (703) 669-4104
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