A Careful Balance

FHA stands for The Federal Housing Administration.  They have been offering mortgage insurance since 1934.  It is the largest insurer of mortgages in the world.  Without FHA many homeowners would never have been able to purchase a home.  FHA is typically used by first-time buyers because it requires a small down payment of 3.5%, the mortgage insurance premium can be financed, and the seller may assist with closing costs for the buyer – up to 6%.  The benefits of this program have helped many own a piece of the American dream.

Unfortunately, with the number of defaults on the rise it has come time for FHA to make some drastic changes.  These changes will take effect on April 5, 2010 and could cause issues for some home buyers.

CHANGES :

  • Increased Mortgage Insurance – From 1.75% to 2.25%
  • Down Payment – Will Stay at 3.5% for homebuyers with credit scores of at least 580.  If the credit score is below 580 a 10% down payment will be required.
  • Reduced Seller Concessions – From 6% to 3%

The problem is that the housing market and overall economy could be negatively impacted if the new changes cause tighter lending in an already volatile market.  However, the FHA has carefully balanced the new requirements to reduce risk but still offer affordable mortgages. The increased mortgage insurance premium can be financed and so buyers will pay that extra premium over the life of the loan – not upfront.

The overall impact should be a positive one.  The average credit score for a FHA loan has already increased from 630 in 2007 (over 50% were under 620) to 690 in 2009 (only 10% were under 620) due to tighter restrictions last year.  There has always been a correlation between lower credit scores and default.  The new changes force borrowers and lenders to have more “skin in the game” and be accountable for the loans.

However, when a home buyer goes to purchase a home in April they will face a higher mortgage insurance premium and possibly more money upfront in the form of down payment or closing costs.  So if you are planning on purchasing a home in the next year it would still benefit you to get started now!

Advertisements

About Kathryn Stelljes PA

I am a Realtor in the Downtown Orlando area. I have earned a Bachelor's Degree in Marketing and a degree in Residential Planning. My background in these design fields has advanced my ability to sell in the realm of residential real estate. As a native Floridian and resident of Downtown Orlando I understand the growing needs for homeowners in the Central Florida home market and specifically the Downtown market. I enjoy sharing information about businesses, fun events, and the historic homes and neighborhoods that make Downtown Orlando such a unique and vibrant place to live. I love Italian Greyhounds, old houses, interior design and design blogs, social media networking, and anything marketing related.
This entry was posted in Economy, First Time Home Buying, Real Estate, Real Estate News and tagged , , , . Bookmark the permalink.

Tell me what you think

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s