Federal Housing Administration (FHA) has been instrumental in helping first time home buyers achieve their dream of home ownership. Over the last several years, we've been seeing many changes in programs offered. As we start 2012, we see that this year is no different - the changes are coming.
READ MORE: When does FHA financing make sense?
Here's an article from Mondie Pic'l discussing some of the changes that are on the horizon:
The Congress and President continued their schizophrenia with respect to housing policy on December 23, 2011 by passing and signing into law the Payroll Tax Cut Continuation Act of 2011 (H.R. 3630) that continues the payroll tax cut for American workers that was scheduled to expire January 1, 2012, but pays for this tax cut by raising fees on housing programs.
These tax cuts will be funded by an increase of 10 basis points in Fannie/Freddie guaranty fees and an increase of up to 10 basis points in the FHA annual insurance premiums. The Federal Housing Finance Agency (FHFA) has announced that this funding increase will take effect for Fannie and Freddie on April 1, 2012 and be in effect, as required by the law, until October 1, 2021. You can read the FHFA announcement at this link:
What this all means is that we saw a small increase in rates last week on FNMA and FHLMC loans so that lenders could absorb the cost of the guarantee increase. We have also seen a increase in the cost to extend locks on home loans. It is more important than ever for lenders to close escrows on time because of the impact they will have on their pricing to extend the rate.
Going forward it is important that FHA buyers understand that the cost of FHA mortgage insurance could be increasing within the next couple of months.
Currently monthly mortgage insurance is 1.15% (1.15% x loan amount / 12 = monthly mortgage insurance). This was significantly increased last year. Now we have to be prepared for another .10% increase to 1.25% sometime in the near future. This means that a home buyer with a $200,000 loan amount will pay $20 more per month for their mortgage insurance or $240 per year for their financing. Any buyer sitting on the fence looking for a deal could lose the benefit of the price reduction just because of this change. The simple reason for this is to help offset the cost of the payroll tax extension. This wasn’t reported in the news!
Another looming change for FHA loans could be the home sellers ability to pay closing costs.
Currently FHA allows the seller to pay 6% towards closing costs both recurring and non recurring. FHA is looking at two alternatives to this. The first is only allowing the seller to pay actual closing costs (no recurring such as taxes, insurance and interest) OR following FNMA rules and only allow the seller to pay 3% towards the closing costs. This could also impact many of the preapproved FHA buyers ability to qualify. Many of these home buyers need the seller to pay all costs as they can only afford to come in with 3.5% down.
As you can see, the future of FHA buyer costs is a bit unclear at this time, but changes are definitely on the horizon.
For additional information, please contact Irina at (626) 629-8439.