Posted: March 12, 2010 By: Dave Ralston
FHA has been sustaining first time homebuyer market and lower price point homes through the collapse of the real estate market. Now that the market is slowly on its way to recovery, FHA is not so subtly backing away from their low down payment options, making it harder for a lot of homebuyers to buy their first home.
The down payment it currently 3½ % and the seller can contribute 3% of the sale price as a concession to the buyer towards closing costs. Now the down payment has been upped to 5% and, according to FHA Commissioner David Stevens, his agency would insure 300,000 fewer home loans per year due to this increase. The National Association of REALTORS opposed this change because, in an already troubled market, this could devastate things once again. Another option that the FHA has explored is to increase the upfront pay mortgage insurance which would drastically increase closing costs paid by the buyer.
Luckily, in the Seattle area, I have already located two lending institutions that still offer 100% financing with no post-mortgage insurance (PMI) and have decent interest rates. These local bank entities are going to be the answer s the first time homebuyers and condo shoppers are looking for; when it comes to risk assessed by lenders, these are the two markets that are considered high risk and therefore pay the penalty through higher interest rates or higher down payments.
First time homebuyers and condo shoppers make up an essential part of the buying market. It is from these pools that move-up buyers and secondary homeowners come from. It’s a shame to think that FHA is backing away from helping this buyer pool.
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I noticed your article about FHA increasing down payment requirements. They are increasing the upfront mortgage insurance premium from 1.75% to 2.25% and they are decreasing the allowable credit from Seller’s to closing costs from 6% to 3% but I have not found anything from FHA confirming they are increasing the minimum down payment from 3.5% to 5%. It has been discussed but there is no confirmation that it will occur. The other changes apply to FHA loans with case numbers assigned after April 5, 2010.
Your absolutely right Lynda. I should have phrased this blog more like a prediction and less like it’s already writen. My intensions are to raise the awareness of FHA’s plans to scale back doing most of the heavy lifting when it comes to the first time homebuyer end of the market. Just incase those buyers who qualify now are aware that they may not qualify to buy a home next month. Yikes!
Terrific work! This is the type of information that should be shared around the web. Shame on the search engines for not positioning this post higher!