Last week the Federal Housing Administration (a.k.a. FHA) announced changes to their lending guidelines that all Massachusetts first-time home buyers should be aware of. According to the press release, the “new measures will help FHA better manage risk, while maintaining support for the housing market and access for underserved communities”. But what does that mean to you or me?
We asked mortgage advisor Craig Tashjian for some clarification on changes that may affect buyers and sellers of Massachusetts homes:
Increased Mortgage Insurance:
The FHA up front mortgage insurance premium (commonly referred to as private mortgage insurance or PMI) is increasing. The current rate is 1.75% of the loan amount and the new rate will be 2.25% of the loan amount. This is a significant increase which will cost consumers hundreds of dollars.
New Down Payment & Credit Score Requirements:
Under the new policy, home buyers who have a credit score of at least 580 may still be able to purchase a home with 3.5% down. However, those with credit scores of less than 580 will be required to put down at least 10%.
Reduced Seller Concessions:
FHA has also decreased allowable seller contributions toward settlement costs from 6% to 3% of the purchase price. This means that the seller will only be able to offer the home buyer 3% to help defray closing costs, as opposed to 6% under the current policy.
A real-life example…last year we negotiated a deal for first-time home buyers in an FHA rehab loan that resulted in almost 6% of the purchase price back at closing. Part of the money was used to significantly buy down their rate and the rest towards pre-paids, etc. I strongly doubt they would have been able to buy under the new regulation of 3% max seller concessions.
In addition to these changes, the new policies contain a series of new measures aimed at increasing lender enforcement.
The changes will become effective on April 5, 2010.
If you’re a serious first-time home buyer concerned about what these changes may mean to your specific situation, get in touch with Craig for a quick, hassle-free conversation. He has many different programs available for home buyers and told us that for those within the income limits, Mass Housing still allows 100% financing in some situations as well as 3% down. The mortgage insurance cost is less than standard mortgage insurance and it carries an unemployment benefit as well. If you lose your job Mass Housing covers your mortgage payments for up to 6 months and up to $2000/month. Interesting option for the right buyer.
Many thanks to Craig for the expert advice.
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