I’m not a mortgage broker or a lender in Charlottesville, but I know folks who are.
Guest post by Matt Hodges with Compass Home Loans:
FHA has picked up much loan volume that the sub-prime world vacated â€“ so much so that for every ten new purchases, FHA insures three. This isnâ€™t to say that FHA isnâ€™t a great product â€“ it is. Iâ€™ve used it for eleven years, but itâ€™s now sustaining losses for which the up-front Mortgage Insurance Premium (UFMIP) is paying. The UFMIP helps to pay future claims on bad debt, i.e. foreclosures of FHA insured loans.
FHA tells us itâ€™s time to pay the piper. For all new case numbers (FHAâ€™s mechanism to keep track of loans they insure) assigned on April 5, 2010 or later, the UFMIP will increase from 1.75% to 2.25%. While this isnâ€™t a huge change to qualifying standards, it does show that FHA is looking at underwriting standards a bit closer and refilling their coffers. If a new FHA loan was originated for $100,000, currently the total loan amount with UFMIP would be $101,750. On April 5th, it will become $102,250.
To be implemented in the summer, FHA proposes to change down payments for sub-580 credit score borrowers from 3.5% to 10%. Most lenders wonâ€™t touch a sub-620 score for FHA right now, so I donâ€™t see an immediate problem with this either. This is potentially beneficial for FHA, as it will provide additional equity in the case of foreclosure, mitigating losses.
Probably our biggest concern right now is the proposed change from 6% seller concessions down to only 3%. But, Matt, you argue, 3% is a lot of money for the seller to pay. It might be at a $200,000 loan, but at $100,000, most borrowers will expend at least $3000 in closing costs, pre-paid items and points. Remember, FHA is the loan for those who are cash-strapped.
For more detail on all three changes, review HUDâ€™s release.
More often than not, FHA borrowers come to the table with just over 3.5% required down payment. If HUD removes the ability to get seller concessions at the lower loan amounts, they will be directly affecting the housing recovery and effectively be discriminating against poorer borrowers, who can only afford lower priced homes.
Virginia is considered a â€œhigh-costâ€ state, meaning closing costs are relatively higher than other states. Perhaps HUD can modify this proposed rule to accommodate for different loan sizes in different states and make the program continue to work. This is your time to voice concerns for or against this rule change NOW while HUD welcomes your comments.
So, what does this mean for homebuyers in Charlottesville?
It means that buying a home in Charlottesville – with an FHA loan – is going to get a bit more expensive, and is another reason that I have been advising clients – both buyers and sellers – that if they choose to buy or sell now, time is of the essence. For some, $1000 may be a make-or-break number.
Right now, for the Charlottesville MSA the FHA loan limit is $437,000 for single-family homes, so this affects the most crucial segment of the Charlottesville real estate market.