The NEW FHA LOAN

On April 18 FHA increased their monthly mortgage insurance, doubling to twice the monthly amount it was a year ago. Why?
FHA previously supported itself, based on the mortgage insurance premiums paid by borrowers. Therefore, the payouts for foreclosed properties have forced FHA to raise the monthly mortgage insurance premium to shore up their coffers.

Many buyers need FHA guidelines to purchase a home.

The following seven reasons are why FHA is still in the lending game:
1. Gifts. The 3.5% down payment and all closing costs can be gifted.
2. Lower credit scores. Some lenders are decreasing the requirement down to 600 (and in some cases 580)
3. Non-occupant co-borrower: Mom and Dad helping a family member by agreeing to be equally responsible for the mortgage. This is a great way to get into a home.
4. Bankruptcy: The wait is only two years after a bankruptcy, but be sure to reestablish good credit.
5. Foreclosure: The wait is 3 years, compared to conventional, which is 4 to 7 years. Plus it is the only program that will allow buyers to re-enter the housing market with limited down.
6. Short Sale: After a short sale with no mortgage lates, and a good reason, FHA may finance the next purchase immediately.
7. Own another home but can't sell or don't want to sell it? FHA will allow a purchase of a primary residence as long as the borrower can qualify for both payments. Conventional loans will allow the same but only with hefty reserves.

The guidelines above are oversimplified, because as you well know in our industry, other conditions will apply. For example, I have never seen a Short Sale close without late payments and those purchasing a house 2-3 years after a foreclosure or bankruptcy had stellar credit prior to the events. All these examples are in an ideal world where your only blip on the credit radar was the short sale, foreclosure or bankruptcy. Even though, FHA is currently the loan of choice for many Buyers.

BUYING A HOME?? THE INTEREST RATE IS MORE IMPORTANT THAN THE PRICE!

The biggest mistake a home buyer can make is to underestimate the impact of lower interest rates on housing costs, and the relative affordability of housing in the United States. The cost of a loaf of bread and a gallon of gas has more than tripled since 1989, and car prices have nearly doubled. While the median price of a new home has increased by 70 percent, mortgage interest rates, which stood at 10 percent back in 1989, are less than half of what they were back then. The impact of rock-bottom interest rates is that the monthly mortgage payment on a median priced home in the United States has increased by a mere $4 since 1989.


Unless a buyer is paying cash, the monthly payment tends to be a far more relevant number than the home’s actual purchase price. So for buyers who are waiting for home prices to hit the floor before buying, it’s important to point out that the possibility of a slight drop in the price of a home will have very little impact on the monthly payment, while even a slight rise in interest rates (a far more likely scenario) will have a significant impact.

Timing the market to a T is never possible and in the current market, staying on the sidelines is more likely to result in a missed opportunity than a small savings. Waiting on the lowest price while interest rates tick upwards, can cost you more in the long run.