click here to read full announcement:
http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-016
Due to the increased popularity of FHA in the absence of alternative loan products, they must address their capital ratio. They have chosen to increase the Up Front Mortgage Insurance Premium, reduce seller contributions and are making other changes that will increase their capital and reduce default risks. Here are the changes that matter most to consumers and real estate professionals:
- A .50% increase in the Up Front Mortgage Insurance Premium (UFMIP) from 1.75% to 2.25% that will go into effect in the Spring of 2010. This increases the total amount financed and makes for a higher payment.
- Proposed shift in some of the premium increase from the UFMIP to the Annual MIP, which will have less impact on the consumer as it is spread over the life of the loan. We are unsure when this change will take place. While it is meant to soften the blow, payments will be more nonetheless.
- Reduce allowable seller contributions from 6% to 3%, which is more in line with industry standards. This will go into effect in the early summer. I've never had an instance where 6% contriubitions were needed, but on smaller transactions, we've had use for 4% from the seller. This new limit could impact the borrower's ability to get the lowest rate or require additional funds from the buyer at closing.
- New requirement of a minimum 580 credit score to qualify for FHA's 3.5% down payment program. Borrowers with scores below 580 must put down at least 10%. This is not much of a factor as just about every reputable lender requires a 620 (some require 640) score for their FHA loans.
The bottom line is that rates are great and tax incentives are in place for first timers as well as repeat buyers. Rates are predicted to go up once the Fed's buying of Mortgage Backed Securities ceases. We are looking at rates of 6% and higher this year! To receive the tax credit for your purchase you must be under contract by the end of April and close no later than June.
Of course the Fed may choose to continue buying Mortgage Backed Securities and the tax credit could be extended further but those are pretty big "ifs".
If you, or someone you know, is considering a purchase or simply wants to review their refinance opportunities, this would be a very good time to look into it.
