Lets take a peek underneath the headlines and see the true impact of these new announcements on FHA loans in the Woodlands Conroe and Huntsville Texas Real Estate Market Area north of Houston:
First, Higher FICOs in the forecast? FHA will be requiring buyers who have less than a 580 FICO score to make a minimum of a 10 percent down payment. However, anything below a 580 has been extinct for nearly a year and if a borrower has less than a 620 mid score that most lenders won’t touch this loan with a 50 foot pole. The ones that will do this loan currently with a sub 620 FICO loans are been requiring 5 percent to 10 percent already and even the denial for those is in excess of 90 percent. Conventional mortgages have been requiring 5 percent to 10 percent down for more than 6 months now. Therefore the market at large has already corrected for this.
Perspective: We’re more likely to see lenders increase FICO requirements to 640 or more and that will have a more significant impact on the market.
Market Impact = nil
Second, Higher FHA Mortgage Insurance Premiums (MIP). FHA is increasing the MIP from 1.75 percent to 2.25 percent. Generally as long as the appraisal and sales price will support it then this will not be much of an issue since it is financed most of the time anyway. On a $100,000 mortgage this will increase the mortgage by $500 if the amount is financed in. This will increase your Mortgage payment about $4 per month on the same $100,000 mortgage. This is only part of the story on MIP, however.
FHA is keeping quiet on the monthly MIP. Saying only that those changes will come this summer. What exactly they mean by “this summer” and by how much is anyone’s guess at this point. Market Impact will be small but measurable depending on how much of an increase the Feds impose.
Perspective: Although VA mortgages and USDA Rural Development Mortgages don’t have a monthly MIP their rates are 2.15 percent and 2 percent respectively on their up front mortgage insurance or funding fee. Conventional mortgages the up front mortgage insurance premium (MIP) has been higher for quite a while and the monthly MIP is higher than FHA.
Market Impact = nil.
Third, Seller contributions will be capped at 3 percent rather than the current 6 percent. In states like Texas where it is usual and customary is to cover some of the title fees this could have a detrimental impact on the purchase of a home. The largest impact will be seen in mortgages less than $100,000 because closing costs are mostly fixed except for a few items. When you drop below $100,000 or so the 3 percent doesn’t quite go far enough and buyer has to pick up the tab. FHA feels that the 6 percent seller concession has lead to inflated purchase prices.
Perspective: VA Mortgages are capped at 4 percent seller contribution, USDA Mortgages have a loose 6 percent cap such that seller contributions are allowed hat make sense. The reason is that USDA Rural Development deals with many purchases below the $100,000 price point. Conventional Mortgages issued by Fannie and Freddie have been at 3 percent for years.
Market impact = nil for housing above $100,000 and severe below that Figure.
Combine all of the above however with the expiration of the first time and existing homebuyer tax credit and the impact will definitely be felt in the second and third quarters of 2010.
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