the arbor edge

On January 20, 2010 the Federal Housing Administration (FHA) commissioner David Stevens announced a set of policy changes that will tighten the qualifications even further, making it even harder to obtain a government backed mortgage.

The first change to take effect will be the increase in mortgage insurance premium (MIP).  The increase is to build up the agency’s reserves.  On April 5, 2010, the premium will increase from 1.75% to 2.25% of the loan amount for single family programs with certain exceptions.   This adds $500 to every $100,000 of mortgage loan to a borrower’s closing costs.

Another proposed change requires a minimum credit score for FHA’s 3.5% down payment program.  If a buyer has less than a 580 credit score, a down payment of up to 10% may be necessary.  According to the Department of Housing and Urban Development (press release HUD No. 10-016), “This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer”.



One last change expected for early this summer is the reduction of money a seller is allowed to provide a home buyer for closing costs.  Under the current FHA guidelines, a seller can give back up to 6% of the sales price to cover closing costs and prepaid items.  The proposed change would reduce that amount to 3%. 

For areas hardest hit by declining values, this will be the toughest change to endure.  For example, at the end of 2009, the average home price in Western Michigan per the National Association of Realtors® was $97,000.  Under the current guidelines, a seller could give up to $5820 back to the buyer to cover settlement charges.  Once this change is imposed, the seller contributions allowed would only be $2910, not providing enough to cover all the costs and prepaid items involved.  This means buyers are going to have to save even more money to be able to cover their minimum down payments and closings costs come summer.

With these changes fast approaching, and the home buyer tax credits slated to expire at the end of April, now is the time to purchase a new home.  Signing a purchase contract before April will help you spend less on a home, and get money back at tax time!