Palm Harbor Realtors on Upcoming Mortgage Industry Changes

As Palm Harbor Realtors we’ve been studying up on the Financial Reform Act that became law last month.   Government regulators will be interpreting the law and creating rules for years to come, so it’s too early to tell how many of the facets of this sweeping legislation will affect you the homeowner. 

In July, RISMedia reported that CMPS Institute (a leader in the mortgage industry) had this to say:  “The main takeaway for homeowners and buyers is that mortgage rates are currently very low, and lending guidelines are not as bad as they could be once the new law goes into effect.  This means that if you can qualify for a mortgage now, you should do so, and not gamble your homeownership goals on the future impact of the new law”.  

They cited that it’s going to get harder to qualify for a mortgage even if you’ve got a great credit score, plenty of equity in your home (should you have one already), and have plenty of cash.  And they certainly aren’t alone with their prediction that we’ll all be  seeing higher mortgage rates because the law requires lenders to keep a 5% stake in many of the mortgages they originate.  This means  more risk for the lenders and higher rates for you and me.  Plus, the uncertainty of Fannie Mae and Freeddie Mac (now largely government enterprises who back most of the US mortgages today) could add fuel to that fire.

As we see it, it’s not so much a matter of if they are right, it’s a matter of when we’ll all begin to feel the pinch more than we already are.  

Harumph …. sometimes we just don’t want to hear anymore!

The FHA was created in 1934 after the Great Depression, and was widely popular until recent years when subprime lenders offered something seemingly better:  artificially low interest rates, no-interest payments and a false dream.  Daily, lender requirements are becoming more and more stringent, and, as a result, FHA loans are once again commonplace and the only vehicle for many to own their Duendin homes.

Advantages of an FHA loan include:

• low 3.5% down payment and closing costs
• gifts from family members, employers or charitable organizations are welcomed
• minimum credit scores are lower than for conventional loans
• lenders will consider payment of rent, utility bills and auto insurance premiums when evaluating the applicant

But Whoa! Hold on, there’s a tiny downside ….

• There’s a 1.75% of the loan amount premium that can be wrapped into the full loan term or paid at closing, regardless of their credit score
• You’ll pay an Annual Mortgage Insurance Premium or MIP.  It’s based on your loan-to value (LTV) ratio, which, if you’re putting 3.5% down, would be .55%.  Example:  $200,000 loan x .0055 = $1,100 divided by 12 months = $92 per month.  Usually this will drop off after five years or when the remaining loan balance is 78% of the value of the property – whichever is longer.
• FHA loans require that a property meet certain minimum appraisal standards.   In other words, if the home needs repairs, it may not qualify for a regular FHA loan.  There are FHA 203K loans that allow for repairs, but that will be the subject of another post!

If you need a referral to a trusted Pinellas Mortgage broker or banker, contact us.   While it’s important to shop for rates and fees, it’s actually equally important to use a representative that can actually get you to the closing table in today’s complex Pinellas real estate market.

Conventional interest rates had been hovering at historic lows of 4.75% – until this week, where they ended at 5.27%!  It is unlikely they will stay in these low ranges, whether the 4’s or the 5’s for any length of time say most experts.  Mortgage interest rates are tied to the bond market which has begun to take hits due to the state of the economy.  Money.com had this good synopsis Thursday if you want to delve deeper.

So, if you’re waiting for that $200,000 home to fall another $10,000 or 5% – this will take about three months in our current market.  Now its September 1st and you’re going to offer $190,000 and save about $50/mo on your mortgage payment.  But wait!  Interest rates have risen one point to 5.75%.  Now your mortgage payment is $125.00 MORE than it would have been last week.  This scenario has now cost you an additional $75.00/month – for the next THIRTY YEARS!!

$200,000 home with an 3.5% FHA 30 year loan:

4.75% = $1006.78/ mo payment

5.75% = $1126.30/mo

6.75% = $1251.79/mo

Some will say, “not a big deal.”   Really?  A 2% jump in interest equates to an additional $3,000 per year and over $162,000 over the life of the loan.  Hmmm… 

What’s the other boat?  Trying to time the bottom of the market.  A post for another day! 

This news is so fresh the FHA hasn’t even updated its website, but The Peach is here to let you know that you can purchase your Crystal Beach FL home up to $303,000 with only a 3.5% down payment.  SWEET!  Looking for a Tampa Bay golf course home?  We’ll be expanding this section soon so stay tuned.

Effective October 1st, you can no longer have the seller pay your down payment on your Palm Harbor real estate investment, or even a hut in Timbuktu.  Unless you’re a veteran of the armed forces, you will need at least 3% of your own or gifted money to purchase a home anywhere in the US – with no exceptions.  The reason?  The recent approval of HR 3221 and all that it entails. 

The passage of this bill eliminates ALL seller-funded down payment assistance with FHA-guaranteed loans. In addition, if you were thinking of buying a new home, home buyers will no longer be able to rely on nonprofits that funnel money from home-builders into seller-funded down payment assistance programs.

HR 3221 therefore finalizes HUD’s long quest to end that practice as well. The US Department of Housing and Urban Development (HUD) claims that the provision of monies from the seller causes an artificial inflation in the housing market statistics. This is because the record of the transaction at closing, (known also as the HUD), reflects the price of the home to be higher to compensate for the closing costs paid by the seller (a fair argument).  

The belief is also that the odds of the homebuyer defaulting on the loan triples as they are basically buying the home with no money out of their pocket but with money provided by another party.  Seller-funded down-payment assistance has become extremely popular as it was used on more than 35 percent of all home purchase loans insured by FHA in fiscal year 2007. This is a dramatic increase compared to less than 2 percent seven years ago. We want you to be aware of how the changes can affect you and your home purchase plans.  Feel free to contact us regarding this pending change.