There are a few changes in the lending world that will soon be affecting the Santa Maria real estate market as well as all other markets in the U.S with borrowers trying to seek approval for the new mortgage home loan. Now keep in mind that at this time govt. sponsored lending programs represent about 90% of the mortgage loans that are being generated. So to say that real estate is recovering is probably more accurate than to say that we have recovered or have stabilized. But we are hopefully past the half way mark on the recovery process.
As for the changes in getting an FHA loan.
These new rules go into effect this month, and are for FHA loans only, although there are changes happening in Fannie and Freddie Mac’s lending guidelines as well. But for now let us just stick to FHA, without confusing anyone. FHA = Federal Housing Administration, now for those that do not know they do not loan you the money they insure the money that is being lent to you. Basically you go to any bank or broker that is approved to originate a FHA loan the lender will loan you the money to get your home loan and as long as they are done per FHA rules and guidelines they will insure those funds so the bank does not have to deal with the risk of losing any money.
In being able to do these loans the FHA charges insurance premiums to the borrowers for getting the loan. The insurance is for the bank but you as the borrower pay for this insurance so if you happen to default on the loan the bank will get the money, and the only benefit to you is that you get the loan to buy the house you want.
First change is that the premium that is being charged on a monthly basis is being raised to .85 – .90 percent depending on the balance. It used to be .5 -.55 % so now the difference is for example on a 200k loan x .55% = $1,100.00 annual divide that by 12 you get $91.67 a month. But now using the same loan amount 200k x .90% = 1800.00 divide that by 12, and you will now be paying $150.00 a month on to your new loan so getting a loan will now cost you more every month.
But the fun does not stop there.
Second change is that when you do get an FHA loan you are charged an upfront premium usually a few thousand depending on the size of the loan, and this is part of the closing costs. The upfront premium use to be 2.25% and now its down to 1% which is pretty cool for a first time home buyer so rather than paying $4,500.00 for a new loan now you only pay $2,000.00 for the premium and this was part of the one time cost to close a loan when getting an FHA loan making it easier for first time home buyers.
Keep in mind that FHA loans allow you to get into a home with as little as 3.5% down where Fannie Mae or Freddie Mac you could be looking at 10 to 20% down depending on the type of loan and your credit so you can buy a $200k home with as little as 7k down. Or $20k down payment for the same home and for most the answer is obvious.
For now depending on how the loses are for FHA will also decide how expensive it can be to get into a home, FHA is authorized to increase monthly premiums as high at 1.55% so be grateful its only .90%. Many in congress also want to increase the minimum from the current 3.5% to 5%. But if the market is recovering, and too many increases and costs in getting a home will make it come to a stop, and affect the rest of the economy so whether you are in the market to buy a home or not it does affect you.
There are other changes such as a minimum fico score to get an FHA loan, which is significant since getting an FHA loan never required a score to begin with. But the minimum FICO score is 500 but anyone with a score under 580 must put down a min. of 10% and anyone over 580 can qualify for a loan with as little as 3.5%. But also keep in mind that even though FHA may allow the BANK to lend to someone with a score as low as 500 many banks may not accept a borrower with a score of less than 620, the banks just have that option to go that low to do a loan for someone with scores that low but more than likely most will not due to risks. Even though the insurance will pay the bank for any losses, just like your car insurance you do not want to many too loses or accidents or your insurance company may drop you or jack your fees up and make it hard for you to stay with them. Same concept.
Rates are still pretty low and the costs of a loan are still reasonable but in time there maybe more changes to come and waiting for the perfect may never come. But hopefully there are not too many changes, because the economy does rely on real estate activity to fuel it and making it harder to get lending will only slow things down or stall the recovery that I have yet to feel myself. 😉
If you have any questions about buying a Santa Maria home for sale in the Santa Maria Real Estate market or any properties on the Central Coastand need to get a loan in Santa Maria, CA or any where in the state of so I California not just on the Central Coast, so I can do California home loans, and first time home buyer loans, as well as refinance home loans and just plain simple mortgage loans. So please contact me by sending me an email at: GenePerez@GMSLoans.net
I do also service all the nearby communities and other markets such as the Santa Ynez real estate market, Nipomo Real estate market, Arroyo Grande real estate market, Grover Beach Real Estate Market, and all other surrounding areas regarding the homes on the Central Coast.
my goal is to provide you with resources you need. I can also help in getting the financing for your home. If you have any suggestions or questions in how I can provide more or better
information please let me know. I have been helping my clients for the last 15 years on the Central Coast, Gene Perez – 805-448-7101 , DRE 01321588
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