Interest rates have been at all time lows for quite some time now. Not only have interest rates been at all time lows but values have fallen at the same time, in the Santa Maria real estate market you can see homes in Santa Maria that have lost 70% of value from their peak. Which is the first time in American history where interest rates have fallen in conjunction with home values. Historically values and interest rates are inverse, basically when rates go up, values tend to go down and when values go down interest rates go up. Depending on where you are at some markets have experienced as much as a 70% loss in value from their highs, as stated previously. Although the market has been prime for first time home buyers not just investors. There are still many that are waiting to see what will happen some may be waiting to see if interest rates will drop even more than where they are at or they are hoping to see if values will continue to fall. Now if you are a CASH buyer you may have some luck just waiting for you. But if you need financing and buying a home with cash is not something you are able to do then you might want to consider to getting off the fence. The reality is there are changes coming again to the most popular loan program out there which is FHA financing. Anyone needing financing should be more concerned with just being able to get financing and being able to be approved for a home which might be more important than just waiting to see what the market is going to do.
The first change coming to FHA loans as of April 1st, is the increase in the PMI primarily the up front cost. The monthly charge is going up as well but its not as dramatic as the upfront cost. Currently the upfront cost of the PMI is 1% but its now going up to 1.75% . The PMI is the principal mortgage insurance in case the borrower defaults on the loan the pmi will cover the cost of the outstanding balance. So for a 200k loan the upfront cost is 2k but after April 1st the cost will be $3,500.00 that will be an additional cost added to the closing costs for a home loan.
Another change that is coming to FHA loans is how collection and charge off accounts are treated when qualifying for a loan. Current FHA guidelines ignore Charge-offs and Collections depending on what the collections are. But starting April 1st, you cannot ignore the balance if all collections and or charge offs combined is over $1k. Note: Paying “down” of balances on disputed accounts and collections to reduce the singular or cumulative balance to below $1k, is not acceptable resolution of accounts. The reality is that there will be those that are currently approved for a FHA loan but after April 1st they will no longer be approved. The 2nd biggest change is the open Judgments having a minimum of 3 months payment history. Current FHA guidelines requires only first payment made with copy of cancelled check or cashier’s check. Clients will need to start making payments to show 3 months payment history in order to receive an approval.
There are additional changes coming to FHA loans this year but they have yet to be finalized as well as the effective date of these changes. Mainly to increase the solvency of the FHA administration and the insurance fund from any further loses so that a bail out is not needed. One major change that is coming will be the change in the amount of seller contribution to buyers closing costs. This change will not affect homes under 200k for the most part but homes over 200k will feel the impact of this change. Future guidelines will limit seller contribution to the greater of 3% or 6k. Although this is not finalized yet it is an indication of the administrations efforts to change lending guidelines which will make it harder to qualify. Among other things the new debt ratio which is yet to be finalized as well. Which is the amount you can have in bills including your mortgage payment in relation to your current income.
The reality is that there will always be those that are waiting to see what the real estate market is doing. Only to finally find out that they can no longer qualify for a home loan. There will always be those that qualify for a home loan no matter what. Although there are those that will find themselves being penny wise and a pound foolish.
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