FHA Softens Condominium Lending Guidelines, But Barriers Remain

Condo Sales May Get Slight Boost, But Financing Rules Remain Tight

Responding to lender, condominium association and consumer outcry that the existing FHA condominium lending guidelines are too strict, the Federal Home Administration (FHA) on September 13, 2012 announced a round of changes which will hopefully make it easier for borrowers to qualify for FHA condo loans. The full FHA announcement can be found here.

While some of the changes are a step in the right direction, I think overall they are a mixed bag, as FHA left some of the most onerous provisions intact. I’m skeptical that these new changes will have a major impact on condominium sales, but of course, any loosening of the strict requirements is a good thing.

Condo Fee Delinquency Rule Increased to 60 Days Overdue
FHA is softening its stance on delinquent monthly condo fees and home owner association (HOA) dues. FHA is now allowing up to 15% of a project’s units to be 60-days delinquent on condo fees, up from just 30 days delinquent under the prior rule. This change acknowledges the depressed economy which has caused many condo unit owners to have trouble paying their condo fees. This is definitely a good change.

Expanded Investor Purchasing Allowed
Under the new rules, investors can come in and buy more units in a project than they could previously. They can now buy up to 50% of the project units, up from just 10% before, but with an important caveat:  the developer must convey at least 50% of the units to individual owners or be under contract as owner-occupied.
See the rest of the article here: FHA Softens Condominium Lending Guidelines, But Barriers Remain

Some Common Questions About Buying a Home

If a person is a first time buyer, what are the best steps to take to become a home owner?
The absolute first step to take is to talk with a mortgage person. There are a few reasons for this. First of all, you want to know where you stand financially in regards to qualifying for a mortgage. You will find out how much of a mortgage you qualify for, and how much you can really afford. Many times a bank will qualify you for more than you are comfortable paying each month. We do not want you to be what we call "house poor", meaning, yes, you now have a home, but you don't have enough money left over after paying the mortgage to enjoy life.

The second reason is that if your credit score is a little low, a good mortgage person will explain how you can improve your score... sometimes dramatically. It does take at least a couple of months for any changes you make to trickle down to your credit score. But it could mean paying a lower interest rate, and therefore have a lower mortgage payment, so the wait may well be worth it.

The last reason is that you cannot make an offer without a mortgage pre-approval. No seller will consider your offer if you can't prove you can pay for it. Also, you don't want to waste your time looking at $300,000 homes if you would only qualify for a $250,000 one.

Is there a different pre-qualification process when you are considering a foreclosed home?
No, the qualification is the same, but you may want to look into an FHA 203K rehab loan. This is a specialized mortgage that gives you extra money above what you are paying for the property that you can use for repairs and upgrades. Many foreclosed properties will need work.

What percentage of the purchase price is usually required?
With an FHA mortgage the minimum down payment is 3 1/2% of the purchase price. You will also need around 2% (roughly depending on the mortgage) for closing costs, but we can almost always get the seller to pay for most of that. The are other loans available through Mass Housing and the VA that have low or even no down payment requirements. Again, it depends on your particular financial situation. There are also matching down payment programs in many cities that I can help you with.

Would all these things apply to a short sale as well?
Everything here also applies to a short sale. The major difference is the length of time needed to close. With a regular home sale, including bank owned properties, the closing is typically 4-7 weeks after the offer is accepted. With a short sale you are looking at a minimum of 8 weeks, with 3 to 4 months more common, and 4 plus months not uncommonly seen. The saving you can make is usually worth the wait.

If you have any questions regarding real estate or financing, please contact Jim Armstrong

FHA Mortgage Insurance Premium to be Raised

The FHA will soon raise the UFMIP (Up Front Mortgage Insurance Premium) that they charge on all mortgages.

On any new FHA mortgages after April 5^th, the UFMIP will now be 2.25% of the loan amount, as opposed to the current 1.75%.

Currently a $300,000 purchase with standard 3.5% down payment would have a $289,500 Base loan amount. The mortgage insurance would be $5,066 (1.75% UFMIP). So that makes the Total loan amount $294,566. At 5.00% that would be $1,581 for Principal and Interest.

Same purchase price after April 5^th.

$300,000 purchase with 3.5% down payment would have the same base loan amount of $289,500. The mortgage insurance would go up to $6,513 (2.25% UFMIP). The Total Loan Amount is $296,013. At 5.00% that would be $1,589 for Principal and Interest.

As you can see this change will affect the overall balance of the mortgage, however it should not have a large impact on the monthly payment.

Here is how the change will work time-wise if a homebuyer wants to avoid the increase:

Homebuyers will need to have an FHA CASE number prior to 4/5/10. They will not have to close before that date. So for example, your client puts a property under agreement 3/25/10. They contact their mortgage person to immediately to start the application process and obtain an FHA case number. The buyer will be grandfathered in under the old calculation as long as they obtained their FHA case number prior to 4/5/10. The FHA Case Number is tied to the property as well as the client – so clients who have not identified or put a property under agreement by 4/5 will be subject to the new calculation.