FHA Guidelines May Be Changing in 2010
HUD’s Federal Housing Administration (FHA) has temporarily lowered their “pre-sold” guidelines in new construction condominium buildings from 50% to 30%. This is excellent news to developers with empty inventory. The new rule went into effect yesterday and will continue throughout 2010. This should be a nice boom for the urban markets, at least for the short term.
The FHA has recently increased it’s market share to more than 30% of new home purchases. However, Shaun Donovan, Secretary for the Department of Housing and Urban Development testified before the House Committee on Financial Services this week that FHA’s reserve funds are so low that they are now discussing altering several of the current FHA program guidelines. Some or all of the following changes are expected to be announced in early 2010:
- Higher Down Payments. Currently FHA loans require a minimum 3.5% down-payment on all loans. The committee is considering raising this figure. One law maker has already put forward a bill to raise the required down-payment to 5% of the purchase price – a likely scenario.
- Higher Credit Scores. Most conventional mortgages require a minimum credit score of 620 in today’s lending markets. FHA doesn’t publish a minimum requirement, preferring instead to “look at the whole picture”. Look for this guideline to change in 2010.
- Higher Costs. Most people understand that loans where there isn’t at least a 20% equity stake require Mortgage Insurance. FHA currently charges a 1.75% upfront premium as well as the .55% monthly MI payment. These ratios could go higher.
- Seller Paid Closing Cost Restrictions. Currently FHA allows sellers to contribute up to 6% of the sale price toward a buyers closing costs, prepaids, and/or discount points. Many believe that this policy encourages sales price inflation. The current thinking is that the guidelines will be reduced to allow sellers to pay a maximum of 3% toward the buyer’s closing cost allowance.
So what does all this mean? Buyers thinking of entering the market to take advantage of the extension of the $8,000 First Time Buyer Tax Credit, should consider jumping in sooner rather than later. The trifecta of lower home prices, historically low interest rates, and still low FHA requirements are helping today’s buyers make prudent home buying decisions.
Prospective sellers that are interested in the new $6,500 Move Up Tax Credit should not delay in preparing their homes for sale. Both credits end on April 30th, 2010 which give you less than five months to buyer and/or sell. The typical FHA transaction now takes about 60 days to close from the date of contract so time is already of the essence. Congress has stated that they do NOT anticipate another Tax Credit extension.
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