Best to buy before new FHA guidelines take effect
By Octavio Nuiry
Starting in early summer, the Federal Housing Administration is tightening lending standards in an effort to bolster its dwindling reserves. The new lending standards will make it tougher for some prospective buyers to purchase a home by requiring a higher down payment than the typical 3.5 percent for some borrowers, higher insurance premiums and reduced seller concessions.
Securing FHA-insured mortgages are attractive to borrowers because down payments are only 3.5 percent. Most conventional loans now require 20 percent down, keeping many creditworthy borrowers on the sidelines.
New Guidelines
The new rules — which are temporary and take effect this summer — come after more than a year of stringent standards from lenders. Among them:
Better Credit Score — New borrowers will have to have a minimum credit score of 580 to qualify for a 3.5 percent down payment. Previously, there was no minimum score. Those with lower scores will have to make at least a 10 percent down payment. The average credit score of FHA-insured borrowers is 693.
Higher Insurance Premiums — Buyers who get an FHA-insured loan will soon have to pay a higher initial insurance premium. The new premium will be 2.25 percent of the value of total loan amount, up from 1.75 percent now. A $100,000 mortgage would require a payment of $2,250, or $500 more. But buyers can roll the added cost into the loan amount.
Reduction in Seller Concessions — Starting this summer, sellers will not be able to offer as much help to buyers to pay their closing costs. The maximum amount of assistance will drop to 3 percent of the value of the property, from the current 6 percent.
FHA removes anti-flipping rule
Another FHA rule change could help foreclosure-plagued markets like Las Vegas, Phoenix, Miami, Detroit and Los Angeles, making it easier for investors to “flip” houses to buyers who use FHA-insured loans.
Effective Feb. 1, the federal government will waive for one year an FHA anti-flipping rule that prohibits insuring a mortgage on a home owned by the seller for less than 90 days.
The new rule lets investors buy today and re-sell as quickly as possible. The move is to allow REO homes purchased by investors to resell as quickly as possible, helping stabilize real estate prices and revitalize neighborhoods after the U.S. housing market collapse.
This new rule will open up a new pool of homes to buyers. Waiving the 90-day flip rule is being heralded by many real estate investors as a boon to their ability to buy, rehab and resell foreclosed homes on a more efficient time line.
Federal program to streamline short sales in 2010
By Joel Cone
Like many of her colleagues, Chicago Realtor Carol Grobman has been wondering for a long time why the real estate community at large, and the federal government in particular, have not made a move toward relieving the prolonged short sale process that has been trying the patience of their sellers and buyers alike.
Since the real estate bubble burst back in 2007 many Realtors have been avoiding short sales altogether, either due to lack of training, or simply to avoid the hassle involved.
"Why are they taking six months to make a decision? By then the original buyer is gone. A lot of people can’t afford to wait because they have to move," Grobman said.
Well, the federal government has finally answered back, adding another acronym to its list of government-sponsored programs. This one is called HAFA (it stands for Home Affordable Foreclosure Alternatives) and is part of the Home Affordable Modification Program (HAMP).
HAFA: The Government Response
Hoping to positively influence the nation’s housing market by shortening and simplifying the short-sale process, the Treasury Department released new guidelines for servicers late last year.
Under those directives, HAFA offers servicers and borrowers incentives for utilizing a short sale or a deed-in-lieu to avoid foreclosure on any loan that is eligible under the HAMP program thereby reducing the need for a potentially lengthy and expensive foreclosure process.
Key features of the program include:
Sellers/borrowers can receive up to $1,500 for relocation expenses
Lenders will receive $1,000 for each completed short sale
Up to $1,000 for investors who allow up to $3,000 in short sale proceeds to be distributed to subordinate lien holders. Borrowers can receive pre-approved short sale terms prior to the property listing
Borrowers are fully released from future liability for the debt
Shifting Short Sale Strategies
Both the popularity and thorniness of short sales are evidenced by the existence of Short Sale Pros, a San Diego Web-based company promoting itself as a solution for real estate professionals, investors and homeowners trying to navigate the short sale negotiation process.
"Homeowners are starting to realize that loan modifications aren’t as great as they thought they were going to be. From the loan modification end, if you can’t help with that then the short sale is the next logical thing," said the company’s president, Michael Corradini.
As Corradini explained, negotiating short sales comes down to how a potential homebuyer, investor or real estate professional approaches the bank and presents the numbers. One tip he suggests when negotiating a short sale: show the bank the difference between your offer and an estimate of what they will net if the property goes to REO.
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