The
Federal Housing Administration, a division of the US Department of Housing and
Urban Development, is soon to be implementing some major changes. At least
that’s what this Wall Street Journal
blog post
says. The news is not good. At a time when many homeowners or hopeful
homeowners need the government’s help in owning a home, the FHA seems to be
turning its back on those that need it the most.
Until
now, and at least through the next several months, FHA financing has helped
countless borrowers with such features of the program as low down payment (just
3.5%), ability to use gift monies toward the purchase of a home and facilitating
home ownership for people with less-than-perfect credit.
But
now, if the proposed changes take place come next quarter then we will
definitely see a huge shift in the housing market. Right now, as always has
been the case with FHA loans, borrowers are charged a PMI premium through the
first five years of the loan and until there is at least 22% equity in the
property. The changes however will dictate that PMI be charged for the life of the loan.
How
does this impact you as a homebuyer? As a seller?
Buyers’ Purchasing
Power Will Take a Hit
The
single biggest thing that will happen with this change is how much money each
month will go toward additional costs of owning a home versus going toward the
principal. That means that unlike now when a homeowner can expect to be paying
off their home at a reasonable pace, particularly once PMI drops off, they will
have to endure these costs till the home is paid off.
Refinances Will Be
a Thing of the Past
With
the cost of FHA financing going up in this significant manner, no homeowner
will ever want to engage in a refinance, particularly if they only have one or
two more years of PMI due on the property. That means continued high interest
rates would be paid on existing mortgages with no hope to refinance without
taking a serious hit. Of course, all this steers our economy in the wrong
direction.
Sellers Can Expect
Challenges in the Market
From
a seller’s standpoint, the likelihood of a depressed market to ensue following
this colossal change is high. The current number of borrowers that are using
FHA products is high and with a huge decline in the number of FHA mortgagors
there will be as many fewer buyers on the market.
~
If
you have any questions about this or would like to explore your options before
this seemingly historic change is implemented, I invite you to come visit me or
call. I’m happy to help!
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