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The housing bill that was signed this week included two major changes for FHA lending guidelines.  The changes are scheduled to kick in on October 1, 2008.

The first change is the minimum down payment requirement.  Currently FHA loans require 3% down.  On a $200,000 purchase this would be $6,000.  The housing bill will increase this minimum down to 3.5%.  On that same $200,000 home, the down payment will now be be $7,000.

The second major change is the elimination of seller funded downpayment assistance.  Currently the seller can contribute up to 6% to the buyer to cover their down payment and closing costs on an FHA loan.  These funds are deducted from the sellers equity and credited to the buyer at closing with a non-profit intermediary.  This has allowed buyers to take advantage of 100% financing.

One of the main reasons this is being eliminated is that FHA found the foreclosure rate to be about 80% higher on loans with down payment seller assistance verses FHA loans without.  There was also concern about inflated property values as a result of the seller funded DPA programs.

Moving forward the max the seller can contribute to the buyers closings costs and pre-paid items is 3% of the purchase price which has always been allowed.  The buyer will now be required to contribute the 3.5% for their the down payment.  Down payment assistance from a non-profit, employer, church or family member is still allowable and always has been.

Despite these changes, FHA loans will continue to be a good option for first time home buyers.

This week President Bush signed the $300 billion housing bill aimed at helping homeowners avoid foreclosure and it’s estimated that roughly 400,000 families will benefit. The changes are scheduled to begin October 1, 2008. It’s a very detailed bill but some of the highlights include:

FHA Changes

Mortgage limits for high cost areas will be increased to the greater of $417,000 or 115% of the local area median home price, capped at $625,000. The FHA floor will go from 48% to 65% of the current conforming loan limit or $271,050.

The FHA down payment requirement will now be 3.5% of the purchase price up from 3.0%.

Seller funded down payment assistance program (DPA) will be terminated on September 30. Other assistance programs provided by non profits or funded by churches, employers or family members remain intact.

Fannie and Freddie

The conforming loan limit will be increased to the greater of $417,000 or 115% of local area median home price up to $625,000.

The bill includes language to authorize the Treasury to make loans to and buy back stock from Fannie Mae and Freddie Mac, establish capital standards, management standards, review and approve new product offering to ensure future sound operations.

FHA Rescue Program

A special FHA refinance program will allow the refinance into fixed rate FHA products of up to $300 billion in distressed mortgages. A few of the details include:

· Homeowners currently living in their home with loans that were issued between January 2005 and June 2007.

· They must be spending at least 31% of their gross monthly income on their mortgage payment.

· They can be current or behind in their monthly payment but must prove they can not continue making the payment.

· Other debt such as home equity loan must be retired first and they can not obtain another home equity for 5 years unless they can prove it’s needed to pay for required maintenance to their home. In addition the new debt can not total more than 95% of the homes value and approval from FHA must also be granted.

· Homeowners will share in future profits by paying a 3% exit fee based on the principal balance to FHA when they sell or refinance.

· If the home is sold or refinanced within a year they will have to pay 100% of the profits to FHA. After a year that numbers drops to 90% and the profit percentage drops in 10% increments to the 5 year and stays at 50%.

Local Foreclosed Properties

The bill provides for $4 billion in neighborhood revitalization funds for local governments to purchase foreclosed properties.

Tax Incentives

A tax credit of $7,500 will be available for First Time Buyers who have or will purchase between April 8, 2008 and June 30, 2009. The Low Income Housing Tax Credit will also be expanded.

For questions on the new law, and how it may effect your purchase or sale, contact the Get Home Denver Team for all your real estate answers!

Just released; As of March 5, 2008, the Federal Housing Administration and HUD, have Increased the loan limits for FHA insured loans. 

In Denver and most of the surrounding counties the limit has increased to $406,250 for a single family residence.

This increase should ease some of the pressure felt on the mortgage market.

For a complete listing of the new loan limits for Colorado Counties go the the HUD website by clicking here!

For questions on what this may mean for you, please contact the Get Home Denver Team.