Summary of Recent Changes in the FHA Loan Program

Over the past few weeks we’re received a lot of questions regarding the recent changes to the FHA loan program. I might as well address some of these questions and concerns publicly. The changes are due to the recently signed Housing and Economic Recovery Act of 2008.

Changes to the down payment requirement: The minimum down payment requirement will increase from 3% to 3.5% starting October 1, 2008. To take advantage of the 3% down payment contracts must be dated before September 15th, underwriting approvals must be made before the 22nd and loans must fund by the 30th. Now, not only is the down payment requirements increasing, but H.R.3221 eliminates down payment assistance programs all together. I personally, don’t understand the reasoning behind this but then again it’s the government.

Status of the Upfront Mortgage Insurance Premium: HUD had recently made the FHA Upfront mortgage insurance risk-based. Meaning you paid more if you had worse credit. Now with the new bill H.R. 3221, there is a one year moratorium on these changes. In the mean time FHA will revert back to the single 1.5% premium charge.

New FHA loan limits: The new FHA loan limit will be the lesser of 115% of median sales price for your area or $625,500 but no lower than $271,050.  The median sales price this will be based on will not be published by HUD until November. We do know that if your loan limit since March has been higher than $271,050, the only way your loan limit will not be lower starting January 1 is if your area home prices have been having a significant rise (not true of hardly any area).  However, we don’t know what the new loan limit will be for sure until FHA does their math, only that it will be somewhere between the floor of $271,050 and the cap of $625,500.

Bottom line is that if you are planning a home purchase and would need a FHA loan, then you need to be aware that the loan limits will most likely be falling and the down payment amount will be rising after the first of the year. In essence, might as well purchase before end of the year.

$7500 tax credit: The recently signed bill provides a $7,500 tax credit for first-time homebuyers that will expire July 1, 2009, must be repaid over 15 years — making it, in effect, an interest free loan. First-time home buyers are defined as those who have not had an ownership interest in a real estate property in the past three years. North Phoenix Agent, Heather Barr, has a great post on her blog with details on this tax credit.

As you can see there are lots of changes in the industry. If you are in the market for a FHA loan, my best advice is ask lots of questions.

More Money For Down Payment Assistance Program

I receive a lot of questions on the Home in Five Down Payment Assistance Program. The most popular question is of course regarding the availability of funds for non-targeted areas. Well, if you were waiting for these funds before making your purchase then wait no more. We have some good news today. I received an e-mail this morning that there has been $2,000,000 released for down payment assistance in non-targeted areas.

What does this mean to you then?

This means that money is now available for down payment assistance on properties that are outside the designated targeted zones but inside Maricopa county. Just so everyone is clear here are some quick facts:

  • Borrower must be fully approved for a loan program which allows the use of down payment assistance (such as FHA)
  • Borrower can use funds to purchase anywhere in Maricopa county.
  • The borrower does not need to be a first time home buyer (for these funds).
  • Have a property in escrow, appraised and underwritten – since the money runs out quick.
  • The rate on this program is 6.3% and the assistance is 5% of the purchase price.
  • Funds are disbursed on a first come first serve basis.

This program allows up to 5% down payment assistance.  Funds can be used to pay closing costs as well, it just depends on how you end up structuring the loan with your loan officer.

Just a reminder that these funds are HUGELY popular and go fast, so if you are anywhere close to finding a property…this is a SUPERB time to take the plunge!

Read more on the Home in Five Down Payment Assistance Program.

Funds Reallocated in Downpayment Assistance Program

The downpayment assistance program, which we participate in, the Home in Five Program (only for Maricopa county) had been running out of funds recently. Actually to be more precise funds for non targeted areas had been running out, there was always plenty of money for targeted and priority areas. Late last week the program announced that it would be reallocating funds to non-targeted areas. For those not familiar with the distinction, let me clarify the definitions:

Down Payment Assistance ProgramNon-targeted areas: All areas outside of the targeted and priority areas within Maricopa county. There are income limits determined by household size and loan size limits based on the property type. The main rule is that you need to be a first time home buyer in order to purchase a home in this area (using the funds from the Home in Five program).

Targeted Areas: This encompasses areas designated in Maricopa county by the program and is determined by census track numbers. The income limit and purchase size limit is higher than for non-targeted areas. Additionally purchasing in this area entitles you to a better interest rate. You do not need to be a first time home buyer to take advantage of the down payment assistance if you are purchasing in this area.

Priority Areas: These are areas within the targeted areas which are being given additional preference. Hence, the income and loan size limits are even higher and the interest rates are even better than for targeted areas.

The process of determining whether or not a property is in a targeted or priority area is in fact rather cumbersome. Contact me or Aimee with an address and we can look it up for you. Just a reminder, the funds are disbursed on a first come first serve basis and the program makes no guarantees on availability.

Further reading on the Home in Five Downpayment Assistance Program is available here.

This site is for informational purposes only. It is not sponsored or in any way affiliated with the government. If you are in need of a mortgage loan, consult with a licensed mortgage professional. All fair housing and equal housing opportunity laws apply when applying for a mortgage or buying a home. Copyright 2012.