Why should a Seller be concerned about FHA lending requirements for a Buyer?  At the current time, the FHA backed mortgage is the most prevalent loan for a new home purchase.  If you are currently selling your home, it is highly likely one of these buyers will be attracted to your home.  There are four primary changes that a prospective seller should be aware of:

1.       Increased MIP

2.       Higher FICO scores

3.       Down payment requirements

4.       Seller contributions

These proposed changes are being made to insure the continued safety of the FHA program established as a safety net for borrowers that don’t qualify for conventional loans.  The FHA self-insured fund has dipped to a level that has caused considerable concern and threatens the program’s continuance.  All borrowers contribute to this fund by the MIP (mortgage insurance premium) they pay at the onset of their loan.  The new change will increase this contribution from 1.75% to 2.25% of the borrowed amount. 

While the proposed changes will act to infuse additional funds to stabilize the mortgage insurance pool, it will mean that some buyers will simply not be able to qualify and purchase at all!  This loan program has oft been the lowest threshold for buyers who simply have not yet attained a down payment necessary for conventional buying and now that is threatened with increases in the down payment amount moving from 3.5% to 10% for some buyers. 

Sellers might be encouraged that the FHA has taken the pain away by limiting Seller contributions from the current level of 6% to a new limit of 3% of the sales price.  The biggest benefit of seller contributions has been to assist with the payment of closing costs enabling buyers to purchase more expensive homes or to put more money down and mortgage less. 

While it just doesn’t add up, the new requirements will allow a buyer with a FICO (credit score) of 580 or better to mortgage 96.5% of the sales price whereas buyers with a lower FICO score will be penalized by limiting their potential to mortgage 90% of the sales price.  Assuredly there must be tables to prove that those higher FICO scores mean less mortgage defaults but recent graduates, inexperienced  and  good buyers with limited financing history (hence lower FICO score) are included in this group. 

As a result, home sellers might see limited buyers, limited competition and limited activity of their homes.  These proposed changes have no formal date but the expectation is that we will see them begin in the spring of 2010.   At Goodwin Realty Group we know these changes are coming and we are maximizing opportunities for buyers right now by paring them with your home. 

GoodwinRealtyGroup.com