Buy a House Fast

New rules! At least as far as FHA lending rules are concerned.  Long the refuge of borrowers who might not be able to obtain convention financing, the rules have been tightened to increase buyer costs.

First, insurance cost on an FHA–insured loan will increase from 1.75% to 2.25% at the beginning of the loan. Legislation is in progress to shift some of the premium from the initial payment to the annual cost.  The purpose of the increase is to build up capital reserves for the shell-shocked FHA.  The agency that once backed 3% of mortgages now guarantees about 30% of them.  As of December 2009, over a half million of the agency’s 5.8 million loans were delinquent.  Though Congress mandates a 2% cash reserve, the actual reserves currently hover around .5%.

Second, borrowers must now have a credit score of at least 580 by FHA rules if they want to put down the minimum down payment of 3.5%. Those with lower scores must ante up 10%.  In the past, the FHA itself held no minimums, but in reality, banks that processed FHA loans required higher scores.  The new rules are an attempt to assure that new buyers have enough resources to maintain the loan.

Third, buyers who count on a seller contribution to closing costs can only expect help up to 3% of the value of the property, not 6%, the prevailing limit for FHA-backed sales.  This new rules aims to take away this incentive to de-facto inflate appraisal values.

Fourth, now lenders approved to process FHA loans must be more accountable. Bad lending decisions from the past can disqualify lenders as FHA processors.  Bank must also increase reserves.  The language of the announcement is careful to strengthen the FHA’s commitment to “under-served markets” with more limited access to credit.

Although the provision that applied to lenders will go into effect immediately, the other parts of the announcement will not be applicable until late spring – early summer.  In effect, this means that buyers who hope to use the federal housing credit will still be able to negotiate deals with the current standard FHA down payment regardless of their FICO score plus pay the current mortgage insurance fees and seller contributions of up to 6%.  Interest rates are expected to rise by late spring, too.

Looking to buy a house while conditions are right?  Your Express Realty Services’ agent will not only help you find a great DC-area house to buy but can help you earn the home buyer tax credit and beat the clock on new regulations.

Lost in the Crowd?

When buying a home, you will likely become acquainted with a whole slew of real estate professionals.  From the realtor who helps you select a home to the listing agent who shows you some promising inventory, the experience can be difficult (and extremely frustrating) when any of these pivotal characters fail to meet your expectations.  One of the most controversial areas today is the whole appraisal process.

Help for the Weary

The folks over at Fannie Mae and Freddie Mac are doing their best to ensure that no one plays fast and loose with the appraisal process.  To that end, they’ve created a new code that holds appraisers to a higher standard of quality and professionalism. Sounds great, right? Well, it has already gotten serious backlash from people in the real estate business who believe stricter rules can only hurt an already struggling housing market.

As a result, Fannie and Freddie have tried to clarify what the new code means for homebuyers like you.  One major change outlined in the clarification document is the need for mortgage lenders to accept appraisals only from professionals with experience in the region in question.  Think about it: wouldn’t you want the appraisal coming from someone who knows the area your future home is in?

While communication between and real estate agents is permitted in the process (after all, realtors can be an excellent source of information), they cannot have a hand in selecting the appraiser.  The concern here is that a realtor eager to close a deal will select an appraiser they enjoy a mutually beneficial relationship, one willing to provide the estimate necessary for the transaction to be completed as quickly as possible.  Similar arrangements can often exist between appraisers and lenders, who have been known on occasion to lean on appraisers to overstate property values. While that may help a seller sell his house fast, it certainly won’t help when the buyer faces this dilemma: “I wanted to buy my house fast, but it didn’t meet appraisal. Now what do I do?”

Appraisal Delay or Consumer Protection?  You Decide which is Best.

Basically, Fannie and Freddie’s goal in creating a new code is to protect the homebuyer, and restore purity to the appraisal process.  Whatever delay these new measures may cause will be more than made up for by the increased confidence buyers will have in the accuracy and integrity of the professionals they turn to for an estimate.