If you have been waiting for house prices to drop more you risk losing out. Flexible buyer-financing rules are changing. Loans will be harder to get and require more upfront cash.
Change 1: Seller-Paid Closing Costs
Sellers will no longer be able to pay up to 6 percent of the buyer's closing. New Federal Housing Administration rules have reduced seller's contributions to 3 percent maximum.
On a $200,000 home loan, sellers can only contribute $6,000 versus the previous $12,000 toward buyers' closing costs, reserves and repairs. Buyers must still have 3.5 percent of their own funds for the down payment.
Change 2: Mortgage Insurance Premiums
Mortgage insurance protects lenders if the buyer defaults. Buyers pay into a reserve with an up-front fee and in each monthly mortgage payment. FHA increased the annual premium from 0.55 to 0.85 percent for loans with 5 percent to 20 percent down payments. For loans with less than 5 percent down, the annual premium increased from 0.55 to 0.90 percent. The average buyer must pay this in their monthly mortgage payment until the loan-to-value reaches 78 percent AND made five years of mortgage payments.
Change 3: Credit Scores
Previously Buyers with low credit scores could qualify for an FHA home loan without penalty. FHA can increase the interest rate and down payment for low credit score buyers. On a $200,000 loan, a 3.5 percent down payment of $7,000 could increase to $20,000.
Change 4: Condominium Approvals
Condo projects are under a more intensive national review. This could hold up your purchase if an association is not proactive. A few must-have criteria include at least 70 percent of the units be owner-occupied and less than 15 percent of the units in foreclosure. Without financing approval for a condo project, seller- financing or cash are the only alternatives.
Less House for Same Money
These are just a few of the risks of inaction. Interest rates will start to rise. For every 1 percent increase in interest rates, you lose 10 percent in borrowing power to keep the same monthly payment. So the longer you wait, the less you will be able to borrow if you want to keep the same monthly payment.
Barbara and Clair Ramsey are industry leaders in residential real estate marketing in Alaska.
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