On January 20, I wrote about the new likely major FHA loan changes that were being announced.

One of those changes is going into effect on April 5, 2010, as I wrote on January 21, with the upfront mortgage insurance premium being raised from 1.75% to 2.25%.

A press release was placed on the hud.gov site on January 20 about the new changes, but was not widely distributed.

It does reiterate that the downpayment will still remain at 3.5%, which is a big relief for homebuyers wishing to use FHA insured loans to buy their homes. It had been proposed that the downpayment be raised to 5% of the sales price of a home.

The major component that FHA homebuyers need to be aware of is that sellers will only be allowed to give 3% in closing cost help to a buyer, rather than the 6% they are currently allowed to give.

From the hud.gov website:

Reduce allowable seller concessions from 6% to 3%

  • The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
  • This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

This may take a buyer from being able to buy a home to not being able to afford the closing costs associated with purchasing one.

In 2009, I saw many contracts with 4% in seller concessions, because closing costs in Maryland are fairly high. The minimum in closing costs for buyers is the 3.5% downpayment, plus an additional 4-5% in transfer taxes and costs. What many buyers have been doing is making an offer and asking for help from the seller to cover the majority of that 4-5%. This will no longer be the case, making many buyers possibly short 1-2% to close.

What this means for buyers who wish to use FHA insured financing is that they need to move quickly to avoid the higher upfront PMI and be able to take advantage of the possibility of between 4-6% in closing cost help from sellers who are willing to do so.

Contact me today to get your financing in place with a qualified FHA approved lender so you can take advantage of the FHA regulations as they currently stand!