It’s been hard to fault home buyers who haven’t rushed to buy a home, now that there is no longer any Federal Tax Credit. I mean, if you read this blog with any consistency, we all know that home prices are going to continue to tumble, and there is no indication of interest rates climbing anytime soon; so, who can criticize a home buyer (or any buyer of anything for that matter) for not buying when they can get it cheaper by waiting. And when you add in the flood of inventory looming, there also means that there is a greater selection to be had by waiting.
I believe many real estate agents and loan professionals actually agree with these waiting buyers which is why they can’t help the buyer “off the fence” and into a home. They think buyers should wait. Today, I need to remind you of two compelling reasons why waiting could be hazardous for those who expect to utilize the FHA loan programs for their purchase.
1. The change in the FHA insurance Premiums
The lessening of the Upfront Mortgage Insurance Premium to offset the increasing Monthly Insurance Premium has a direct impact on the loan amount a given applicant can qualify for. In most cases, buyers/borrowers will have their buying power reduced 4%—-IF RATES STAY RIGHT WHERE THEY ARE. People looking at $400,000 homes, now will be looking at $385,000 homes which could change entire neighborhoods (or move them from the “good section” to the “not-so-good section” of a neighborhood). This change is already scheduled to take effect for FHA Case Numbers issued after October 4th….that will require buyers to be in contract before that….that means there aren’t many days left to find a home, negotiate terms for the sale, and get fully executed contracts signed.
2. There is a likely-to-be-approved proposal which would limit the allowable Sales Concession on an FHA transaction to 3%.
Today, sellers can pay up to 6% of a buyer’s closing costs (including discount points) and pre-paid expenses (like real estate tax escrows and homeowner’s insurance). In some transactions, it requires a buyer to accumulate an additional 3% of the sales price of a home to have sufficient funds to close. On our $400,000 home that would be an additional $12,000 in savings before you could buy a home. How long will that take a first time buyer to accumulate? Six months? A year? Two years? What will interest rates look like then? If they a higher (as expected), we will be pushing the date to buy off even further into the future. While this change in the program is not official YET, even the Mortgage Bankers Association of America is holding out little hope that they can get FHA to go to 4%. Insiders point to a September/October announcement.
When you combine the impact of a higher monthly payment (resulting from a higher Monthly Mortgage Insurance Premium) and a higher need for cash accumulation (because of a reduced sales concession), why wait? Buyers – get off your couch and get serious about acting sooner than later! Sellers – price your homes at a compelling number, as to not miss any opportunity to attract a qualified, motivated buyer. There are valid reasons for a “sense of urgency”…..don’t be lulled into thinking you have all the time in the world.
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