Congress Passes Housing Bill to Assist HomeownersTakes effect January 1, 2009
The newly passed Housing Bill promises more help for homeowners facing foreclosures. What we don't know yet is how Congress is going to get private banks to actually deliver these programs. Much of the legislation is designed to better inform consumers and this is very welcome news to our industry!
Officially, Congress has set aside more money for FHA guaranteed loans and will pump more money into Fannie Mae and Freddie Mac. Since Freddie and Fannie, both Goverment Sponsored Enterprises, or GSE's were placed in conservatorship shortly after the Housing Bill was passed, the new heads have not yet declared if their recent guideline changes (tighter) will continue as planned. In fact, FHA has areadly delared a moratorium on their own risk guidelines so the whole situaiton is very much up in the air. These risk based guidelines translate into higher interest rates and fees for marginal credit or declining values...affecting many many people across the country.
What most people don't understand is that 'government lending' means a percentage of guarantee to the final lender who is going to hold the note. They still have to like your business proposition: i.e., you and your property.
This bill does raise current loan limits -- which means an individual borrower can borrow more than the previous FHA limits for their locale. Reading closer, the new First Time Homebuyer tax credit must be repaid over a fifteen year period. It appears these measures are designed for short term relief.
Risk leveler: The FHA minimum down payment was raised to 3.5% from 3% by the new Housing Bill. The bill has also outlawed 'gift funds' from non profit organizatoins, but family gifts are still allowed. Lenders have become much tougher about keeping your debt to income ratio under 43% and verifying your income. If you don't qualify for an FHA loan your next best option is to have greater down payment funds and work on your credit. If you have 20% down for a convetional loan, you won't need mortgage insurance unless, again the property is in a declining area...so plan on an extra 5%.
Investors are also facing lower limits on how many properties they can mortgage (In some cases, 4 total mortgages). It's a good idea to speak with a financial advisor about setting up a savings plan if you are planning to buy a home in the next year or two!
January 1, 2009 is when these new guidelines come into effect. If you can qualify for a refinance or purchase loan before then and need to make a move before your ARM adjusts--don't wait! Rates, while volatile, appear to be rising. 'FHA Secure' interest rates are currently higher by 1.5 - 3% depending on your risk category. 'FHA Rescue' (the new program) is likely to be even higher.
Do You Know Where Your Money IS? Considering all the bank failures, mergers and buyouts, it's a good time check out your bank and see they how stable they are: Compare bank ratings here:
http://www.bankrate.com/brm/safesound/select.asp?insttype=0 (click or copy and past this link into your browser)
If your bank was doing something risky they have ceased to do so given the new level of FDIC oversight. So while they may be less inclined to lend--this is to protect your deposits also.
Buying a Fixer Upper? When buying your own home, it's easy to add up to $35,000 cash for renovations or $6,000 for energy efficiency improvements through FHA streamline renovation "Green Loans". We also have full construction and renovation loans through our specialist construction lenders. It really is a great time to buy, build or renovate if you are in good shape financially. Check out my Buildnet Blog.
Improve Your Fund-Ability! The most important thing you can do these days to improve your chances of getting a loan is to raise your 'middle' FICO score to 720 or higher (850 is the top).
Having sufficient assets to close is absolutely essential these days.
Remember when the rule of thumb was no more than 25% of your income for your house payment? Those days may be returning. While you are riding your bike to work -- take time to appreciate the scenery. You might find a nice little house you can afford along the way!
Happy shopping! Loannetter
© copyright 2008 susan templeton loannetter