The Top 10 Reasons You Better Buy A House With Your FHA Loan By October 2008

1. If you are thinking about buying a home soon you better be putting offers in very fast. On October 1, 2008 there will be new guidelines coming in to play that are administered by the Housing and Economic Recovery Act of 2008. This new housing bill is going to put a major squeeze on people looking to buy a home after that date so you better get a move on. 

2. Under the new guidelines set forth by the FHA the minimum amount down payment will go up to 3.5%. It is currently at 3%. Not so much of a big deal but it does account for more money that you will have to come up with. On a $100k mortgage that is another $500 plus your closing costs.

3. FHA loan limits will decrease which will mean fewer people will be able to get approved on a jumbo loan. The current maximum loan limit is set at $729,750. This went into affect March 6, 2008. The FHA did this so they could help out people with bad loans that were in high cost areas. Hopefully you heard about this and have tried to refinance your mortgage over the past 5 months if you fall into that category. Now the FHA is taking a percentage of what the highest and lowest price sales of homes are for a particular area and using that number to determine what the max limits will be. This goes for people looking to buy a home or refinance with a FHA loan.

4. You can still receive a tax credit up to $7500 for a first time home buyer. This is to help you with things like closing costs when purchasing the home. It is not free money though. If you take the credit you will have to pay it back over the next 15 years or when you plan on selling the home. It is a no interest loan so it makes sense to use it, jsut remember its not free.

5. My favorite one is the Down Payment Assistance programs will be eliminated. You might be asking yourself what is Down Payment Assistance? Could it be another term for getting money from your parents or the company you work for? Nope. How it works is that if you want to buy a home you have to negotiate with the sellers for them to lower the price on the home first. If agreed, you would call up a mortgage company, get approved on the FHA loan, then send your application to another company that gives you the money for the sale of the home. Weird huh? This means another company is giving you the down payment, and at closing they are getting paid back the money from the proceeds of the sale. You wonder where they make any money because at the same time they are technically giving you money and receiving it back. More than likely they are getting a percentage of the revenue or a referral fee from the mortgage company the loan originated with. If I did not know how this worked I would think it would be some kind of scam. Seems like the FHA wants to put the kibosh on it too.

6. With the Down Payment Assistance programs being terminated it means that people looking to buy homes will actually have to (if you can believe this) save up money for a down payment and their closing costs. They can still negotiate with the sellers for “sellers concessions” if they want to which is okay. I do not get why people negotiate seller concessions to begin with. Its not like they are giving you money. The home buyer is just rolling the costs into the loan with the lowering of the price of the house which means you have financed your closing costs.

7. With this going into effect in a couple months the people that need the Down Payment Assistance Programs better be hoping they can get a house. The remaining Down Payment Assistance companies out there require you to have a 620 credit score or higher. No ifs, ands, or buts about it. You will probably see a lot of these companies going out of business or having to try another way to lend money.

8. This is actually good news for the people sitting around wondering if now is the time to buy a house. This gives more reason to wait until 2010 to buy a home. When the mortgage companies stopped doing 80/20 loans, second mortgages, and home equity loans it forced a lot of companies to do one normal conventional loan like a 30 year fixed rate mortgage. Things are going to start getting back to where they were before the housing boom because of this.

9. With no more 100% financing around it means that you will have to have money to get approved on a loan. With no down payment assistance this removes all of the buyers out there that are going to use it. Right now some of the big mortgage companies like Quicken Loans, Chase, Countrywide, and Bank Of America are using these programs to close loans. The FHA loan is a large portion of these companies business and once the guidelines are tightened you will probably see more people lose their jobs because there is not enough revenue coming in. They will still be able to refinance homes but the FHA is not allowing help anymore. I say good for them.

10. This is the last straw for mortgage companies and want to be home owners to get some sort of 100% financing when buying a home. When all of the options are removed there is going to be a time period of less people buying houses. Most people in this economy can afford a monthly payment but do not have the money for any kind of a down payment. With no people buying homes it is going to lower home prices even more. Its simple supply and demand. This will probably cause mortgage rates to go up a little more because now the banks need more revenue to make up for the lower amounts of homes being bought. All in all this really is a step in the right direction for the American population because now we are being held accountable for our financial actions. If you must buy a home and need the FHA loan to do it, you better be putting offers in and hope they close by October 1, 2008 or you will have to have 3.5% down payment coming out of your pocket.