FHA to make condo buying easier?
Presales rule, loan limits among recent changes
By Bernice Ross, Tuesday, December 1, 2009.
Flickr photo by Carolyn Coles.Two years ago, almost no one would have thought that Federal Housing Administration-insured loans would become one of the most important sources of financing for real estate sales. Recent changes in FHA guidelines may make an FHA-insured loan a great choice for your purchase.
FHA dates back to the National Housing Act of 1934. As part of that legislation, the 30-year fixed mortgage came into being. FHA has served as an important resource for buyers for 70-plus years, and its loan programs often allowed people to purchase with little or no money down.
I remember doing my first FHA deal back in the 1970s. The property was priced at $62,000. In order for the transaction to close, the seller had to pay two points for the buyer ($1,240) plus all the normal closing costs (about 8 percent, part of which included commissions, the title policy, and the proration of taxes, interest and insurance).
In addition, FHA sent out an appraiser who could require additional repairs be made to the property. The repairs were often things that neither the seller nor the buyer considered to be important.
In my transaction, FHA required the seller to repair some minor cracking in the driveway plus a number of picky repairs that cost more than $500. As a result, it cost the seller about 11 percent of the sales price ($6,800) to close the deal or an extra $1,860. These hefty requirements made most sellers reluctant to accept an FHA transaction. If the prices were increasing, a typical ploy was to add the additional seller fees to the purchase price and hope that the appraisal came in high enough to close the deal.
With the advent of the subprime crisis, lending resources dried up. FHA was not a major player then due to the low loan limits. As a result, borrowers had to rely on loans that would meet either the Fannie Mae or Freddie Mac requirements. These requirements included a maximum loan amount of $417,000 (or as high as $729,750 in some high-cost areas) as well as certain credit score minimums and loan ratios. ...CONTINUED
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Submitted by David Curry on December 1, 2009 - 2:56pm.
This is mind numbing. FHA delinquencies are through the roof, and the solvency of the FHA is in question. Instead of learning what happens when people borrow money with low down payments, the FHA is contributing to the problem. Of course FHA loans are way up, it's a given that they would be given that the free market learned its lesson and won't lend to the same high risk borrowers that the FHA caters to. It's a shame, and anyone in favor of a lasting recovery should recognize the FHA as part of the problem, not the solution. Read more about the FHA igorance at http://www.genevalakefrontrealty.com/blog/index.php?itemid=521
David Curry
Geneva Lakefront Realty
49 West Geneva Street
Williams Bay, WI 53191
262-245-9000
www.genevalakefrontrealty.com/blog
Submitted by Alexis Eldorrado on December 1, 2009 - 9:38pm.
Eldorrado Chicago Real Estate
www.Eldorrado.com
The federal government is trying to stop the hemorrhaging that has occurred amongst developers and owners of properties that are unable to sell due to the credit supply drying up. As irrational as this all seems, I think it has to be done in order to move properties.
Here in the Chicago real estate market, if a condo is unable to be financed through an FHA loan, it is almost a guarantee the condo will not sell. With prices plummeting, most buyers due not want to risk a 20-30% down payment. By lightening up the FHA lending requirements, the real estate industry, at least in major cities, is staying afloat.
Just as it seemed irrational for the federal government to pay someone to buy a house via the $8,000 tax credit, sales of existing homes have starting increasing monthly as a result of this.
If the tide of foreclosures didn’t start at least leveling off instead of ever-increasing, the economy would be in even worse shape than it is now. The government and banks realize now that if they work aggressively to keep people in their homes, it can stop the market from flooding with foreclosures. At least 60% of the country is upside down on their equity.
These are drastic measures in desperate times but nothing less dramatic will work. If things stabilize, at least those with good credit and good income—that is the other 40%— can keep the economy going while the rest of the country starts climbing out of their financial crisis. Ultimately things will stabilize and the economy will begin to grow again.
Alexis Eldorrado
Managing Broker
150 N. Michigan Avenue, Suite 2800
Chicago, IL 60601
773-588-7777
Alexis@Eldorrado.com