Whether you are buying a home or selling a home recent federal changes may affect your real estate process…including the FHA changes Leslie talked about yesterday that are coming in the next few months and new FHA condo guidelines taking effect the end of this month.
If you are a buyer with a lower credit score planning to finance all your closing costs this means your window of opportunity is NOW. In the next few months down payment requirements will go up for credit scores under 580 and the percentage of allowable financed closing costs will go down.
Short sales also have new rules coming which will hopefully make it easier to both purchase and sell a short sale property…think days instead of months for bank approval!
Changes related to financing and closing cost estimates have already taken effect and essentially mean the end of the quick close. This usually means you need at least 30 days to close, although with the right lender a quicker close may still be possible. It also means that once buyers get their lender's Good Faith Estimate (GFE) of costs and cash needed to close after signing a Purchase Agreement it cannot change significantly…meaning no big surprises at closing. BUT this makes it more important than ever that your lender's GFE is accurate…if it isn't, closing could be delayed.
FHA Mortgage Changes
FHA financing is the last remaining option for buyers with minimum cash down payment of 3.5%. It is currently used in nearly 1/3 of all new loans, so these changes will have an impact both on a large number of buyers and those selling to them.
- Upfront mortgage insurance fees will be raised from 1.75% of mortgage amount to 2.25% ($750 on $150,000 mortgage)
- Borrowers with a credit score below 580 will need at least a 10% down payment instead of the standard 3.5% minimum
- Allowable seller contribution to buyer closing costs will be limited to 3% of sale price, down from current maximum 6%
- Spot approvals will no longer be available for condos, meaning FHA financing cannot be used for a condo unless the whole association complex is FHA approved
- FHA loan limits vary by state and county, Twin Cities metro 2010 limit is $365,000 for a single family home
Good Faith Estimates and Closings (RESPA)
New changes to RESPA (Real Estate Settlement Practices Act) are aimed at providing greater transparency to buyers and sellers. It involves new standard regulation forms for mortgage terms and closings intended to make it easier for consumers to compare choices and provide assurances that there will not be significant changes between estimated and actual expenses and funds needed to close.
- Actual Good Faith Estimates (GFE) of mortgage loan terms and closing costs are not issued by the lender until after receiving a signed Purchase Agreement, but once issued only limited changes are allowed so there are no big surprises at closing
- Lenders must provide borrowers with a loan origination charge which includes all fees associated with initiating the loan; this charge cannot change from the quote
- Fees quoted for title and closing costs cannot change by more than 10%
- Fees such as homeowner's insurance, which borrowers shop for themselves, can change by any amount
If settlement charges fall outside defined standards of the GFE, lenders must produce a new Good Faith Estimate, which may delay closing. Any changed circumstances, such as a change in purchase price, may also delay closing because of a potential 3-day waiting period requirement. Have everything ready in advance to avoid closing delays.
Short sales have been frustrating for both buyers and sellers because of slow response time from banks holding the mortgage(s). Under new rules taking effect this spring, mortgage companies will have 10 days to approve or disapprove a request for a short sale and must fully release the borrower from the debt when the transaction is completed. This applies only to banks subject to federal bank oversight, such as Bank of America, JP Morgan Chase and Wells Fargo so smaller, local banks are not required to comply.
There is skepticism as to whether this new time line is actually going to happen but it will be wonderful if it does! Shortening response time from weeks and months to days will have an enormous effect on the sale of short sale properties, which often have very long market time and have become increasingly difficult to sell.