As the cost of FHA financing continues to go up, Conventional financing is gaining more and more traction with First Time home Buyers. I have an excellent loan officer that offers 5% conventional financing that ends up being a better loan product in most cases than FHA.
The Federal Housing Administration (FHA) plans to impose significant restrictions on the amount of money that sellers can contribute at closing in the near future. The FHA also will be raising its mortgage insurance premiums during the coming weeks, increasing charges for new purchases across the board.
Making sense of the story
- One reason for the increase in fees is that over the last six years, the number of FHA loans used by buyers has increased significantly. The housing program is financing 40 percent or more of all new-home purchases in some areas and is a crucial resource for first-time buyers and moderate-income families. This is especially because of the low 3.5 percent down payment required for most FHA loans.
- During this span of rapid growth, the FHA’s insurance fund capital reserves have steadily deteriorated – far below congressionally mandated levels. And delinquencies have been increasing. As a result, the FHA is under the gun to get its own house in order, cut insurance claims, and rebuild its reserves.
- Under the changes, the FHA will lower its seller concession cap to 3 percent of the home price or $6,000, whichever is greater. Currently, the FHA allows up to 6 percent of the price of the house to go toward buyers’ closing costs.
- Beyond that change, the FHA also plans significant increases in insurance premiums – upfront premiums will rise to 1.75 percent from 1 percent, effective April 1, and annual premiums will increase by 0.1 percent on all loans under $625,000 and 0.35 percent on mortgage amounts above that, effective June 1.
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