Lots of changes were announced this week in regards to FHA Mortgages.
FHA is changing the upfront funding fee from 1.75% to 2.25%. You’ll still be allowed to add the funding fee to your mortgage. This will not affect the buyer’s monthly payments very much at all.
Credit scores less than a 580 will now be require to have a minimum of 10% down, this is up from 3.5%. Not really a big change as most banks currently require a minimum of a 640 score, so this shouldn’t be that big of a problem.
FHA has changed the seller’s contribution for buyers closing cost and prepaid’s. Now the seller’s contribution cannot exceed 3% of sales price, it was 6%. The closing cost is usually about 3% of the mortgage amount. Buyers will now have to fund the prepaid’s which are approximately 1% of the purchase price. This change shouldn’t have little effect on the market.
A major change is FHA will no longer do spot approvals for condos. This is a major problem for the condo market. Many condo buildings/communities are not currently FHA approved. We used to be able to get a spot approval. If the community met the FHA approval guidelines then it was spot approved. This procedure will no longer be allowed. The big picture for condos isn’t looking good right now. Today any condo purchase that’s mortgage is headed to Freddie Mac and Fannie Mae now requires a minimum of a 20% down payment. FHA is the only program with a minimum of 3.5% down payment. This is going to have a major impact on condos. We’re hoping FHA changes their policy in regards to this new ruling.
The condo market in Atlanta has been very tough the last few years. The new lending guidelines is going to create a lot more problems. Many condo owners don’t have the option to rent due to HOA rules. Condo HOA’s can cap the rentals to as little as 15% of the total units. Lenders will not lend money if the total rental to owner occupancy ratio is great than 30%. I feel you’re going to see more distressed condo situations in the coming year as money tightens for a potential buyer.
I want to be sure people understand that townhomes are not affected by the FHA changes the same as condos. If you don’t know the differences between a condo or townhome give me a call. I also have access to the FHA Condo Approval website. Call me if you want to know if your condo is currently FHA approved.
