As we approach March, many are thinking of listing their homes. Yet, we've seen a big influx of buyers already in 2013, and there will be more coming to the table as we approach the "hot" market of Spring. There are some changes on the horizon that will most probably effect buyers and sellers across the board. If you plan on being in one or both of these categories, here is some important information you need to know:
Beginning April 1, 2013, FHA (Federal Housing Administration) will change their MIP (mortgage insurance premiums) on loans. How this will affect you is important if you plan on listing your home for sale in the coming months, or have plans on purchasing a home using FHA as opposed to a conventional loan.
By law, FHA is required to maintain a 2% reserve on its Mutual Mortgage Insurance fund (MMI). Because of the bad loans given in the early 2000's, FHA had a drop in its MMI to 1.44%. In an effort to rebuild to it's original 2%, FHA has made the move to increase its annual mortgage insurance premiums on most FHA backed mortgage loans. This equals out to you (the borrower) as an increase of 10 points annually, or 0.10 percentage points. The increase applies to all loan terms under FHA, including 15 and 30 year fixed rate mortgages, which are the two most popular.
The FHA also announced that it is reversing its policy which allows FHA-backed homeowners to cancel mortgage insurance premiums once the outstanding principal balance of an FHA loan reaches 78% of the original balance. Starting 4/1/13, you may no longer remove the MIP throughout the life of the loan if the beginning loan balance is higher than 90% of its appraised value. This will remain true for purchases and refinances that fall in this category. If the loan balance is 90% or lower of its appraised value then the MIP must be paid for 11 years (this change takes effect June 3, 2013).
Lenders will be required to manually underwrite loans for borrowers with credit scores lower than 620 and a debt-to-income ratio higher than 43%. FHA will also require these lenders to document anything that supports approval of the loan.
What does all this mumbo-jumbo mean for you?
As a Buyer: it could have drastic changes in how you approach your home shopping. Your first step is ALWAYS to hire a REALTOR you trust and who understands your wants and needs. Your second step is finding a LENDER who can PRE-QUALIFY you BEFORE you begin your home search. (Choose one for yourself, or ask for help from your REALTOR.) Once you have your team in place, your lender will be able to tell you what loan options are best for you and you can begin searching for your new home. Be prepared for 5% (as opposed to the 3.5%) down if you're going with FHA. And know that the house payment you had calculated before the changes take place will now be higher per month afterwards. This MIP will be a part of your monthly payment for the life of the loan.
The good news here is that if you begin the loan process BEFORE April 1, 2013, you are grandfathered in and won't be affected by these changes.
As a Seller: if you have waited for Spring to list your home, you may have waited too long. Buyers have been out on the market all Winter, and it doesn't look like they'll be slowing down. However, now that we are into March, I highly suggest listing your house BEFORE the changes happen on April 1. Most Buyers will want to lock into something before the added costs come in to effect on their loans. It could save them hundreds of dollars per month, adding up to that of a child's college tuition over years. Don't be left out in the cold... literally. Put that sign in your yard before you lose those "urgent" buyers.
This latest news will have a "sizzling" impact on our market. The Spring Market will be in full swing. Buyers will be gobbling up the inventory quickly throughout March. Don't be left out! If you would like more information and/or help in regards to this article, or any other real estate related topics, please feel free to contact me.
Jody Hoffman: Keller Williams Realty: 314-775-2761: jodyhoffman@kw.com
