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May 05

Five reasons to get your FHA mortgage now

With the likely installation of QRM (Qualified Residential Mortgage guidelines) looming, it is clear that FHA mortgages will clearly become more popular merely because of the lesser down payment requirements. And as we have all learned, when the demand for something goes up, and the supply remains constant, prices go UP…that is, it becomes more expensive.

Talking Point One

The FHA is permitted each year to insure a specific dollar amount of loans by Congress. I find it unlikely that anyone has factored the increased demand for FHA that QRM will create. Further, getting Congress to allocate more money to HUD in these days of deficits is not a sure thing. I could see a fourth quarter of 2011 with little financing available (or much more expensive financing) to people with less than 20% down.

Talking Point Two

We hear, almost daily, that FHA is only semi-solvent…that they don’t have sufficient reserves. Foolishly, the MIP (mortgage insurance premium) schedule was altered to give them less cash today (lowering the Up Front MIP) and increasing the longer term collection of monies (the Monthly MIP). To me, that almost insures another MIP change this year…one in which the Up Front MIP is hiked to get more money in the reserves now, making mortgages more expensive.

Talking Point Three

The FHA is floating rumors about tightening guidelines. Maybe it will be an increase in minimum down payment from 3.5% to 5%. Maybe a cut in seller paid closing costs from 6% to 3%. Maybe both. Regardless, it is going to get harder to qualify. Understand with increased demand and steady supply, lenders will be choosier.

Talking Point Four

Rates are creeping up anyway. With inflation making a strong comeback (fueled by high gas prices), the Fed will look to hike rates to control inflation.

Talking Point Five

The current loan limits are going to be slashed. Presently, FHA will insure loans up to $729,250 in high cost areas. That number is huge when compared to historic loan limits and was instituted when desperate times called for desperate measures. And while we still might be semi-desperate, look for those loan limits to be lowered by at least $100,000 come the end of the year (when Congress sets them for the next year).

For buyers, waiting can be expensive, or worse. You might not even get a loan. For sellers, more expensive loans and less buyers who qualify, will force you to lower your prices even further. ACT NOW!

Reprinted with permission from KCM Blog, 5 Reasons to Hurry, April 21, 2011,  by Dean Hartman,the Chief Planning Officer at Continental Home Loans and a 25 year veteran of the mortgage banking industry.

 

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