FHA To Reduce Allowable Closing Cost Assistance

May 28th, 2010 | By | Category: Market At A Glance, Market Update

fha reduces aide | closing costs | the sahuarita connectionUnder current FHA rules, borrowers have been allowed to receive up to 6% of the purchase price of a home from the sellers to be applied to the buyer’s closing costs. Last January the FHA expressed concern that the current level of 6% exposed them to excessive risk by creating situations where appraisers were pressured to increase the value of these homes being sold.

This concern is due to the fact that the 6% is frequently added to the purchase price of the home on sales contracts. For example, let’s say the list price of a home is $150,000 and the buyer offers $159,000 with the condition that the seller contributes 6% of the purchase price ($9,000) to the buyer’s closing costs. The actual sales price would show as $159,000 rather than $150,000 and the appraised value would have to come in at a minimum of $159,000 in order for the lender to approve the loan.

Because of their concerns, FHA has announced that they will reduce allowable seller concessions from 6% to 3% of the purchase price. This latest change is proposed to take place in early summer, but a specific date hasn’t been set.

Last April the FHA increased the upfront insurance premiums that borrowers are charged on FHA-backed loans from 1.75% to 2.25% of the loan amount.  The FHA is also asking Congress for greater authority to recoup losses from lenders on defaulted loans that were improperly underwritten.  As the housing market continues to recover, we are likely to see even more changes to lending rules and regulations.

Stay tuned!

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