David Home Inspection: New FHA Guidelines; Bye-bye Flipping Rule

New FHA Guidelines;  Bye-bye Flipping Rule..Great summation of the new FHA guidelines courtesy of RealtyTrac.  Working with first time buyers and investors here in the Coachella Valley, both of these issues will be important in 2010.

Securing FHA-insured mortgages are attractive to borrowers because down payments are only 3.5 percent. Most conventional loans now require 20 percent down, keeping many creditworthy borrowers on the sidelines.

New Guidelines

The new rules - which are temporary and take effect this summer - come after more than a year of stringent standards from lenders. Among them:

• Better Credit Score - New borrowers will have to have a minimum credit score of 580 to qualify for a 3.5 percent down payment. Previously, there was no minimum score. Those with lower scores will have to make at least a 10 percent down payment. The average credit score of FHA-insured borrowers is 693.
• Higher Insurance Premiums - Buyers who get an FHA-insured loan will soon have to pay a higher initial insurance premium. The new premium will be 2.25 percent of the value of total loan amount, up from 1.75 percent now. A $100,000 mortgage would require a payment of $2,250, or $500 more. But buyers can roll the added cost into the loan amount.
• Reduction in Seller Concessions - Starting this summer, sellers will not be able to offer as much help to buyers to pay their closing costs. The maximum amount of assistance will drop to 3 percent of the value of the property, from the current 6 percent.

FHA removes anti-flipping rule

Another FHA rule change could help foreclosure-plagued markets like Las Vegas, Phoenix, Miami, Detroit and Los Angeles, making it easier for investors to "flip" houses to buyers who use FHA-insured loans.

Effective Feb. 1, the federal government will waive for one year an FHA anti-flipping rule that prohibits insuring a mortgage on a home owned by the seller for less than 90 days.  (This will be huge in the Coachella Valley)

The new rule lets investors buy today and re-sell as quickly as possible. The move is to allow REO homes purchased by investors to resell as quickly as possible, helping stabilize real estate prices and revitalize neighborhoods after the U.S. housing market collapse.

This new rule will open up a new pool of homes to buyers. Waiving the 90-day flip rule is being heralded by many real estate investors as a boon to their ability to buy, rehab and resell foreclosed homes on a more efficient time line.


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Kimberley Kelly, Certified Short Sale Specialist

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