It’s no secret that there are hundreds of thousands of homeowners out there that are in behind on their mortgage payments and need help selling their house via a short sale to get out from under the burden of a debt they can no longer pay. Heck, that’s why we’re in business…to help these homeowners! And in order to sell these properties, the Sellers need Buyers, right? Makes sense.
Well, FHA just dropped another bombshell that sends a very bright flare up into the sky signaling to potential buyers of, not only short sale 
properties specifically, but property in general….NOW is the time to buy! Back in October of last year, FHA increased the rate for mortgage insurance by 55 basis points (.55) to a monthly factor of .90 – a 39% increase. To the average home buyer purchasing a $200,000 house PRIOR to October of last year, their monthly expense for MI was $91.66. After the change, that obligation rose to $150.00 PER MONTH. Heck, this is almost 3 TIMES what it costs to insure the average $200,000 home against fire, flood, and storm damage!
Consider this, the increase in these rates reduces the qualifying loan amount for the borrower due to increasing their ratios.
Now, we’re almost in March, 2011, and guess what? The premium is rising again! Now, from the factor of .90 reset back in October, to 1.15 – another 22% increase. Taking that same $200,000 house purchase scenario, this same borrower will now have a premium of $191.66 PER MONTH….yes, lowering the buyer’s purchasing power again. This amounts to about $100 more than last year’s payment on the same loan, considering a constant interest rate.
Due to the overall tightening of lending requirements throughout the market, including higher down payment requirements (typically 20%), higher credit score requirements, etc. many buyers can ONLY qualify for an FHA loan. Do you think this rise in premium will have an effect on future buyers? Of course it will! And as tough as these premiums are to stomach, one can somewhat understand the need for it – to help offset the enormous losses incurred thus far in the foreclosure debacle and housing market meltdown, overall. It’s really simple profit and loss analysis and adjustment for FHA.
We “realists” know that its going to be a while until the real estate market, as a whole, fully recovers (despite the talking heads positive talk – but I won’t go into that here). And when it does, I doubt seriously that lending requirements will loosen to make it “easy” to buy a home. Buyers are actually being required to “have the money” to buy a house, much like their parents and grandparents did – no excuses. Judging from the amount of business our company has negotiating short sales to help clean up the housing mess, I don’t think that’s necessarily a bad thing.
So, what can you do?
GET YOUR BUYERS BUYING – NOW! There is a lot of great inventory out there. Not only foreclosures and short sales, but “regular” properties that have experienced depressed pricing due to competition from the distressed market. Get out there and buy! The time has never been more right!
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