#AREFchat Discusses Changes to FHA Loan Requirements

The December 9th #AREFchat could very well be our best one yet. Real estate professionals joined together to discuss the new FHA guidelines and the impact it will have on the first time home buyer market.

For those that don’t know, the FHA has proposed changes to their loan requirements. Probably the most significant difference is that the required minimum down payment would increase from 3.5% to 5%. Mortgage insurance premiums will also be changing with a possible extra fee upfront. The minimum credit score is looking to be raised to 620 or higher. And, the amount that sellers can give FHA buyers in closing costs might be reduced, meaning the buyers will have to cover more of the closing costs. For more details, @Glink has a great article detailing the new requirements and Big Builder also has a detailed article..

The #AREFchat discussion heavily focused on the down payment, because out of all of the new requirements, it is believed to have the greatest impact on buyers.

As always, Kevin B. Morrow (@KBMRG) offered some great insight, even early in the discussion when he said “The big question going around is why spend the money on the tax credit then stall lending with higher down payments?”

This was such a great question because the first time home buyer tax credit was recently extended in hopes of getting more buyers in the market. However, with the 5% down payment requirements and tighter restrictions on credit scores, it is going to be more difficult for these first time home buyers to take advantage of the tax credit extension.

We had a few first time #AREFchat joiners – @taniamacleod,  @BigBuilder, @TheMarketSage, @BooneHomes and @JonathanSaar – all wanting to lend their opinions of the new FHA guidelines.

Everyone engaged in the conversation basically came to the same conclusion – the new guidelines would heavily impact the first time home buyer market, and while all of the new regulations would make getting approved for a loan more difficult, the 5% down payment is the biggest hurdle.

The proposed increase is only 1.5% and real estate professionals do not seem to think it will make that big of a difference for the lenders – 1.5% is not the difference between making payments every month and foreclosure. However, it will affect the buyers because it can be a difference of over $2,000 for the down payment.

@AtlantaPR summed it up perfectly when she said “Buyers should buy now before they have to find more cash for the down payment”

Unfortunately, the proposed new FHA guidelines seem to be compensating for previous years when lenders were approving loans they shouldn’t have. Now, as @KBMRG said, “The pendulum has swung from one extreme to the other, we need something in the middle.”

So, what’s your opinion? Are the new guidelines going to prevent first time buyers from purchasing a new home? How will it affect the Atlanta market? Are the FHA guidelines a step in the right direction to help fix the economy? (All of these questions were discussed during #AREFchat, if you feel like you missed out on an opportunity for live communication with real estate professionals, don’t miss next week’s forum on December 16th at 9:30 a.m. EST).