A collegue of mine (John Maulding) recently wrote on a subject that I wanted to relay. He said it just a well as I could have and more sustinct!
On July 26, 2006 the U.S. House of Representatives passed a bill titled The Expanding American Homeownership Act. This is very good news for first time homebuyers. What it does is modernize and update the Federal Housing Administration’s (FHA) pricing structures and program requirements.
FHA has been a favorite loan program for first time homebuyers for many years, but in the last 3 or 4 years it became much less attractive to consumers. Why? The majority of first time homebuyers put zero down, yet FHA still required 3% down…and the #1 barrier to homeownership is coming up with a downpayment.
As FHA fell out of favor with homebuyers, we saw a big change in the mortgage industry, most notably, the increase in popularity of subprime (non-traditional) loans. These loans did a great job of getting Americans into homes, but did not contain the same consumer protections as FHA loans. Example: subprime lenders had much harsher interest rate adjustment caps on their adjustable rate mortgages (ARMs)…some also had prepayment penalties which imposed huge costs if a buyer should want to refinance or sell their home within the first 2 or 3 years of homeownership. This is not to say that while FHA faltered the mortgage industry was taken hostage by subprime lenders. The conventional standards of mortgage lending set down by Fannie Mae (FNMA) also changed to meet the changing needs of borrowers, and in doing so, became an attractive choice for many first time buyers (after playing second fiddle to FHA for years).
Here are the effects of the new House bill:
- Eliminate current 3% down payment requirement.
- Created new risk-based insurance premium structure that matches the premium (a.k.a mortgage inurance or PMI) with the credit risk that a borrower presents.
- Increased and simplified FHA loan limits. In many areas of America, FHA was not a viable option for many buyers because the average home prices were so much higher than FHA allowed.
This is going to help many first-time home buyers, whether you are in Texas where John lives, or here in Sacramento. If you have any questions about loans or Real Estate in Sacramento don’t hesitate to call (916.595.7900) or email me at Keith@BurmasterRES.com. Also you can search for all the houses that are currently on the market on our website: http://www.BurmasterRES.com