Lorraine Ryall
As of January 2014, there are going to be some major changes in the mortgage industry, which will impact the home loan process.
FHA Loan Limit Reduction
The Federal Housing Administration (FHA) recently announced it would reduce the loan limits as specified by the Housing and Economic Recovery Act of 2008. Unfortunately, Maricopa and Pinal counties are among the 650 counties across the United States having their FHA loan limit reduced from $346,250 to $271,050, effective Jan. 1, 2014. That is almost a 22 percent decrease, or $75,200 less buying power for a buyer using FHA financing.
The Economic Stimulus Act of 2008 established the higher limits, which have been in place for the past six years. They served as an emergency measure to assure mortgage credit was widely available during a time when private lending options were severely constrained. Originally, the lower loan limits were scheduled to take effect in January 2009. However, due to continuing strains in credit markets, Congress delayed implementation several times, but now is moving forward with the lower loan limit.
For buyers who have to use FHA financing for specific reasons, such as a previous short sale, bankruptcy, foreclosure, low credit score or down payment limit, their purchasing power will be reduced, as they now have to look for lower priced homes. There are alternatives available for buyers who have the ability to convert to a conventional loan with a down payment as low as 5 percent. While your credit score and debt to income ratio, as well as other qualifying factors, are stricter on conventional loans versus FHA, they are available and a good option for buyers who want to purchase a home above the FHA loan limit. Also keep in mind VA home loans. For those eligible, the VA allows for a zero down payment loan, with up to a $417,000 loan amount, in most cases.
Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)
Dodd Frank created a new requirement whereby all residential mortgages meet an Ability to Repay standard, prohibiting creditors from making a mortgage loan without determining the consumer’s ability to repay, and establishing minimum requirements. This rule has created a new loan category called the qualified mortgage. The lender must meet the following criteria for the loan to be a qualified mortgage:
• A fixed rate with maximum 30-year term. No interest only, adjustable rate or balloon payment loans.
• Points and fees to be capped at 3 percent
• Debt to income ratio cannot exceed 43 percent, including PMI, debt and other obligations. However, lenders can exceed this amount in certain circumstances.
All other loans not meeting these criteria will be non-qualifying, which places a higher cost and burden on the lender. Jumbo loans also will be non-qualifying, but we don’t expect to see any changes in this segment of the marketplace.
So what does this mean to the borrower?
• Lenders will be requiring more verification to support the borrower’s ability to make the mortgage payment.
• Loan costs are likely to increase.
• The closing process probably will start to take longer due to the increased compliance lenders must undergo to be sure they are meeting the new federal regulations. Be prepared for closings to take 30 to 45 days.
With all the new changes, it is now more important than ever to choose a Realtor who not only understands the real estate market, but also understands how the new lending requirements may impact the sale or purchase of your next home. Choosing the right lender, one who is not only well informed on all the new changes (and there are more to come), but also has the staff and systems already implemented to navigate the new requirements, is going to be the key to a successful and timely close.
Visit my Web site for more information on the FHA and Dodd Frank changes, or to contact one of our trusted lenders today.
Lorraine Ryall is a multi-million dollar producer and recipient of the International President’s Circle Award, which is awarded to the top 5 percent of agents. For more information, call (602) 571-6799, or visit her Web site at www.Homes2SellAZ.com.
