FR-5404-N-01 Federal Housing Risk Management Initiatives and how this could impact you.

Well, here we go again. The Federal Housing Administration is at it again and this time the proposed changes could result in the majority of people seeking an opportunity at the “American Dream” of owning their own home, to be a virtual impossibility.

FR-5404-N-01 FHA Risk Management Initiatives reducing the seller’s contributions to prospective buyers is potentially the final nail in the coffin. Currently under the laws, Mortgage companies are allowed to add up to an additional 6% of the selling price to the loan amount which is then contributed back to the buyer from the seller, at the time of closing and utilized for “Closing Costs”.

A rough estimate of closing costs for a mortgage is approximately 6% of the selling price which includes Escrow, Title Company and Lender costs related to the closing of the property. Taking an example of a home that costs $200,000.00, represents approximately $12,000.00 in closing costs. Under the current guidelines, the mortgage company could request that the builder raise the selling price to $212,000.00 and contribute $12,000.00 back to the buyer at closing eliminating the need for the buyer to come out of pocket with the closing costs plus the required 3.5% FHA down payment requirement.

Using the example above, current buyers are required to pay 3.5% cash down payment at closing ($7,000.00). FR-5404-N-01 will reduce the amount of “Seller Contribution” from 6% to 3% in which case, the buyer is now responsible for 3.5% or $7,000.00 along with the additional 3% or $6,000.00 at the time of closing. This will negatively impact new home builders and potential home buyers alike.

In an economic grid-lock that this country is currently experiencing, raising the difficulty meter in securing a mortgage for a new home hardly seems the prudent course of action. If someone were to simply look at the current housing market, this recommendation doesn’t appear to attempt to turn the market back to a “Growth” trend.

The 6% seller contribution has been a long standing practice and has served buyers and builders very well in facilitating buyers in realizing their dream of ownership in real property and actually accumulating wealth over the natural course of their lifetime.

It is important to us all that these changes do not occur. You may follow the link below to voice your opinion regarding this issue.

http://www.regulations.gov/search/Regs/home.html#documentDetail?R=0900006480b1a605

With enough voices, we can make a difference in this regulation.