Mortgage News, the Good, the Bad and the Ugly!

The good news is that rates are still low; as of the first week of March on a 30 year fixed conforming loan the rate is 5.00% and a 30 year FHA rate it at 5.125%. If you are willing to pay 1/2 a point either loan could possibly be obtained at a low 4.875%!

The bad news is that just weeks before the deadline for the First Time Home Buyer Tax Credit the office of Housing and Urban Development (HUD) implements several changes for loans guaranteed by the Federal Housing Authority (FHA). Starting on April 5th the cost of closing on a home will cost more money! Possibly thousand of dollars more!

Here are a few reasons why:

On April 5th, the cost of required up-front mortgage insurance on FHA loans will jump from 1.75% to 2.25%. For a borrower purchasing a $200,000 home with a $7,000 down payment, the up-front mortgage insurance will increase by $965. Up-front mortgage insurance is typically financed in the final loan amount so the impact to a monthly payment will be minimal but overall, the increase is still borne by the borrower both upfront and monthly.

It is important to note that in order to be eligible for the lower cost up-front mortgage insurance, a lender has to order a case number from the FHA before April 5, 2010. A case number can only be generated for loan applications where a property is involved and a fully executed purchase contract exists. Home buyers who have been pre-approved but are not under contract will not be eligible for the reduced premium effective April 5th.

A great detrimental change is in the amount of money that a seller can return to the buyer from their sale proceeds. Effective April 5, 2010 it will be reduced from 6% to 3%. The reduction in these "seller concessions" can increase the amount of cash a buyer will be required to pay at closing by $6,000 for a home purchase of $200,000.

For most first time home buyers, the only reason they can even afford to close escrow on a home purchase is because of the seller assistance allowance.

If you have been casually shopping for a home thinking that you have plenty of time to meet the April 30th deadline for the tax credit, it is now time to speed up your game plan.......especially if you were counting on seller paid closing costs!

These changes will certainly make the difference in being able to buy a home or not for some shoppers.