There has been a lot of talk going around on the upcoming changes to FHA lending. The FHA is thinking about raising the down payment that must be put on a home from 3.5% to 5%, lowering the amount of sellers help for closing costs to 3% rather than 3%, and raising the credit score even higher than before. They are also proposing raising the upfront mortgage insurance premium that is charged to buyers and financed into the loan amount. This has caused quite a panic in the real estate industry. FHA needs to make these necessary changes and eventually will help stabilize the market.

More concerning is the sellers concession from 3% to 6%. These are closing costs that the seller gives to the buyer from the extra equity in the home. A lot of the clients in today’s market are purchasing homes between 100k and 200k. Typical closing costs at this price point run between $5,000 – $6,000. This is taking into account that my fees are minimal, most mortgage companies charge higher fees than my company, which makes the closing costs even higher. A lot of fees, including title companies fees, look to be higher and state taxes vary that are charged on your loan. HOI, appraisals and survey fees all seem to go up every year also. All of these are placed into the loan.

Lets take a look at this. My buyer is purchasing a home for 125k, their closing costs are around $4500. Under the current FHA guidelines the seller can pay up to 6% of the sales price towards my buyer’s closing costs, so they can pay up to $6600. Now, we can take a look at the new changes proposed by the FHA. My buyer now has to put 5% down, so instead of $3,850 in down payment, they will need $5,500. This is only $1,650 more than before, so although it is a strain, they may be able to come up with the difference. We also need to see that the seller can only give the borrower 3% of the down payment instead of the 6% now. The seller can now only pay $3,300 of the buyer’s $5,500 closing costs. The buyer now has to put $5,500 down and pay the $2,200 difference in closing costs, they need a total of $7,700 to close on the house instead of the $3,850 needed before the guideline change. This new rule by the FHA will have a huge affect on the ones trying to purchase a home.

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