Yesterday, FHA announced that they were going to implement a number of things that are designed to help FHA get back on the right financial track. One of the major things that they announced was that seller concessions for any new home purchase were going to be reduced from 6% to 3%.
According to the announcement:
One of the bigger problems that led to the current housing problem was the problem of inflated appraisals due to the down payment gift programs as well as seller concessions. FHA eliminated the seller paid down payment programs about 15 months ago and now is adjusting the allowance for seller concessions.
- The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
- This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.
This change will likely impact the first time home buyers the most - because they are the ones who largely are trying to get into their first home and have no equity from their current residence to cover many of the closing costs and moving expenses.
This change, along with increasing the up front mortgage insurance requirements and raising the down payment for people with poor credit will definitely impact the number of people who can qualify for a FHA loan - and not in a positive direction. Expect there to be fewer home owners as a result of these changes.