FHA is tightening underwriting standards. Housing Secretary Shaun Donovan announced in December that FHA has plans to:
- increase the amount of upfront cash homebuyers need to bring to closing
Right now, the amount is a minimum 3.5%.
- raise minimum FICO scores for new borrowers
I’ve heard that the increase will be from 620, where it is now, to 640.
- reduce seller concessions from 6% to 3%
How much the seller can offer to help the buyer with things like closing costs.
- and raise mortgage insurance premiums
These new standards could take place as early as April. If you’re thinking about buying or selling, looks like the best time in 2010 will be the first quarter.
Add to that the fact that Congress is expected to allow the homebuyer tax credit to expire. As it stands now, you must have a home under contract by April 30, 2010, and close on the home by June 30th to qualify for the tax credit.
First American Core Logic estimates there was a “shadow inventory” of 1.7 million homes at the end of September, 2009, up from 1.1 million a year earlier. Shadow inventory are those are homes that have been repossessed by banks, or with loans 90 days or more past due, that aren’t officially on the market. Those houses will eventually be released to the market leading to more properties for sale at low prices which, again, drops already deflated valuations.
First American Core Logic also estimates that one in four borrowers was underwater in September. What does that mean? More of the same. A lot of those properties will end up defaulting, going to foreclosure, ending up on the market at a reduced price point, lowering surrounding property values.. See the pattern?
My estimation is that it will be several years before the housing market begins to stabilize and values begin to come back up so, if you can’t wait three more years, buying or selling in the first quarter of 2010 should be your best shot at the best deal before the incentives we have now are gone.