Tuesday, July 29, 2008

Understanding the Housing Bill-Part 2

Thinking about taking advantage of the sad real estate market to purchase a new home? Here's what the soon-to-be Housing Relief Law has in mind for you...

No More Help with Downpayments

Once upon a time first-time homebuyers, low-income and moderate-income could get a little help with home ownership through down payment grants. It was a nice idea, but now the feeling is that this may have caused more trouble than good including contributing toward inflated housing prices. That's because while the FHA insured mortgage required the buyer to put down 3%, it didn't stipulate where that 3% came from. In fact if you follow the link above you'll quickly see that FHA encouraged down payment grants. It worked like this:

The seller wants to unload the house, but the buyer doesn't have the 3% down payment. Technically the seller cannot provide the buyer's down payment. They can, however, give the money to one of the granting agencies such as AmeriDream or Nehemiah who then gives it to the buyer.

And so the Housing Relief law will ban such programs as of Oct. 1.

Extended Loan Limits
Earlier this year the maximum loan amount that FHA would insure was temporarily raised. The new law makes that raise permanent. The limit will be 115% of the local median home price up to $625,500.

FHA for Doublewides
Manufactured homes have been limited to FHA-insured loans of $48,000. The new law will increase the amount to $70,000. But the insured loan only covers the home and not the land. The upside of the increase is two-fold: 1) the previous limit was set in 1992, the new limit will index with inflation, 2) the increased limit will allow for the purchase of bigger and better manufactured homes, i.e., doublewides.

In Other Cases

For the Troops
Currently if a service member has a mortgage before entering duty and then defaults on the loan the lender can begin foreclosure proceedings just 90 days after they return home. The new law will extend protection to 9 months after they return from duty. In addition, active service members who hold a mortgage will have the interest rate on all existing debt capped at 6% until 1 year after they return.

When You're 62
Reverse mortgages, which are typically sold to people over the age of 62 will have a tighter watch. The new law bars insurance salesmen from originating reverse mortgages. And originators cannot require homeowners to buy annuities or insurance products. Origination fees will be limited and indexed with inflation.

The Grand Finale
The new law will create an Office of Housing Counseling. It will also require licensing and registration of all mortgage brokers.

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