The FHA announced they are reducing loan limits for 2014 in high-cost areas in an effort to scale back their role in the housing market. Looking back to 2008, financial markets depressed in the aftermath of the meltdown, economy on the verge of recession, enter loan bailout- the Federal Housing Administration. This direct government involvement would soon become one of the most sought after mortgage types in recent years. Since 08′,  unemployment has fallen, job growth is emerging, slowly, and real estate demand has increased. How home buyers will be affected by FHA’s 2014 scale back…

Haven’t Purchase A House Yet?

The lower FHA Loan Limit will affect buyers higher-end property market For example if you take Sonoma County, California the maximum new FHA Loan Limit in January will be reduced to $520,950 down from $662,500.$141,550 lower in max loan amount! Buyers affected by this change who otherwise would buy with FHA’s minimum 3.5% down, will now need to come up with more cash, plain and simple.

Average FHA Loan Limit Reduction $67,250

Most counties will be affected to the tune of $67,250. In other words, when January 2014 arrives, most counties will have a reduction in their maximum loan limits by approximately $67,250, if not more.

Jumbos Will Emerge

Jumbo loans typically have tighter qualifying restrictions in terms of credit history and debt ratio requirements than its FHA  counterparts. For example, a buyer using FHA loan to purchase a home with the previous foreclosure, short sale or Chapter 7 bankruptcy can do so in 2 to 3 years wherein a jumbo  reviews tarnished credit with more scrutiny. Plan  on seven years from a previous foreclosure or short sale  in four years on a bankruptcy in most instances unless one and/or more of the following circumstances apply. Foreclosure and/or  bankruptcy took place due to extenuating circumstances beyond your control or the previous transaction was a short sale over two years ago and you have 30% or more  as a down payment.

Work On Your Credit

A 700 credit score will be needed to be a serious home buyer. 740 credit score will provide lower rates and fees.

20% Down Payment

No longer will home buyers on the higher-end market be able to purchase a home with less than 20% down if the loan is not conforming high balance or FHA. In other words 20% down is going to be the new normal for buyers securing jumbo money. Many mortgage insurance companies simply do not sure bigger loan sizes.

More Gift Money

Lenders are going to look at gift money as a viable option to help come up with the down payment needed to buy the home. Plan on having these monies be documented and sourced from all the parties,including full bank statements from each parties showing the paper trail of funds from point a to point z.

You’ll Need A Cushion

Mortgage lenders look at how much funds you’ll have in your bank account after-the-fact.  Having additional monies bank to make future house payments should a financial calamity occur is a positive factor  in credit decision-making. Plan on having six months mortgage payments in the bank.

May Have To Buy Less House

This this could end up being reality for the group of buyers who have not yet identified a property, presently, home searching with an FHA pre-approval. The unfortunate fact for this ‘buyer type’ with substantial income and not enough down payment, could mean- putting the brakes on.

2013 home prices as well as a prospectus of future home prices, show strong improvement directly attributed to an improving economy as evidenced by the continual reduction in the unemployment rate with new job growth. People buy homes when they’re feeling confident about their job and the economy. While these changes will inevitably affect a percentage of the home buyers, this is a sign of an overall improving economy which points to good news for home equity and subsequent home sales.

If you have been thinking about purchasing a home or would like a second opinion about your preapproval numbers, start by getting a complementary mortgage rate quote now!