Urgent News! FHA Reduces Maximum Loan Limits!

FHA Loan Limits Reduced!

I thought that you would be interested to know that FHA recently announced a reduction in loan limits for FHA insured mortgages. FHA loan limits are impacted by median home prices and even as home prices have fallen FHA has maintained the loan limits at the higher level over the past 3 years.

FHA Loan limit in Oakland, Macomb and Wayne Counties has been at $297,500 over the past couple of years. That limit is being reduced to $271,050 as of October 1st!

What does this mean to you? If you are a Realtor working with a FHA pre-approved buyer then the maximum amount they can borrow has just gone down by over $26,000 and so has the max purchase price of the homes they should be looking at. If you’re a homebuyer using an FHA loan then you’ll need to keep the price range of home you are looking at around $280,000 in order to get maximum financing.

Any loan in process that has a base loan amount over $271,050 must close prior to September 30, 2011 or it will be subject to the new loan limits!

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The Conventional Mortgage is Back in 2011!

Over the past 3 years government backed mortgage loans (FHA/VA) have become more and more popular due to actual and perceived difficulties in being approved for a conventional loan. Now there are a bunch of good reasons to look at conventional loans again.

Since October of 2010 FHA has raised the cost of monthly mortgage insurance premiums twice and doubled the monthly cost! The rate was .55% annually and was increased to .90% and then again to 1.15%. I’m not here to debate if these increases were merited, just to report the fact that they happened. To show the impact of this let’s look at a $100,000 mortgage. Prior to these changes the monthly cost of FHA monthly mortgage insurance was $45.83 and now that same insurance is $95.83 per month. Ouch! FHA also increased the minimum down payment to 3.5%.

Contrary to popular belief, Conventional loans at up to 95% loan to value (LTV) are once again available and are approvable. We even have new programs available for up to a 95% LTV with no private mortgage insurance (PMI)! These programs can be very advantageous to a home buyer and often result in lower monthly payments and no PMI expense. This is known as Lender Paid Mortgage Insurance (LPMI). Here is an example for a $200,000 Purchase Price and assuming buyer has a 720 credit score:


                                    FHA w/ 3.5% Down        Conv 5% Dn with LPMI
Interest Rate                                  4.500%                                    5.000%
Down Payment                             $7,000                                   $10,000
PI Payment                                $987.68                                 $1,019.96
Monthly PMI                             $184.96                                        $0.00
Total Monthly Pmt                  $1,172.64                                 $1,019.96

 Monthly Payment Savings of $152.68 with Conventional loan!

As you can see, the LPMI Conventional loan saves the home buyer $152.68 per month and the additional down payment is only $3,000. Many home buyers could actually afford a more expensive home and end up with the same house payment using LPMI. In this example using the Conventional loan the purchase price could increase all the way to almost $220,000 before the monthly payment equals the FHA loan! That’s a lot more purchasing power with the same overall monthly payment. This is an option that should not be overlooked. Are you working with a lender that offers, and knows how to use, the most innovative mortgage loan programs?

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The Truth about Whether Michigan Real Estate Values are Falling in 2011

There’s no disputing the fact that real estate values have fallen significantly over the past 4 years all over the United States. Some markets saw falling prices earlier than others but no one has been spared. Just about every day there is some news piece that you see, hear or read that says home prices are going down. What’s the real deal?

The problem with national news reports for our area is that they focus on the “Detroit” real estate market. The city of Detroit has issues that are affecting the price of homes that are specific to the city. I’m not going to go into that. Suffice it to say that the hardest hit real estate market in the State of Michigan is in Detroit and values there are still falling in 2011 according to the Michigan Association of Realtors (MAR - average sales price for YTD 2010 compared to YTD 2011 is down by approx 9.9%).

The market area I work in is primarily Oakland and Macomb counties. Let’s take a look at this year’s figures from MAR for Oakland County. Total number of sales for the first 4 months of 2011 was 2,219 and for 2010 it was 2,358, which is a drop in the number of homes sold of 5.9% (MAR figures). Last year we had a Tax Credit for Homebuyers that really stimulated the market and that accounts for the sales drop. Actually, I think it’s quite positive that the number of sales dropped so little as many believed the expiration of the tax credit was going to have a much larger negative impact. That may actually show the strength of our market!

What I really want to focus on is the PRICES homes are selling for. The average sales price of a home in Oakland County for the first four months of 2010 was $132,314 and for the same period in 2011 the average price was $136,783 – that’s a 3.4% INCREASE in the average sales price this year over last year. Does that sound like real estate values continue to fall in Oakland County? The average sales price in Macomb County is actually up from $87,093 to $107,144 – a 23% increase!

The auto industry is enjoying an upswing (finally). This week there was a report out that the Big Three are going to be on a massive hiring spree over the next 3 years. Sure, some of those jobs don’t pay quite as well as they used to, but, it still puts people to work. In my opinion, our local economy is on the upswing and we are ready to create some real prosperity here and that bodes well for higher real estate values over the next few years. So, next time you hear some national real estate doom and gloom, ignore it!

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FHA Increases Monthly Mortgage Insurance Premium - Again

For the second time in 6 months FHA has announced an increase in Monthly Mortgage Insurance Premiums (MMIP) for FHA loans. Right now the premium cost on a 30 Year Loan is .90% annually (.075% monthly) and as of April 18 the new rate will be 1.15% annually (.0958% monthly). That’s a .25% increase and will add about $20 per month to the payment on a $100,000 loan amount.

Why are they doing this? Well, the bottom line is that it is necessary to keep the FHA loan program viable. An FHA loan is actually insured by the Federal Housing Administration (FHA). This insurance covers the lender that made the loan in the event the loan ever goes into default (the homeowner stops making their payments and is foreclosed). The mortgage insurance premiums are pooled and used to pay for losses that occur due to loans that go into default. We all know that a lot of loans have gone into default over the past 3 years and these heavy losses could make it impossible for FHA to continue to insure loans.

In order to keep the FHA loan program viable and available FHA must ensure that it has enough MIP collected to adequately cover losses it incurs on bad loans and it has needed to increase the monthly mortgage insurance premiums to accomplish this goal.

The thing that most borrowers don’t understand about mortgage insurance is that the fact that it exists allows home buyers to get loans with significantly less down payment than would otherwise be available. If there was no such thing as mortgage insurance lenders would require all buyers to put down 20% and then it would take people forever to buy their first home. Mortgage insurance benefits home buyers because it makes low down payment loans available!

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Economic Update for Michigan in 2011

Now that the champagne bottle is empty and the gifts are open it’s time to get busy making a living again! Fortunately, at least in my opinion, it’s going to be a better year for business in Southeastern Michigan.

Economic Projection for Michigan
Most of the real estate professionals that I know, including Realtors, Appraisers and Lenders, seem to be in agreement that real estate values in our area have stabilized over the past 6 to 9 months. This should bode well for sales this year as buyers who may have been waiting to see if prices were going lower should get the message that they aren’t and that now is the time to grab up a house at the best value in 20 years. Also, the inventory of homes for sale has declined significantly and days on the market is back to historical norms in most areas.

In Michigan we should also see a stronger local economy as well. Industry experts are expecting a 10 to 12% increase in automobile sales this year and that should set the stage for improved consumer sentiment in our area and boost sales in a general sense in our State economy. Many Michiganders who would like to upgrade their home but have not done so due to job fears may find the comfort level they need this year to make the move into that new home. I believe that our State is going to emerge from this economic recession in front of the rest of the nation and that we are going to have a much healthier Real Estate Market in 2011.

Mortgage Loan Limits for 2011
For 2011 mortgage loan limits will remain unchanged with Conventional loan limit at $417,000, FHA loan limits in the tri-county area set at $297,500 and VA at $417,000. FHA is still requiring a minimum 3.5% down payment; Conventional loans are still available with 5% down and VA with 0% down.

Interest Rate Projection for the New Year
Interest rates reached an all time low in the fourth quarter of 2010 with 30 Year rates in the low 4’s. Since that time rates have moved up a bit and are currently in the high 4’s but are still very attractive and should not discourage any buyers from making a move in the housing market. Rates for this year should remain at historical lows but may move up a bit as the U.S. economy improves this year. It would not surprise me to see rates in the mid 5’s this year but I don’t expect a significant increase in rates until the overall economy really gets on much stronger ground.

So for the New Year I hope to see an uptick in real estate sales, a further firming of house prices, and a significant improvement in our local economy, a more optimistic consumer and a continuation of some of the best mortgage rates that have ever been available. Overall, it should be a good year!

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