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Friday, January 23, 2009

Changes to FHA financing

As you may or may not be aware, FHA financing has had some significant changes over the past few months. I want to discuss the changes in the allowance of a seller's concession.

FHA borrowers are still allowed to accept seller's concession up to 6% of the purchase price of the home. Now, however, none of that sellers concession is allowed to cover the minimum of 3.5% that the borrower is required to bring to the deal in the form of a down payment. Essentially all the seller's concession can now cover is the borrowers closing costs. No, the buyer cannot receive the difference back in cash at the table (too bad right?).

Closing costs are rarely 6% of the sales price of, so what can be done with the extra money? An unsophisticated mortgage professional may just reduce the seller's concession to cover the closing costs, but that would waste the seller's generosity. The most effective thing to do with the remaining money is to use it to buy down the borrower's interest rate. This money can be applied as a discount fee lowering the interest rate and saving the borrower thousands over the course of the loan.

That's my tip for today. Hopefully it will help you or your clients.

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