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By Scott Sheldon
The Federal Housing Administration recently announced a reduction in high-cost area loan limits. This reduction comes in accordance with the government’s ongoing effort to retreat from the housing market. Rewind the clock back to 2008, when financial markets were significantly depressed, the economy was on the verge of recession — enter the FHA as the new outlet to support a frail housing sector.
Since then, unemployment has dropped, job growth, while still bleak, is improving, and real estate is in demand. The FHA has accomplished its goal of helping to boost the housing market. Now the government wants to minimize its exposure to bigger loans.
The FHA loan limit reduction will affect home buyers in higher-end properties. For example, if you take Sonoma County, Calif., the maximum new FHA loan limit in January will be reduced to $520,950 from $662,500. Homebuyers who once could buy with less capital will now have to invest more cash into the deal or buy less house. If you’re looking to buy a house but haven’t yet, here’s what to expect in 2014.
1. Your Mortgage Limits Will Be Reduced: Most counties will see the maximum loan limits decrease, on average, by $67,250 beginning January 2014.
2. You’ll See Jumbo Mortgages Again: A jumbo mortgage loan typically has tighter qualifying restrictions in terms of credit history and debt ratio requirements than its FHA loan counterpart. For example, a buyer with tarnished credit can use an FHA loan to purchase a home three years out of the short sale or foreclosure or two years after a Chapter 7 bankruptcy. But with many jumbos, the standard seven years will apply in most cases. One exception to this is if you have 30 percent down, a lender will consider granting a jumbo loan to a borrower two years after they’ve had a short sale.
3. You’ll Need to Get Your Credit Score in Order: You’ll need at least a 700 credit score to play ball. The best terms will go to those with 740 scores or better. (Before you even start shopping for a home, it’s important to know what shape your credit is in. There are many ways to check your credit scores, including Credit.com’s Credit Report Card, which is a free tool that shows you your credit scores and an overview of your credit report so you know which aspects of your credit you need to work on to get a higher score.)
4. You Might Need a 20 Percent Down Payment: No longer will homebuyers on the higher-end market be able to purchase a home with less than 20 percent down if the loan is not conforming high balance or FHA. In other words, 20 percent down is going to be the new normal in most markets for majority buyers. Many investors simply do not allow for mortgage insurance on large scale loan sizes.
5. You’ll Need More Gift Money: Brought on by the FHA’s transition out of the mortgage market, and the need for more money down, buyers may have to turn to gift money as a source for the down payment needed to buy the home. But if you do, be ready to have these monies documented and sourced from all the parties.
6. You’ll Need Reserves: Lenders look at reserves as a cushion to make future mortgage payments. While the FHA does not have a reserve requirement, jumbo loans typically do. You’ll need six months of mortgage payments in the bank post-closing escrow.
7. You Might Have to Buy Less House: This could end up being the unfortunate fact for many buyers in the market who have substantial income but not enough down payment and/or cash to seal the deal. They may have to scale back the purchase price and loan in order to meet the maximum loan limit criteria in your area.
Keep in mind, the FHA would not reduce the loan limits if there was not financial justification to do so. Home prices have risen in 2013, and future home prices show promise for strong improvement, which can be directly attributed to an improving economy — as the unemployment rate drops and new job creation increases. In essence, people buy homes when they’re feeling confident about their employment and they have the income necessary and the confidence to do so. While these changes will inevitably affect a percentage of the homebuyers in the market, this is a sign of an overall improving economy which points to good news for home equity and subsequent home sales.
More about homebuying from Credit.com:
Why You Can’t Get a Home Loan
NEW LAWS AFFECTING HOMEOWNERS IN 2014:
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Under
Dodd-Frank, on Jan. 10 mortgage lenders are given more responsibility for making sure that borrowers have the ability to repay loans. The
eight areas subject to more scrutiny by lenders are borrowers’ income or assets; employment; projected monthly mortgage payments; payments on other loans; other monthly mortgage-related costs; other debts, alimony and child support; debt-to-income ratio or residual income; and credit history. Lenders are also banned from charging upfront fees or points greater than 3 percent of the loan and for selling mortgages that include negative amortization; interest-only periods; terms longer than 30 years; and rapidly increasing “balloon” payments.
MORTGAGES
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Though some property owners have been affected already, many more who’ve been buying federally subsidized
flood insurance will likely see their rates go higher, and in some cases multiply — unless a
bipartisan effort to postpone the increases gains more traction in Congress. And those property owners would be joined by many others in newly designated flood-prone zones.
FLOOD INSURANCE
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Incandescent light bulbs of 40 watts or more are headed for the collectibles market as they’re
banned from being manufactured, starting in 2014. For an equivalent amount of light, the alternatives include the now-familiar CFLs and the more recent vintage (and more expensive) LEDs.
INCANDESCENT BULBS
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After a three-year transition period that redefined what “lead-free” means, on Jan. 4, 2014, the
maximum amount of lead that can be in newly installed plumbing products that carry drinking water is reduced from 8% to 0.25%.
LEAD IN PLUMBING
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The legalization of cannabis in Colorado means that starting in 2014 a resident can
cultivate up to six marijuana plants consisting of “three or fewer being mature flowering plants … provided that the growing takes place in an enclosed, locked space, is not conducted openly or publicly, and is not made for sale.” (So leave the cannabis out of your curb-appeal landscaping.) However, it will be permitted to
smoke marijuana on your front porch in Denver despite recent efforts there to ban that. But on the flip side, Colorado property owners can also bar others from growing or even possessing marijuana on their property.
MARIJUANA
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Advocates for landlords and tenants in New Hampshire have combined to come up with a way to get rid of the bedbugs first and figure out who bears the cost later. Landlords will be responsible for acting to eliminate the pests within a week of being informed by tenants of a bedbug problem, and landlords will pay initially. But if the renters are found to be responsible for the bugs, they might have to reimburse landlords for the eradication. The new rules are designed to counter the kind of landlord-tenant dispute that can lead to further infestation as it drags through court, reports
The Associated Press.
BEDBUGS
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In California, businesses other than utility companies must get the consent of individual consumers before being allowed to share data about customers’ energy use that was collected from
smart meters. Even if the non-utilities are able to gain consent, though, they’ll need to take appropriate measures to keep the data secret from unauthorized users.
SMART METERS
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Also in California, if you’re a business owner, the state will be able to put a
lien on your house or other real property for payment of fines or back wages.
LIENS ON REAL PROPERTY
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Texas will require the fingerprinting of those applying for or renewing licenses as architects, as part of a criminal-background check. It will be the only U.S. state with such a requirement, according to
The Architects Newspaper. The reason? David Lancaster, senior advocate of Texas Society of Architects told the paper that “the legislature became convinced that if there was an individual licensed by the state who had access to someone’s kids, to their house, to their money, or to drugs or explosives, then steps needed to be taken to do a more thorough background check.”
ARCHITECTS FINGERPRINTED
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More on AOL Real Estate:
Find out how to calculate mortgage payments.
Find homes for sale in your area.
Find foreclosures in your area.
Find homes for rent in your area.
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7 Ways New FHA Loan Limits Might Affect Homebuyers in 2014 – AOL Real Estate (blog)
loan credit – Google News
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