By Steve Levine
It wasn's an unexpected announcement, to some degree, but the sheer amounts have caught many completely off guard, as the federal housing authority sent word this week that they are cutting the maximum loan they will issue under the FHA loan program from its current rate of $385,000 all the way down to $285,200.
Of course, this is just the opposite of what the real estate market needed here in Worcester County, according to real estate professionals in the region, and may have a huge impact on the ability of first time buyers to purchase in the coming year. As you might surmise, when the first time buyer market slows down, it affects all of the other layers of the marketplace, as homeowners have a tough time trying to make the move upwards.
Most people like myself, who spend their lives living with the ups and downs of the marketplace, would be quick to point out that the sluggishness of the economy has not been due in any way to a lack of desire of people to purchase homes, but rather an inability by many to obtain financing for a purchase. From a marketplace a few years ago where lenders were giving “no money down financing” to anyone with a pulse – also a big mistake – we'se now come full circle to a market where even the most qualified potential purchaser is finding the financing hurdles to be a huge challenge. The biggest impact is being felt in the sub-20% down marketplace, where banks require “private mortgage insurance” in order to grant loans, and where Worcester County had been put on a “high risk list” by most mortgage insurance firms.
The saving grace during this time period had actually, for a change, been the federal government, who stepped in with the self-insured FHA loan program, with the new higher loan limits, specifically designed to help first time homebuyers with good credit but limited down payments. This was a huge boost to the local economy when it was announced, as young families flooded into the market and took up quite a bit of the existing inventory, allowing those sellers to move upwards to their next homes. It was sort of the real estate version of tax-free weekend!
With FHA now essentially out of the picture yet again, the first-time buyer looking to spend $320K, may now need to have up to $30 – $40,000 in down payment on hand, in order to pursue the conventional financing methods. What's interesting to folks in Worcester County is that just a stones throw away in Middlesex County limits will remain in the $465,000 range. This may have the impact of pushing potential some buyers to communities a bit further eastward, typically thought of as being more expensive, where they will be able to purchase a $400K home with only 5 percent down.
There is still some hope that congress will take up the matter. The higher loan limits we are now accustomed to are a direct result of the market stimulus package they previously passed, which contained a sunset provision setting it to automatically expire this October. Many have called for it to be extended, but Congress has been on vacation and has yet to act on the matter. If you feel strongly about it, now would be a great time to contact your senator and congressman and ask they support a bill to extend the current limits for another year, to keep home ownership affordable for first time buyers.
Steve Levine is President of Steve Levine Inc., and an agent for REMAX Prestige. He has been ranked as one of the top 100 agents in the world, and can be reached at 1-508-735-4663 or by e-mail at [email protected]