Points of Interest ©

From an email I received:  "Big changes at are coming...

Currently, the FHA has a 'one size fits all' premium structure that charges borrowers 1.50 percent of the loan balance upfront and .50 percent annually regardless of their credit standing.

But the FHA felt this approach did not treat borrowers equitably and could put their insurance fund at risk.

That's why under their new guidelines scheduled to begin July 14, 2008, the FHA's upfront mortgage insurance premium will range from 1.25 percent to 2.25 percent with borrowers still needing to adhere to the FHA's strict underwriting criteria.

By charging different premiums, the FHA will be able to operate like most other insurance companies. This will allow them to serve more people without making taxpayers pick up the tab.

And with the modifications to FHASecure, also scheduled to begin July 14, 2008, they will be able to help homeowners struggling to keep up with their high-cost subprime adjustable rate mortgages who have missed up to three monthly mortgage payments over the past 12 months.

As an alternative to foreclosure, eligible borrowers will be able to refinance with the FHA and lenders can voluntarily write down the outstanding subprime mortgage principal balances.

Borrowers refinancing into FHA loans from the subprime market will be better off, even with slightly higher mortgage insurance premiums, because FHA insurance gives them access to substantially lower interest rates, and will lower their overall mortgage costs.

How are all of these changes going to affect Mortgage Professionals and Realtors?

It's crystal clear...

Mortgage Professionals and Realtors who understand credit and can help their clients raise their scores are going to" benefit their clients the most.  The new FHA loan limit here in Northern Virginia and the metropolitan Washington, DC area is $729,750.  This can help a lot of borrowers seeking their first home in Prince William, Loudoun, Arlington, Alexandria or Montgomery County.  There are homeowners and buyers in Vienna and Oakton that can benefit also.

The bottom line is that soon you will pay higher premiums for higher credit risks.  Be sure to consult with a professional who deals with credit issues on a daily basis so that you don't pay more than you have to.  703-281-7575.

I just happened to see an article on Yahoo.com on the merits of renting instead of buying.  It's written by someone from usnews.com and quotes an economist from Fidelity Research and a director of realty studies from an university.

They mention that there are periods where the housing market dominates but give another 18 months to this correction and it may not be true.  Some homeowners got twice what they paid for their homes but boomtown Phoenix only saw a median 4.6% appreciation since 1981.  It is said that as an alternative the down payment could be invested in a mutual fund earning 8%.

I have the following problems with the article:

Just stating a median 4.6% appreciation rate understates the typical return to a homeowner for the following reason:  The appreciation is calculated on the home's total value but you only invested a portion of that up front.  Let's be generous and say 20% although 10% is more typical of first time buyers.  Your actual cash-on-cash return is 23%.  And with only 10% down it is 46%.  Not too shabby!

The fellow from Fidelity has a vested interest in a potential buyer putting their down payment in their mutual funds.  And really, with the equity market the way it's been since 2000 who of us has actually gotten an average of 8%.  And more importantly, has that kept up with inflation?

If you know you will be moving, that your stay will be short-lived then it may make sense to rent with the costs of coming and going.  Otherwise, with Uncle Sam subsidizing your costs and the return from "leverage" it could turn out to be a great deal especially if you take advantage of some of "sales" that are going on now.  We have to live somewhere and as the great humorist Mark Twain quipped "buy land, they're not making it anymore."