By Eric Lawrence Frazier
In 2014 Riverside County, maximum FHA loan limit was reduced to $355,350 for a single family home. This is a reduction of $144, 650 or a 29% reduction in the maximum loan limit. It is also the 10th highest reduction in FHA loan limits statewide and the highest in Southern California. FHA said the new limits are a sign of continuing improvements and recovery in the housing market. How does reducing the loan limit help the continuing improvement and recovery of the housing market? It doesn’t. What it has done at best is stall the market of homes that would have been sold by now and at worst was the catalyst to the price reductions and swelling inventory that we are witnessing now.
Due to HUDs actions, the largest pool of buyers (First Time Home Buyers) in this market has been impacted. First time home buyers can’t catch a break. When the limit was higher property values were lower and rates were lower, investors kept them out of the market. Now the FHA loan limit is lower, FHA mortgage insurance premium is higher, interest rates are higher, property values are higher, investors are still creating havoc and according to recent data from the National Association of Realtors, first-time homebuyers account for just 33 percent of all home purchases. That’s the lowest level in 27 years. Our representatives at the state and federal level are silent on this. Why? Where are they on this issue and what are they doing? The limit needs to increase and the FHA Mortgage Insurance Premium needs to be reduced to at least 50%.
In 2008 the max FHA loan limit for Riverside County was $500,000 for a single family home. Today there are more restrictions, higher down payments requirements for lower credit scores and higher credit score requirements for the lowest down payment and very high mortgage insurance premiums. All of these changes along with the new max FHA loan limits have caused a drop in home prices and there is conceivably no end to the decrease in property values because of uncertainty of future buyer demand. In addition, millennial’s are burdened with school debt and are viewed as not interested in mortgage debt, home maintenance and the immobility of homeownership as a lifestyle. What could this mean to home ownership in the future?
Shiller of the Case Shiller Index said, “Our millennial’s spend more time on Facebook than standing over the backyard fence talking to the neighbors. Maybe neighborhoods are not as important or maybe there’s an urbanization trend going on”. The millennial’s are an interesting bunch who are embracing the technology revolution that is taking place in our society and we really do not know what it all means yet. What do know is that technology is affecting how we live and interact with each other and it is changing our value system.
If demand continues to drop and people cannot qualify for larger loans a market correction is inevitable and it is not a matter of if but when. This is good news for first time home buyers because it represents some relief from all that has happened and is still happening to them. For sellers it is your worst nightmare. If you are a seller and you need to sell then seriously consider every reasonable offer that your agent presents to you, if you get an offer at all right now. Have your agent provide you a list of all the price reductions in your neighborhood and the days on market of all the other properties on the market. Then ask yourself if you want to be behind the curve and not sell your home or get in front of curve and sell because that is where the buyers are.
Inventory is plentiful and buyers are front of a declining curve waiting for the price to come to them. They are not coming to your price Mr. Seller. Buyers are the market makers and will be for a while. This harsh reality means that all sellers must be clear on their motivation to sell. They must have a serious financial need or reason to sell. If not, then taking your house off the market, if you can afford to wait for the next boom in about 7 to 10 years, actually will help to stabilize home values.
The good news for Riverside homebuyers is that there are mortgage assistance programs to help purchase a home in spite of the reduction in the FHA max loan limits and the overall market; which will become more favorable to buyers as we enter into a new year. If you are a ready to buy now you may be eligible for help with your down payment.
More good news for homebuyers comes in the form of new 3% down payment loans from Fannie Mae and Freddie Mac. These new 3% down loans are targeted at buyers that have good credit but are short on cash. Executives at both Fannie Mae and Freddie Mac say the loans contain all the proper safeguards after coming under fire from critics that say this type of lending is precisely the type of risky lending that led to the mortgage meltdown and financial crisis.
According to a survey released in August by the Federal Reserve, 45% of renters postponed buying a home because they did not have enough money for a down payment.
2015 is looking brighter. According to HUD there will be no more cuts to the max loan limits of 2014 and in some areas max loan amounts have been restored to previous levels so the housing outlook is a bit more positive with a loosening of primary mortgage requirements and down payment assistance programs.
Go buy folks before things change.
Mortgage Assistance Programs
Riverside County Down Payment Assistance
The Economic Development Agency administers three mortgage assistance programs targeted to help homebuyers with low to moderate incomes. These programs can offer up to 25% down payment assistance but the programs require a good credit history and low debt to income ratio requirements. The restrictions on the debt to income ratios can mean that buyers may not qualify for higher priced homes even with a large down payment. Beware that this program can take 60 to 90 days to close escrow. Sellers may not want to play ball but the smart one will especially if the price is right.
First Time Home Buyer or FTHB
This program is designed to provide down payment assistance in a “silent” second mortgage that is “forgiven” after a period of 15 years. The price of the home determines the amount of assistance provided and priority is given to section 8 applicants. This assistance can be used to purchase a new or existing home. A home inspection is a requirement for this program.
Redevelopment Homeownership Program or RHP
This program is targeted at first time buyers looking to purchase a home in unincorporated areas of Riverside County. The home must be in compliance with Community Development Laws. The form of assistance is a “silent” second mortgage that is “forgiven” after a period of 45 years. The amount of assistance is based on what the borrower needs and qualifies for. If the home is to be sold in the future there is a restriction requiring resale to other low-income buyers. Any refinance results in the loan being repaid in full. The program allows the purchase of short sale, standard and bank-owned homes. The program also requires an inspection and all repairs need to be made before the sale closes.
Neighborhood Stabilization Homeownership Program or NSHP
This program is limited to assistance to purchase bank owned or foreclosed properties in specifically targeted areas of Riverside County. There are income and credit guidelines a borrower must meet. The program works as a second mortgage that is forgiven after a period of 15 years. If the home is refinanced or sold prior to the 15 years the loan must be repaid in full. The home’s purchase price must be 1% below the appraised value of the house. An inspection is required. This program sometimes requires a seller to drop the price and to complete any repairs listed on the inspection report.
Neighborhood Housing Services of the Inland Empire also offers down payment assistance to people in Riverside through two programs.
The City of Riverside’s Down Payment Assistance Program (DPAP) has Cal Home Mortgage Assistant Program funds available to help low income eligible households with down payment and closing cost assistance to purchase their first home within the City of Riverside. The down payment assistance loans are provided at a three percent simple interest. The loans require no monthly payments. Repayment is deferred for 30 years, unless the borrower sells, transfers, refinances or converts the home to a rental property. The maximum amount of Assistance cannot exceed 25% of the sales price or $50,000 whichever is less and the minimum FICO score is 620.
DPAP funds are allocated on a first come-first served basis, through a formal application process. The program provides first-time homebuyers with necessary purchase assistance for down payment, closing costs, and gap financing. DPAP is available to households earning at or below 80% of the Area Median Income (AMI) for the Riverside County area, with eligibility based upon current and anticipated annual income of all persons that will occupy the home as their primary residence. Purchases must be made within the corporate city limits of Riverside. The program limitations are the maximum sales price is $285,000 and the buyer has to have 3% of his own money in addition to 1% for contingencies prior to the close of escrow. That is a total of 4%. How many borrowers’ you know whose income is 80% of the Area median income. If gift funds are used then he still must have 1% of the 3% required from seasoned funds. Also the maximum back end ratio is 42% of the monthly gross income. This is tough to achieve by many first time homebuyers and a challenging loan to get in the first place. But if you can meet the guidelines $25,000 is still $25,000 of help to buy a home.
CityLIFT provides $15,000 in down payment assistance that is forgiven after the buyer occupies the property as a primary residence for 5 years. Buyers do not need to be first time home buyers. Qualifications include a minimum FICO credit score of 640. All homes must be appraised and inspected.
Intercap Lending
provides a snap loan approval process that provides you with a pre-approved mortgage amount. The big benefit of obtaining financing through Intercap lending is their program allows a borrower to put down as little as .% down when the borrower meets all terms and requirements.