There’s more good housing news on the horizon for Portsmouth and Seacoast home buyers and sellers.
In a policy shift last year the Federal Housing Administration, commonly referred to as FHA, announced it was cutting the amount of money it allowed homesellers to contribute to a potential buyers closing costs and prepaids (to set up escrow for taxes and insurance) from a maximum of 6% of the purchase price down to just 3%.
That proposed change was brought about by some abuse of the seller contribution policy that increased FHA’s insurance fund losses.
Just to give an example and make the math easier to follow, let’s say a buyer is qualified to buy a $100,000 home but doesn’t have enough cash to pay their closing costs and prepaid items. A seller can agree to ‘pay’ his buyer’s costs but wants to raise the sales price the 6% he’s giving, from $100,000 to $106,000. The obvious problem that arises here is that now a buyer is paying an artificially inflated sales price and has little or no equity in the house which then increases the likelihood he will default on his loan.
In 2010 about 20% of the homes sold in the Portsmouth and Seacoast market involved FHA financing and a significant number of those sales involved seller contributions to their buyer’s closing costs. In some markets up to 90% of sellers make some sort of buyer contribution in order to sell their house. So restricting that financing vehicle would likely curtail sales.
So when does the good news part come in for Portsmouth home sales?
It’s not official yet and likely won’t be announced for another 30 to 60 days but after listening to LOTS of input from Realtors, builders, and lenders, FHA will likely make a smaller reduction in maximum seller contributions from the current maximum of 6% down to 4 or 5%. They’re also working on a graduated scale that would allow a higher percentage of seller help on lower end sales which would taper off to maybe 3% or so on a not-yet-determined upper loan limit.
My partner Ann Cummings and I are well versed in all financing options and constantly study and research to keep abreast of what’s going on in the Portsmouth area market as well as national trends that could affect that market.
Questions? Please give us a call or email; we’re happy to help. Need to buy or sell a Seacoast property? We’re happy to help with that too. We can sell them all from small Igloos to large castles.
Looking for a new Portsmouth or Seacoast area home? Just visit the “Homes Search” link at the top of this article and see all the Portsmouth, Hampton, Rye, Exeter, Dover, and southern Maine homes for sale.
Thanks to Giovanni Sades / FreeDigitalPhotos.net for the chopping block and knife photo.