The Cost of Poker…

Inflation is taxation without legislation. ~Milton Friedman

One questions I get very often concerns the basic process of buying a home. It usually goes like this: “I am interested in buying a home, but I have no idea where to start.” Many of these people think as a Realtor, I can get them a loan and conduct the transaction from start to finish. This is when I direct them to our fine lenders in the area to begin the approval process. The first step is to find out if you qualify for a mortgage loan, and for how much. Where most of them ultimately end up is usually in one of two loan programs FHA and USDA. Both of these government backed mortgage programs have features that make them affordable and workable for the first time home buyer. Low down payment, low interest rate, and easier credit requirements are some of these features. But changes are coming to the FHA program that you should know about if you plan to utilize this program in the near future.

FHA has announced that it is increasing both it’s up-front and ongoing costs, which means the cost of borrowing is going up for the consumer. In its announcement, the FHA said it would increase its annual mortgage insurance premium by 0.10 of a percentage point for loans under $625,500, which would now cost 1.25 percent of the loan amount, up from 1.15 percent. That change takes effect on April 1. The agency also said it planned to raise another fee, known as the upfront mortgage premium, by 0.75 of a percentage point, bringing the premium to 1.75 percent of the loan amount, which can be rolled into the mortgage. What this means for the borrower is closing costs may increase if you are getting an FHA loan. Also, your monthly payment will increase if the loan amount is more than 95% of the appraised value of the home.

If you are in the process of looking for a home and are pre-approved with an FHA loan, you can avoid these cost increases if you have a home “under contract” and have an FHA case number before April 1. So, if you are carrying a pre-approval in your hip-pocket and being very picky whilst perusing the market, it’s time to make a decision. The cost of waiting is not insignificant. Don’t be pushed into making a bad choice, but if you have plans to buy and are just waiting the market out or have been less than motivated, let money be your motivator. Waiting=$.

If you haven’t even begun the process of getting approved and think now you’re out of the game, don’t panic. FHA will still be the best and cheapest option for many borrowers. But there is another option we have available to us here in Eddy County. The USDA Rural Development loan program is another government backed mortgage with very low rates, and zero down payment. The mortgage insurance cost of a USDA loan is also lower than FHA and conventional programs. This equates to a lower monthly payment. The objective of the USDA loan initiative is to allow low to middle income borrowers and first-time buyers to qualify for a home purchase. The credit standards are less stringent allowing many more applicants to qualify. We have several good USDA lenders in the area, and the USDA also has representatives who can answer questions and get the ball rolling. Call my office to get contact info.

There is an old adage “Good things come to those who wait.” I could not agree less. It should say, “Waiting usually carries both a benefit and a cost. Weigh them carefully.” Things are getting more expensive, not less. That includes houses, loans, money, everything. We may be entering a period of higher inflation than most of us have ever known. With these government backed mortgages raising fees, the private mortgage market will soon follow and after time, it will become the normal cost of borrowing. As the economy recovers, housing prices should rise along with interest rates. These add to the cost of home ownership. These are the costs of waiting. There may be benefits too. Patience is still a virtue, but we need to see both clearly and evaluate from there.

All Real Estate.  All The Time.


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