THE BASIS POINT

WeeklyBasis 11/13/09: Regulatory Summaries On Loan Limits, FHA Condos, Tax Credits

 

Rate/Market Update
Rates have remained steady for the past two weeks at levels about .25% above all-time record lows. This despite the Fed’s easing off of mortgage bond buying. This past week the Fed bought $13.5b of mortgage bonds, the lowest amount since Week 1 of the program in January. The weekly averages have been $20-25b per week, and this has been the primary driver of low rates. Now we’re seeing the first signs of the Fed easing off their purchases to stretch their budget between now and March 30.

Below are summaries of three key regulatory updates that homebuyers and owners need to know. Here’s our revised FHA Q&A to reflect the new February 1, 2010 FHA condo ‘spot approval’ deadlines noted below.

Loan Limits Extended
Congress just extended high-limit conforming loan amounts through 2010. The baseline conforming limit is $417,000. High-limit conforming loans go up to $729,750 based on location. These higher limits keep rates lower because these loans are backed by Fannie or Freddie regardless of original lender. Loans above the high limit cap are non-Fannie/Freddie Jumbos with rates that are .25% to .75% above high-limit conforming rates. Also note that ‘average rates’ in weekly press reports are based loans up to $417,000, not high-limit conforming. Loans up to $417,000 are about .25% to .375% below high-limit conforming rates. Loan limits up to $729,750 enable a purchase price up to $912,200 with 20% down, and if the rate is .5% better than a Jumbo on average, this loan limit regulation saves $304 per month in this scenario. Loan limits by area can be found here.

Tax Credits Extended
Homebuyer tax credits have been extended to buyers in contract before April 30, 2010 and closing by June 30. The credit is now allowed for single buyers earning up to $125,000 and married couples earning up to $225,000. Who qualifies: first time buyers who haven’t owned a home in three years get an $8000 credit, and buyers who have owned a primary residence for at least five of the last eight years get a $6,500 credit. The tax credit is equal to 10 percent of a purchase price—credits are capped at $6500 for repeat buyers or $8000 for first time buyers, and purchase price is capped at $800,000. A credit means a buyer’s taxes are directly reduced, and if a buyer didn’t owe the full amount of their eligible credit in taxes, they would file to receive a refund check. Full, clear details are available here.

FHA Condo Rules Extended
Condo buyers seeking FHA loans with as little as 3.5% down can now get a unit-specific “Spot Approval” if they’re in contract by February 1, 2010. Spot Approval means an FHA-approved direct lender (like RPM) can approve a specific condo unit even if HUD hasn’t FHA-approved the building. Spot eligible condo buildings must be 4 units or larger, 90% sold, 51% owner-occupied, and no single entity can own more than 10% of the project. Unit owners must be in control of the HOA for 1 year, and the HOA must have roughly 50-60% of annual budget in reserves. After 2/1/10, Spot Approvals are eliminated and HUD must directly approve entire condo buildings, a 1-3 month process. If a buyer who is looking for an FHA condo loan on a non-FHA approved project, they should plan to be in contract on a Spot Approval-eligible project before February 1.

 

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