Effective January 1st, 2009, the Federal Housing Administration will change its down payment requirement while also altering the maximum loan amount.

Without getting into the nitty gritty specifics of the Mortgagee Letter mailed out by the US Department of Housing and Urban Development, the highlights of the changes include:

• The FHA down payment amount on purchase loans has been increased from 3% to 3.5%.  This may not sound like much, but it can be the difference of a few thousand dollars if the purchase price is large enough.
• The seller can still pay up to 6% towards buyer's closing costs.  Amounts exceeding 6% must be subtracted from the sales price before applying the downpayment percentage multiplier.
• Closing costs are NOT considered in the mortgage amount/downpayment calculation for purchase money mortgages.  In other words, closing costs cannot be part of the 3.5% downpayment.
• The maximum mortgage amount will now be calculated by applying 96.5% (100%-3.5%) to the lesser of either a) the appraiser's estimate of value or b) the contract price minus any required adjustments.  For example, suppose a sales price is $200,000 and the appraiser's estimate of value is $210,000.  The maximum loan amount will be $200,000 x 96.5% = $193,000, leaving $7,000 as the minimum downpayment.
• In the greater Cincinnati area, the maximum FHA loan amount on a single family home will drop to $271,050 (down from $337,500).

These are just a few of the changes taking place on January 1st, 2009 (Loans submitted prior to this deadline will be grandfathered in under the previous terms).

Click here to read the HUD's full Mortgagee Letter.  Please give us a call if you have any questions.  Also, you can Email The Meadows Team with any questions, as well.