“Buying a home has always been about more than owning a roof and four walls. It’s about investing in savings and building a family and planting roots in a community….Were going to start this week laying out some of the agenda for the next year. And here in Phoenix, I want to talk about helping more families afford their piece of the American dream, and that is owning their own home.”
– Barack Obama
During his speech on January 7, 2015, President Obama announced his plans to make achieving the American Dream a more reachable goal for first time buyers. In case you’ve missed the recent buzz, there will be some significant improvements to mortgage loans backed by the Federal Housing Administration in the near future.
The driving force behind this decision is likely the scarce number of first-time home buyers in today’s housing market and their skepticism towards being able to afford their own home. In fact, first time homebuyers only consisted of 33% of all buyers at the start of the New Year. This is the lowest market share we’ve seen since 1987 and is down from the 47% in 2009 and 50% in 2010.
This decrease shouldn’t be taken at face value. It’s important to remember the $8,000 Federal tax credit was in effect during this time, which played a big part in the 2009 and 2010 spike of first time buyers coming to market. This tax incentive ended in 2010 and, now that the dust has settled, it’s clear that our current rate of first time buyers is substantially below the 40% level that the National Association of Realtors has deemed a “healthy” figure.
What does this mean for your clients?
According to these new guidelines, FHA mortgage insurance premiums will be reduced from today’s rate of 1.35% to .85%, applying to both purchase and refinance loans with FHA case numbers originating after January 26, 2015. That being said, the upfront mortgage insurance premium will remain at the current 1.75% rate.
It’s estimated that more than 800,000 homeowners could have the opportunity to save on their monthly mortgage costs because of these reduced premiums. In fact, Corelogic estimates that current FHA borrowers may be able to save an average of $80 per month or $900 per year! The one major exception to this change are, residents of Hawaii, who got left out because these new terms do not apply to the Section 247 loans that are specific to the Hawaiian Islands.
According to a mortgagee letter released by the Department of Housing and Urban Development, “To allow mortgagees to obtain the reduced annual MIP rates contained in this ML for loans in process with active FHA Case Numbers, FHA will temporarily approve cancellation requests for active FHA Case Numbers within 30 days of the effective date of this ML.” To sum this up, if you have clients that are in the process of getting an FHA loan, then their current case number can be cancelled and a new one can be started, allowing them to take advantage of these lower rates.
What does this mean for you?
For starters, it is predicted that these changes will bring 250,000 new potential buyers to the market over the next three years. This is good news for you, as most of these will be “newbies” and they will be looking to you for guidance through the uncharted territory of purchasing a home. Don’t let a single one of these new opportunities to grow your business fall into the lap of your competitors, nail down your strategy to attract first time buyers today!
Furthermore, your existing clients with FHA loans may want to refinance their homes with these new loan terms. If these clients haven’t contacted you already, dig through your contact list to identify who would be eligible and give them a call to explain the benefits of potentially refinancing their homes under these new guidelines. Not only will this help your clients, but it is also a great way to stay top of mind when the time comes for them to purchase another home!
Keep an eye out for emerging first-time buyers in your market and, once you’ve captured their attention, share the Homes.com Mortgage Checklist with them to show why you’re the local real estate expert! For additional mortgage related articles like this, check out Homes.com’s featured writer Shashank Shekar.