Unless Congress takes some action the FHA Conforming loan limits will drop from $729,950 to $625,500 by October 1st.  Banks however are already starting to take action and if you are currently out looking you may want to try and get into contract by the end of the month as that is when several banks will stop accepting as conforming loans in the $625,500 to $729,950 range.  This will result in the costs of financing going up by about 3/4 points significantly increasing monthly payments.

When deciding between getting an FHA approved loan or a conventional loan there are many factors that go into this decision.  The primary ones in the past have been

• Down payment.  The FHA loans only require 3.5% down vs conventional loans which typically require between 10% to 20% down depending on rate.  Also FHA allows for down payment gifted from a family member, a governmental agency, or a nonprofit organization.
• Mortgage Insurance Premium.  FHA loans require a mortgage insurance and thus FHA borrowers are required to pay a mortgage insurance premium.  Many conventional loans do not require a mortgage insurance premium if a large enough down payment is made.
  
• Credit Qualification Criteria.  It is easier to qualify for a FHA loan than a conventional loan.
• Total Loan Amount Limits.  The loan limits for a FHA loan are typically less than those of a conventional loan.

One of the other advantages that has often been overlooked is that FHA loans are assumable and conventional loans are not.  In the future this is going to have a significant impact on property owners.  Everyone is expecting interest rates at some point to start increasing within the next year or so.  When this happens, owners who have FHA loans will have an advantage in selling their homes v. conventional loan holders as conventional loans typically are not assumable.  The new buyers from an FHA loan seller will be able to assume the loan at the lower interest rate reducing their payments.  This will greatly expand the buyer pool for sellers with FHA loans as more buyers will be able to afford their monthly payments.

The FHA is increasing the amounts required for Mortgage Insurance Premium from .9% to 1.15% as of April 18th on 15 yr and 30yr loans.  So if you want to purchase a home and not pay the additional increased costs you will want to have your purchase agreement ratified by April 18th 2011. 

The real estate market has been tough enough this year with the banks tightening up their credit guidelines for borrowers, owners not wanting to lower prices to market, and buyer wanting unrealistic foreclosure prices, but now things have gotten even tougher for us professionals.  We now have to qualify not only our borrowers but the buildings that they are considering.  Some of the potential deal killers for first time buyers seeking FHA, Fannie Mae or Freddie Mac approved bank loans are:

• Too many units in a building being rented and not owner occupied
• Too many units with delinquent HOA fees
• Inadequate HOA reserves
• Too many vacant units
• Pending Litigation
• Deferred maintenance or capital improvements needed
• Too high a percentage of the building being used for commercial purposes

If you are looking for a condo in SF or any other city it is a good idea to use a real estate professional who is familiar with the various buildings and can ask the pertinent questions before you get too far in the process.  This will save you time and money.

New regulations and government changes are going to increase the costs of loans.

FHA Premiums Are Going to Increase.  The Federal Housing Administration (FHA) is raising annual mortgage insurance premiums by an additional .25% on new 15 and 30 yr loans after April 18, 2011.  For 30 year loans this means the total premium will now be 1.15% from .9% if the Loan to Value ratio is higher than 95%.

FHA is Lowering The Maximum Loan Amount. The maximum amount that can be insured by Fannie, Freddie or the FHA is scheduled to drop to $625,500 on Oct 1, 2011 from $729,750.  This means less people in states with high property values will be able to obtain affordable FHA loans.