In order to avoid further losses, the FHA (Federal Housing Administration) announces that they will cut the 6% seller concession in half to 3%. In the past, FHA financing was a no-brainer due to high seller concessions. However, because most buyers chose FHA financing, the inflation of appraised values rose.
Kenneth Harney in his Washington Post article gave a great example:
“Say you’re buying a $200,00 house. If you are using FHA financing under current rules, you can structure the contract so that the seller agrees to pay at settlement all closing costs and even the cost of some needed repairs, up to 6 percent of the price, or $12,000. On a $400,000 house, allowable concessions go to $24,000. That’s huge, especially if you have to struggle to come up with a 3.5 percent down payment and you’re not sure where you’ll find the closing and repair money.”
The FHA has come out and stated that this “exposes the FHA to excess risk by creating incentives to inflate appraised value.” The changes are scheduled to happen this summer after a Federal Register notice; however, as of May 19th there had been no such notice. Also, a review period would follow the notice. It appears that the reduction will not happen until late this summer or possibly early fall.
The reality: 6% concessions are still permitted until the FHA says otherwise. If the concessions are going to facilitate a sale, now is the time to do the deal!
Tags: homes for sale pleasanton, homes for sale pleasanton ca, pleasanton homes for sale, real estate, Sonali Sells
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