When the bubble burst in late 2008, the real estate market took a dive for the worst. As an effort to keep the market ?alive the government decided to lower interest rates, as well as back loans through FHA for high cost properties. The efforts of this move can be seen in many areas all throughout California, Florida, and other states that have many high end residential communities where the average property value is over $800,000.00.
Making Changes in FHA Loans
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The adjustments made with FHA mortgages is that instead of the government backing loans up to $850,000.00, it will now only take care of loans in the high $400,000.00’s. This is a huge drop and many property owners are concerned that it will hurt what little value they have left in their properties. For buyers this means that loans will not be offered in what is considered bulk amounts through FHA. Without the government backing these high priced loans, buyers will need to put out more money on a down payment, somewhere around 35%.
The Results of Change
The final results in these changes essentially mean that buyers will be deterred from looking for properties in expensive areas because they cannot afford the 35% down payment, whereas FHA allowed for a 3% down payment. While there is a ripple moving across the real estate channels regarding the backlash of this new policy, it should be pointed out that before the bubble blew the government backed loans cap was in the low $400,000.00s.
Overall, this should not be a huge shock to buyers or sellers in today’s market. Rather this is a growing pain moment while the consumer market is weaned off government guarantees. Since the policy implementation in early 2011, there has not been a spike, nor decline, in high priced areas.