Coming just weeks before the April 30 deadline for the Home Buyer Tax Credit and just days after the March 31 expiration of the Federal Reserve Board’s mortgage backed securities purchase program (which has kept home loan rates artificially low for over a year), these FHA changes make it even more important to act now to save big.

Here are a few reasons why:

On April 5th, the cost of required up-front mortgage insurance for loans guaranteed by the FHA will increase from 1.75% to 2.25%. For a borrower purchasing a $200,000 home with a $7,000 down payment, the up-front mortgage insurance will increase by $965. Up-front mortgage insurance is typically financed in the final loan amount so the impact to a monthly payment will be minimal but overall, the increase is still borne by the borrower both upfront and monthly.

Later this spring, the amount of money that a seller can return to the buyer from their sale proceeds will be reduced from 6% to 3%. The reduction in these “seller concessions” can increase the amount of cash a buyer will be required to pay at closing by $6,000 for a home purchase of $200,000.HUD feels that by allowing a 6% concession to continue will cause property prices to become inflated and the end result in their mind in another “Housing Bubble”.  Is that far fetched?  Of course it is.  Would a 3% reduction avert something like this if it were possible, NO! FHA loans are 40% of the nations market today.  That figure is lower in the higher cost states like California and New York however it does represent a sizeable portion of the market and what FHA does at this point will effect what the market does.

Today the Fed announced that they will indeed stop the practice of buying Mortgage Backed Securities.  The stock market loves this news and the bond market hates it!