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Securing an FHA mortgage in Pennsylvania and New Jersey is about to get more expensive.

In a statement issued last Wednesday, the Federal Housing Authority outlined policy changes to its mortgage assistance program. The shift is meant to both reduce the government group’s portfolio risk while strengthening its overall financials.

For consumers, the changes mean higher costs.

As listed in the official announcement, there are 3 major guideline updates for the FHA:

1. Upfront mortgage insurance premiums are increasing to 2.25% from 1.75%
2. Minimum downpayments for applicants with sub-580 FICOs are rising to 10 percent
3. Seller concessions are being limited to 3%, down from today’s allowable 6%

Furthermore, the FHA has appealed to Congress to raise an FHA borrowers’ monthly mortgage insurance premiums.

To read the FHA’s statement, it’s clear what the group is trying to balance.  On one side, the FHA wants to provide affordable financing to families that need it. That’s its mission statement. On the other side, though, the FHA must manage the risk that comes with insuring lesser-quality loans.

To that end, the FHA is stepping up its enforcement of “bad lenders” in hopes of stopping problems where they start.

Also in its new policies, the FHA is introducing a “termination clause”. If banks or loan officers that produce more than their fair share of bad loans, they lose their right to originate FHA mortgages.

As a result, homebuyers in Philadelphia and surrounding areas should expect tougher FHA underwriting in 2010. Not because the FHA says so, necessarily, but because banks don’t want to do “bad loans”.  Lenders are incented to turn down at-risk applicants and, already, we’re seeing examples of this. Despite FHA allowing 580 FICOs and lower, many banks have made 620 their minimum.

Some have other guideline overlays, too.

Even with these changes, the issues surrounding conventional loans made by lenders who are risk adverse and being scrutinized by federal regulators make FHA loans a pretty good alternative. Since the FHA’s new guidelines don’t go into effect until spring buyers have another reason to act quickly duting the next few months.  First there was the tax credit program which ends April 30, 2010. Add to that the fact that between now and the spring, the old guidelines will apply.  Therefore, if you know you’re going to buy a home to take advantage of the tax credit, and you think you may need an FHA home loan in the next few months, consider moving up your time-frame.

If nothing else, you’ll save some money at closing.

If your home has several small rooms sch as bedrooms and bathrooms, it can be a challenge to create the illusion of spaciousness. Mary Carol Garrity, writing for Scripps Howard News Service, has developed this sure-fire list of tricks that you can use to help your little rooms live large:

1. Use fewer pieces of furniture. If you have a guest bedroom that is very small, instead of using a twin bed and under-sized dresser, got he opposite way. Use just three pieces of funiture, a full sized bed, an armoire and a writing desk.

2.  Include one over-scaled piece of wood furniture. Furnish a small room with one big piece of furniture such as a breakfront or armoire that serves as the room’s statement piece.

3.  Scale down upholstered furniture. Oversized pieces used in small rooms gobble up the floor space making your room seem overpowered by furniture. To make your room seem larger, look for smaller-sized and smaller-scale sofas and chairs. For example, if you’re looking for a sofa, opt for a 72 inch-long piece rather than one that is 86 inches.

4. Add height with drapes. To make a room with lower ceilings feel more spacious, hand draperies high on the wall, just below ceiling line, instead of at the top of the window. To lengthen the look, make the drapes long enough to puddle on the floor. You can also make narrow windows appear to be wider by hanging draperies on the outer edge of the window so the fabric covers the wall not the glass.

5. Cut the clutter. When smaller rooms are filled with too many accessories, they feel congested and confining. Keep just a few well-placed accents and leave plenty of “negative” space on tabletops so the eye can rest.

6. Learn the art of hanging art. If you want to create the illusion of height, group artwork in a vertical band that extends low on the wall up to the ceiling. Or hang just one large painting.

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As the housing market improves across the country, certain cities are emerging as relative bargains.  Some areas, like Miami, were hit hard by the recession, and other areas are buoyed by good school systems and strong labor markets.

In this 5-minute video from The Today Show, 10 cities are highlighted for their home prices.  And they’re not “small towns”, either. 

Among the featured cities:

• Miami, Florida
• Akron, Ohio
• Tuscon, Arizona
• Minneapolis, Minnesota
• Trenton, New Jersey

Now, this piece is about finding gems on a national scale.  They exist locally here in Philadelphia , too.  Our moderate prices have stood up well to the economic challenges of the past few years. You just need to know what to look for.

With mortgage rates low and tax credits available, it’s not likely that bargains will last. And the activity being experienced by our associates since the start of the year indicates that this is the right time to at least review your options.

Mortgage rates are dropped last week  on weaker-than-expected Retail Sales data from December. Lower rates means more bang for your home-buying buck.

Excluding motor vehicles and parts, December’s “ex-auto” sales receipts were down roughly $500 million from November. Analysts had expected receipts to grow.

The relevance of Retail Sales to home affordability isn’t obvious, but it’s definitely logical.

Retail Sales is directly related to consumer spending and consumer spending accounts for the majority of the U.S. economy. When consumer spending slows, the economy often does, too. It leads investors to seek out “safe” investments.

It’s the reason why stock markets often drop on weak economic data — stocks are among the riskiest investment classes available.

Conversely, the best place to find safety is in the market of government-backed bonds.  This world includes products like U.S. Treasuries and many of the mortgage-backed bonds that help set mortgage rates for people in Philadelphia.  Weak economic data puts mortgage bonds in demand.

For rate shopper, this is good news.  More demand for mortgage bonds causes mortgage rates to fall.  Mortgage rates are lower this morning because Wall Street is shedding some risk.

December’s Retail Sales report closes out a year of generally-weak data.  2009 marks just the second time that Retail Sales fell year-over-year since the government started tracking it 40 years ago.  The other year was 2008.

For home buyers in Rhawnhurst and around the country, though, today may represent an opportune time to lock a mortgage rate.  Housing data is still improving and other economic indicators are showing strength.  Soon, Wall Street will shift from a “safe” mentality and move toward risk.

When it does, mortgage rates will rise.

Like real estate, it appears that foreclosure activity is a local phenomenon, too.

As reported by RealtyTrac.com, more than half of all foreclosure-related activity in 2009 came from just 4 states:

1. California
2. Florida
3. Arizona
4. Illinois

More than 1.4 million filings made in 2009 are attributed to the above states. Furthermore, each ranks in the Top 10 for 2009 Foreclosures Per Capita.

The other states are Nevada, Utah, Georgia, Idaho, Michigan and Colorado.

Versus 2008, foreclosures are up 21 percent nationwide and that’s a big number, but a deeper look at RealtyTrac’s annual reports reveals a more positive undertone on the housing market.

1. 40 states fell below the national Foreclosures Per Capita average in 2009
2. Foreclosure activity fell on an annual basis in 10 states as compared to 2008

Foreclosures are still prevalent, though, and buying homes in foreclosure in Philadelphia continues to be big business.  First-time buyers, move-up buyers, and real estate investors each are bidding aggressively.

Distressed homes account for , according to an industry trade group.

That said, buying foreclosures can be tricky.

First, properties are often sold “as-is” and the cost of repairs may unwind the home’s status as a “value buy”.  Furthermore, a lender may require specific fixes to be made prior to closing and that, too, costs money.

Second, buying a foreclosed home in Pennsylvania isn’t as streamlined as buying a “normal” home. Closing on a foreclosure can be a 120-day process or longer. A 4-month time-frame may not fit your schedule.

And, third, finding foreclosures can be difficult. Despite the growth in foreclosure search engines, it still takes a good real estate agent to uncover the best homes at the best prices.

Read the complete foreclosure report and take a peek at RealtyTrac’s foreclosure heat maps.  If you like what you see, talk to your real estate agent about what to do next.

There’s still good deals in the foreclosure market — you just have to know where to find them

2010 is just a few days old and already the “experts” are making predictions for the year.

Housing calls and mortgage rate predictions run the gamut:

• Home prices will fall in 2010
• Home prices will rise in 2010
• Mortgage rates will rise in 2010
• Mortgage rates will rise by a lot in 2010

Given how varied their outlooks, it’s clear that the professionals have no better view of the future than the amateurs. An expert can make an educated guess, but it’s a guess nonetheless.

Last year, Wall Streeters predicted a 25% pullback in home prices. 12 months later, we know prices didn’t fall.  Wall Street also predicted higher mortgage rates for 2009. That prediction was fulfilled.

There’s a lot of talk on CNBC and elsewhere about what’s coming in 2010. Before you take those predictions to the bank, just remember that analysts do a much better job interpreting data from the past than projecting it into the future.

In a recent article in Real Estate Trends, it was predicted that the Philadelphia market would appreciate at a rate that would make it one of the top 20 markets in the country. And based on the early activity this year, demand for our moderate priced housing may well lead to increased prices.

The only thing that’s certain right now is that mortgage rates are historically low, the government is giving tax credits to qualified buyers, and there’s a lot of good “deals” in housing. Make the most of what’s out there today because it will take 12 months for us to look back and know which predictions were right and which were wrong.

Until then, predictions are just opinions and guesses.

The next time you think you’ve outgrown your home, imagine what life would be like in New York City’s “skinniest home”. It’s barely wider than your wingspan.

In Greenwich Village, there’s a single-family, 3-story residence in which the interior living space width measures just 8 1/2-feet. By way of reference, that’s 4 inches more narrow than the Smart Fortwo electric automobile.

Even the home’s USPS street address hints at its size.  Built on an alleyway, nestled between 75 Bedford Street and 77 Bedford Street, the diminutive home is officially known as 75 1/2 Bedford.

It just sold for $2.1 million.

Meanwhile, big price tags for little homes is nothing new. In 2008, the “Little House” in Toronto sold for the equivalent of $511 per square foot.

(Image courtesy: Wikipedia)

FHA home loans are federal assistance mortgages made by lenders, and backed by the government. The FHA doesn’t make loans to New jJersey homeowners — it insures loans made to homeowners by federally-qualified lenders.

By all accounts, FHA home loans are surging in popularity.

• 2006, FHA insured 3.3% of all mortgages made
• Q2 2009, FHA insured 19.2% of all mortgages made

A major reason for the increase can be tied to guidelines.

As compared to its conforming mortgage cousins Fannie Mae and Freddie Mac, FHA home loans have lower downpayment requirements and looser credit standards. The FHA allows downpayments of 3.5 percent for homes in Palmyra and Fannie Mae and Freddie Mac do not, as an example.

Another reason is that FHA home loans aren’t subject to credit score fees the way that conforming mortgages are. Through Fannie or Freddie, a home buyer with a 650 FICO and 20% down is subject to 3% in risk fees.  Via the FHA, the fee is zero, making FHA the better “deal”.

The FHA published its 2010 loan limits. There’s no change from 2009.

The base 2010 FHA loan limits are:

• 1-unit : $271,050
• 2-unit : $347,000
• 3-unit : $419,400
• 4-unit : $521,250

We say “base” because these loan limits don’t apply to all areas equally.  Higher-cost regions get higher loan limits, based on typical home values. Homes in Los Angeles County, for example, can be FHA-insured up to $729,750 in 2010, and there are special exceptions made for Alaska and Hawaii.

The official FHA announcement included a complete, county-by-county FHA loan limit list. The first spreadsheet shows each county at or above the $729,750 maximum; the second list is everyone else.

If your home’s county is on neither list, use the “base” numbers above.

Just one month after touching a 3-year high, the National Association of Realtors® Pending Home Sales index plunged in November.  A “pending” home sale is a home that is under contract to sell, but has yet to close.

The 16 percent drop marks the first retreat in Pending Home Sales since January of last year.

The weak Pending Home Sales data is an indication that Existing Home Sales data will be soft this month. This is because, historically, 80 percent of Pending Home Sales convert to “closed sales” within 60 days, and most of the rest close within 120.

With Pending Home Sales down, the South Philly housing market should lose some of its momentum.  For today’s home buyers, this kind of slack can represent a terrific opportunity.

Home prices are a function of supply and demand; of buyers and sellers. When buyers outnumber sellers, competition leads to bidding wars, ultimately, and higher home prices overall.  The imbalance can also create a sense of urgency that results in over-paying for a home.

When buyers are sparse, on the other hand, the psychology of real estate shifts. 

Home sellers are keenly aware of foot traffic and requests for second and third showings. Without buyers, their homes can’t sell.  They also note a lack of general feedback from the market.

It’s at this point that seller fear can creep in and it becomes a buyer’s best time to buy.

Based on November’s Pending Home Sales data, it’s clear that home sellers are in abundance right now.  Home buyers have leverage.

It may not last.

With mortgage rates easing lower this week, the federal home buyer tax credit still in effect, and the Holiday Season officially over, buyers are getting back to business in Mount Holly and everywhere. 

Plus, with the tax credit deadline of April 30, 2010 fast approaching, buyer activity should increase over the next 4-6 weeks.

The market looks ripe for a buy but don’t rush it.  Take your time and bid right. But when you’re ready, be ready — once the market momentum shifts back to sellers, you might lose all that leverage you built up through the winter.

Many homeowners are interested in boosting the energy efficiency of their homes and one factor that is important is it’s hot water usage. Currently, the most popular energy-efficient option for water heating is a tankless water heater, also known as an on-demand system. Unlike a traditional tank that heats a reservoir of water 24 hours a day, a tankless unit only activates when needed. When there is a demand for hot water, cold water travels through the tankless unit, where a gas burner quickly heats it to a preset temperature.

While that sounds great, there are a few reasons it may not work for you. First the pros of a tankless water heater:

*It saves energy. It can reduce your energy cost by about 25 percent annually. A big plus.

*Its highly efficient. Its energy factor can be as high as .95

*It has a compact size. Its only about the size of a small suitcase.

*It has a life -expectancy of 20 years or more.

*The unit is easy to zone and can go almost anywhere in the house. It also can be installed outside on a wall.

But there are some tankless cons:

*Tankless units cost about twice as much as a traditional tank. A typical unit costs about $700 and may top $1500.

*Installation is expensive.

*Retrofit is pricey and complicated. The cost can be as high as $3,000.

What are the pros for conventional tanks?

*It’s a proven technology that home owners know and trust.

*Replacement is relatively inexpensive with replacement cost from $500 to $800.

* Energy star tanks are now available. These units must have an energy factor of .62.

And the cons?

*The tank is always on.

*Its big and bulky.

*Its less durable lasting only 12 to 15 years.