FHA rule changes ease home buying

By J. STAAS HAUGHT Staff Writer, Press of Atlantic City

Published: Thursday, February 16, 2006

Recently revised appraisal guidelines and price caps should make it easier for many home buyers to secure a favorable mortgage through the Federal Housing Administration's lending programs, but word is just starting to reach the market.

The Department of Housing and Urban Development on Jan. 1 removed many of the appraisal barriers that kept sellers from entertaining FHA-loan structured offers for fear of needing to make costly repairs and left first-time buyers struggling to find an affordable home.

The FHA ditched a decades-old system of requiring the seller to repair minor cosmetic flaws, like chipped paint, missing handrails and cracked window panes. Instead the agency's appraisers now use the same appraisal sheets as most conventional lenders, focusing instead on mechanical and structural defects that could pose a safety threat

The housing authority also increased by more than 15 percent the maximum price allowed on an FHA loan. FHA mortgages are attractive to first-time buyers because of low down-payment requirements, relaxed rules on applying gifts to the purchase and managable interest rates on the loan

Agents, lenders and appraisers all agree the new rules will put more buyers into affordable homes and add more loft to the already soaring local market.

“It's going to develop exceptional opportunities for rehab properties and fixer-uppers,” said Mary Lou Ferry, owner of Ventnor-based Farley and Ferry Realty. “Buyers will able to acquire properties at better rates and with less upfront expense and we'll keep that momentum in the market.”

She said sellers and agents also will stop looking at an FHA loan as a deal-breaker.

“FHA is not really an obstacle anymore,” Ferry said.

A spokesman for the New Jersey office of HUD said opening doors for home buyers was the point behind changing the rules. He said while the old guidelines were meant to protect both buyer and lender, the agency admits they often proved too cumbersome for sellers.

“What they did is give the market a good reason to stay away from FHA loans and properties,” the spokesman said.

Jim Malamut, vice president of Atlantic Coast Mortgage, in Pleasantville, said both buyer and seller will now find FHA loans attractive.

“The new guidelines put more risk on the lender than on the appraiser, but if the house is worth the price it's going to be easier to get them in it,” he said. “And anything that helps people afford a home is a great thing.”

HUD also increased its price caps to better reflect local markets. Last year, the maximum price allowed on an FHA purchase was $172,632 for standard areas and $312,895 for high-cost areas. Today, those figures are $200,160 and $362,790. Locally, the price caps for Cape May, Ocean, Cumberland and Atlantic counties all now exceed $300,000.

Malamut said even though the guidelines have been in place for several weeks, agents and lenders are just now seeing the interest.

“Now that it's been a month or so, people are familiar with it. You've got people who went under contract in January just finishing up closing, so word's just getting out,” he said. “Plus you've got agents just starting to learn what's going on with the FHA guidelines so they're just now telling their clients about it, too.”

An FHA letter sent to mortgage lenders in December said the agency would also start accepting “as is” appraisals and remove several mandatory inspections, including for termites, on wells and septic systems, and for homes near heavy agriculture areas or near dumps, junkyards, landfills, factories, gas stations or dry-cleaning operations.

Mike Brennan, managing member of real estate appraisal firm Brennan Colangelo Appraisals LLC, in Galloway Township, said removing those inspection requirements allows appraisers to focus on more important concerns.

“It loosens up a lot on cosmetic stuff, stupid things that on a conventional loan you wouldn't worry about,” he said. “Before, with FHA we would have to write down a tripping hazard because a dog or pet clawed at the carpet near a door. That would have to be fixed before it could be sold. That kind of thing just made it harder on everybody.”

Brennan, who also is a real estate agent, said some agents would steer clients away from FHA loans because of the stringent guidelines. But, under the new rules, he expects more people to lean that way when they can.

Drew S. Fishman, president of the Atlantic City and County Board of Realtors, agrees, saying the local market's growth over the last few years left many buyers out of the running.

“Even if they accepted the old FHA guidelines, the (asking prices) went up so high that you weren't even in the FHA loop,” he said. “These are all positive changes, now. We probably won't see it out on the islands because of median prices there, but mainland properties certainly could fall into these categories.”

Real estate agent Eileen Raynes said her recent move to Rosenthal Realty, in Margate, has her working more with first-time home buyers and the new guidelines make finding them a home easier.

“It certainly removes some of the stigma of an FHA loan. Once we get over that, we can really start to look at different properties,” she said. “It's a whole new market for the buyer, the seller and me, as well.”

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