HR3706 is a new bill that has been kicking around Congress since October 1, 2009. This bill is being called The Taxpayer Protection Act, and will have a pretty substantial impact on home buyers utilizing FHA financing.
Currently, home buyers utilizing FHA financing require only a 3.5% down payment, and most of that can come from gift funds. The new bill, HR3706, will increase the required down payment to 5%, AND borrowers will not be able to include closing costs in the purchase, but will have to come up with those funds as well. Currently,
FHA financing permits seller credits of up to 6% to cover closing costs for buyers.
If you use the accepted average of closing costs equaling 1-3% of the loan amount, at 3%, this means a potential home buyer would have to come up with the equivalent of 8% down, or $16,000 cash for a $200,000 home.
If you’re a first time home buyer, still on the fence trying to decide whether to get into the market now, regardless of whether or not you will close in time to qualify for the $8000 first time home buyer credit, you might want to get into the market now, before this bill becomes law, and you are potentially cashed out of the housing market.
It is likely though that you still have some time. Bills introduced to Congress typically take at least several months to pass, and usually do not become effective immediately. This bill is in the first step in the legislative process. Introduced bills and resolutions first go to committees that deliberate, investigate, and revise them before they go to general debate. The majority of bills and resolutions never make it out of committee.
However, the writing has been on the wall for this change for quite some time, as foreclosure rates have risen on FHA financed homes. FHA lending guidelines have been systematically tightening, and this is just one more step to keep lower income and/or cash poor buyers out of the market.
