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The FHA and the CRA helped create much of this current mess by giving loans to people who should have never been allowed to buy a home.
Now, the FHa requires a minimum 580 credit score. Can you imagine how loose things were before. Even in the gravy years of 2004-2006, the bank I worked at required at least 640 then 680 and now 720 for loans unless there were very strong mitigants.
CRA allowed banks to make loans and invest in areas that have now been hit hardest and are this having the higher rates of foreclosure.
People like me who put 20 percent down end up paying more for our places because of all the artificial demand created by govt forces.
FHA should require at least 640 (too low IMHO) and at least 5 to 10 percent down. This would greatly limit the pool of buyers but also greatly reduce the risk of future foreclosure. It would also drive down the price of housing for those looking to buy.
3 percent and 580 credit is just continuing to allow people likely to default to buy and inflating house prices due to artificial demand.
No doubt we will be bailing out the FHA in the near future as we continue to subsidize buying for those who should remain renters or stay in their existing house.
I wouldn't trust someone with a 580, with my pet rock. How come we had a huge Reagan Era housing boom in the late 80s, when people were lucky to get a 30 year fixed for 9.5%? Home prices were going up rapidly then.
I wouldn't trust someone with a 580, with my pet rock. How come we had a huge Reagan Era housing boom in the late 80s, when people were lucky to get a 30 year fixed for 9.5%? Home prices were going up rapidly then.
Agree with you on the 580 thing - on the other comment though - people had become accustomed to 11-14% interest in the early Reagan years so 9.5 opened a huge door for renters to be able to afford to buy in the late 80's, that buying increased demand then followed the prices of course - it was 4-5 yrs. ago they should have raised the requirements/rates, lowered lending power, while the economy had a prayer to sustain it, but instead they did the opposite - raising rates to 9.5% now would shut the market down.
Agree with you on the 580 thing - on the other comment though - people had become accustomed to 11-14% interest in the early Reagan years so 9.5 opened a huge door for renters to be able to afford to buy in the late 80's, that buying increased demand then followed the prices of course - it was 4-5 yrs. ago they should have raised the requirements/rates, lowered lending power, while the economy had a prayer to sustain it, but instead they did the opposite - raising rates to 9.5% now would shut the market down.
9.5% would definitely be bad for Joe Six Pack trying to sell his house in the suburbs, but.............In many markets, half of the sales are REO. The banks are bursting at the seams with properties they don't want. They will just to have to lower their prices more and more until market equilibrium is reached. Cash buyers would finally get the respect they deserve.
I understand FHA has brought back the ratios they use to use about 10 years ago, which were 28% on the front end and 33% on the back. Had this not changed then there probably would not have been so many HUD foreclosures. The 28% is your total housing cost PITI the 33% total debt.
If they are still going to give you and FHA loan with that score and 10% down I'd say that is pretty good! Of the 10%,3.5% is for closing costs which the FHA will not finance.The problem before was people were getting 100% financing with a score like that and NO MONEY DOWN. They were risking nothing, it is no big surprise it all blew up in our faces!
"3 percent and 580 credit is just continuing to allow people likely to default to buy and inflating house prices due to artificial demand"
It is the qualifying ratios that make the difference-not the credit score. The credit score is what determines your interest rate, the ratios determine if you can afford the
house or not.
Last edited by EllenArlingtonPark; 01-28-2010 at 02:30 PM..
Reason: typo
I agree with you Humboldt1. The gov wants to have affordable expensive housing. Yeah, I know it makes no sense. I don't curently own, but the low downs easy lending and increases subsidies will deter me from buying longer than if they pulled the plug from the housing life support. When they gave $8,000 tax credit to everyone who buys a home, I look at it like now I would have to pay some multiple of $8k more for the selling price. No thanks.
EllenArlingtonPark makes the most keen points. It's a must read.
A post that states there is an $8,000 tax credit to everyone who buys is incorrect. Initially, the tax credit of $8,000 was offered to first time home buyers (could not have owned a home within the past 3 years) another catch was the buyer would have to be an owner occupant for a set amount of time (can't remember, 3 years??). Currently (set to expire in April) there is a $6,000 tax credit to someone who sells their home AND buys another.
The goverment issues all types of tax credits from time to time. The wisdom of doing so can be a debate. Nevertheless, with the house buying tax credits the credits would only apply to the person, not the house. Therefore, it really could not drive a price - and didn't. It is fair to say that it did create a bumb in the market. If you were a person who would have qualified for the credit & you were in the market to buy, it would have been wise to take advantage of the credit.
I bought a home this year. I didn't qualify for the 1st time buyers credit. But I found in our market I could pick up a deal ... and I did! Love it.
EllenArlingtonPark makes the most keen points. It's a must read.
A post that states there is an $8,000 tax credit to everyone who buys is incorrect.
Nevertheless, with the house buying tax credits the credits would only apply to the person, not the house. Therefore, it really could not drive a price - and didn't. It is fair to say that it did create a bumb in the market. If you were a person who would have qualified for the credit & you were in the market to buy, it would have been wise to take advantage of the credit.
I was trying to keep it simple because the issue to me isn't that a minority doesn't get the 6 or 8k.
It didn't drive up prices AND it created a bump in the market at the same time. That's some magical economics. It drove prices up from what they would have been if there was no subsidy. Still I'd be paying more.
The person is paying for the house. A tax credit goes to a person who is buying the house. You don't need to tack it on to the price of the house. The market does it naturally. Say 90% of the population get a $10 tax credit for a pair of pants. Do you think the price of pants will stay the same? Nope. You will pay more for pants, because the money supply for pants has increased.
From what I have read the 8k credit could be used towards the FHA 3.5% down. This makes many more people able to buy a home with practically zero down. Think about supply and demand.
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