Local homebuyers purchasing newly built homes are following national trends when they pick their mortgage. U.S. Census Bureau figures show that 21 percent of buyers of newly constructed homes chose FHA guaranteed loans in November. One year earlier only 4 percent of these buyers picked these loans.
The market share of Veterans Affairs loans also has increased from 4 to 10 percent.
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Metro real estate and mortgage professionals say they are seeing the same pattern, with new homebuyers picking Federal Housing Administration loans because of flexible down payment terms.
Marcos Sanchez, area manager of Corridor Mortgage Group in Annapolis, works with a lot of new-home buyers in Prince George’s County. About 80 percent are opting for FHA, he said, because they can put as little as 3.5 percent down.
Most non-FHA mortgage programs require a borrower with less than 20 percent down to take out private mortgage insurance to protect the lender, Sanchez said, adding that PMI is now extremely difficult to get.
“Over the last 18 months the guidelines have become very tight and the insurance has gotten more expensive,” Sanchez said. “Fannie Mae and Freddie Mac offer some programs that are a better deal than FHA, but the down payment requirement is key.”
FHA loans require mortgage insurance as well but the up-front premium is financed as part of the mortgage package. Loan holders pay it, and the annual premium as part of their monthly mortgage payment.
Real estate agent Brandon Green, of Brandon Green Cos., sees 70 percent to 80 percent of his new-home buyers choosing FHA to avoid private PMI. He said, “Some PMI companies seem to have taken over the underwriting function for these loans.”
One homebuilder told The Examiner many buyers have the money for a bigger down payment but go with FHA because don’t want to “risk their whole nest egg.” They put less money down to keep their savings safe until the market improves.
VA loans are getting a larger share of the local market as well. Patty Widerman, group mortgage manager for BB&T Bank, said they have seen a big increase in this region.
“VA lending has increased about 10 percent overall,” she said, “probably because of the new higher loan limits.”
The new limit for the Washington metro area, which indicates the amount that the VA will guarantee, not the maximum size of the loan, is $768,750. This is less than the limit in 2009 but $39,000 higher than the 2008 limit.
Buyers who need a bridge loan in order to purchase new construction before selling their old house will have difficulty finding one, Sanchez said. He said such loans may still be available from a few community banks.
