
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SUNDAY, March 31, 1991                   TAG: 9104010339
SECTION: HOMES                    PAGE: E-6   EDITION: METRO 
SOURCE: ANN MARIANO/ THE WASHINGTON POST
DATELINE: WASHINGTON                                LENGTH: Medium

GOVERNMENT ACTION TO REQUIRE MORE CASH TO CLOSE ON HOUSE

Home buyers soon will have to bring more cash to the settlement table when they buy a house insured by the federal government, according to new regulations the Department of Housing and Urban Development plans to implement in about a month.

The change would add about $800 to the amount of cash needed to buy a $90,000 house, and increase by several hundred dollars the income a buyer would need to qualify for a loan, according to housing-industry officials. The amount will be larger or smaller in some areas, depending on state law, the officials said.

This expense is in addition to costs imposed on home buyers by the National Affordable Housing Act, passed late last year. Before the act was passed, home buyers could get Federal Housing Administration-insured loans large enough to cover all closing costs.

The 1990 legislation requires buyers to pay part of the closing costs, and the new rule would put a 57 percent cap on the portion of closing costs that can be financed, according to a letter HUD has sent to financial institutions that make FHA-insured loans.

Closing costs include fees for inspections, appraisals and settlement attorneys' work, real-estate brokers' commissions, title-insurance premiums and discount points, with each point equaling 1 percent of the mortgage amount, charged by lenders at the time of sale.

The HUD letter also said any portion of closing costs paid by the lender, seller or any other third party must be subtracted from the sales price before any calculations are made to determine how much cash buyers must put down.

Until the 1990 housing act was passed, buyers of FHA-insured homes could finance all their closing costs and the mortgage-insurance premium. Thus, the National Association of Home Builders estimates that the buyer of a $70,000 house would have a mortgage of $71,617, even after making the required $3,105 down payment, when typical closing costs are added. These calculations are for a 30-year, fixed-rate mortgage at 10 percent interest.

Kemp said the 57-percent cap was recommended in an analysis of the insurance fund by the Price Waterhouse accounting firm. The cap is needed to produce revenue needed to reduce the default rate in FHA-insured homes and stem losses from the insurance fund, Kemp said.

by CNB