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The Federal Reserve held the line on Tuesday–leaving the Fed Funds Rate at 2.00% for the third straight meeting. The decision, however, was anything but cut-and-dry.

Earlier in the week, the Personal Consumption Expenditure data indicated that inflation climbed 0.8% overall in June, which is the highest inflation jump in 27 years. In addition, the report indicated that inflation now sits at 2.3%–above the Fed's desired range of 1-2%.

Although the Fed ultimately left interest rates unchanged, inflation obviously remains a concern and the recent rise may lead to an interest rate hike by the Fed in the near future.

What Does This Mean to You?
Many experts believe the housing market is nearing the bottom and may even be set to bounce back up. For now, home prices remain low, personal incomes are high, and interest rates are still very attractive.

If you've been weighing your options and waiting to see how things shake out, this is the ideal time to act–especially when you consider the new Housing and Economic Recovery Act benefits for home buyers:

Tax credits. First-time home buyers who purchase their primary residence between April 9, 2008 and July 1, 2009 are eligible for up to $7,500 in tax credit, as long as they haven't owned a home in the last three years. The credit is actually a generous interest-free loan, so we'll have to talk about some income parameters and payback terms. But if you're a new home buyer – or know someone who is renting or in the market to buy – this is a huge benefit that we should discuss.

Lower rates for larger loans. In the past, mortgages of $417,000 or more have been considered "jumbo" loans that were more expensive to finance. Thanks to recent provisions, however, those jumbo loans were able to qualify for better financing rates in some parts of the country. Although those provisions were set to expire, they are being extended–with a minor change to the maximum amount eligible. This is great news that may save you a ton of cash, so call me to find out how this impacts our area, and if it could help you.

Down Payment Assistance...going, going, not gone yet. Another provision of the legislation eliminates some down payment assistance programs later this year...but they are still available right now, and depending on your circumstances, we may be able to take advantage of them to double your benefit as a home buyer.

Bottom line...now may be the ideal time to put together a purchase strategy based on your unique situation.

FHA Raises Its Premiums to Insure
Repayment of Mortgages

The Federal Housing Administration, a U.S. agency that is rapidly shouldering more of the risk on home loans, raised the premiums it charges for insuring that mortgages will be repaid.

In a posting on its Web site Tuesday, the FHA said the upfront premiums charged to most borrowers will be 1.75% of the loan amount, effective Oct. 1. That is up from the 1.5% that was in effect until July 14, when the FHA adopted a "risk-based" pricing system that created a range of charges depending on borrowers' credit scores and the amount of the down payment or equity they owned in the homes. In late July, Congress approved a housing bill that included a provision requiring the FHA to revert to a standard premium at least until Oct. 1, 2009.

On a $300,000 loan, the new upfront premium works out to $5,250, up from $4,500. The annual premiums paid by borrowers would remain at 0.50% to 0.55% of the loan balance.

The FHA may well need more income to cope with the payouts it will have to make to lenders and loan investors in coming years. At a time when house prices generally are falling, the share of new mortgages insured by the FHA has soared to 23% in July from a low of 1.8% in 2006, according to Inside Mortgage Finance, a trade publication. Guy Cecala, publisher of Inside Mortgage Finance, said the FHA's share could reach 30% by year end.

The FHA is taking a far bigger share of the market because investors last year began shying away from buying mortgage securities that don't have backing from a federal agency or government-sponsored mortgage investors Fannie Mae and Freddie Mac. More recently, Fannie and Freddie have become more cautious about buying or guaranteeing mortgages because heavy losses have depleted their capital. Borrowers can get FHA-insured loans with down payments as small as about 3%.

The FHA had assets of $19 billion in its reserves for single-family mortgages as of June 30. Some analysts have warned that the agency might need to ask Congress for money to rebuild its reserves if defaults continue to rise. Congress has given the FHA a prime role in backing new, more affordable loans for people who are struggling with their current mortgages. Those refinances are likely to be risky because borrowers who are rescued once often fall behind again later.