September 2010

Underwater on your current NON FHA loan

What can you do if you are underwater on your current NON FHA loan, but are current on the loan (I DIDN”T say anything about having been late-just current), and would like to refinance.    There IS a new program–The FHA short refinance.  Before you get too excited, let me cover a couple of the “details’.  First, you must have a non FHA loan to start with.  Then, you can refinance into an FHA loan-up to 97.75% LTV (same as before) and up t0 115% CLTV.  The borrower is subject to maximum DTI-debt to income requirements (generally 31%)- as well as there must be a property valuation issue and current income impairment.

The key is that the first mortgage investor must write off at LEAST 10% of the existing mortgage debt and accept the payment as settlement in full.  The second investor must discount their position as well.  Is this likely???  If the borrower is “current” on the payments, why reduce the loan??  If the loan is insured with mortgage insurance, why take the loss?  If the second lien holder can sell their position to someone else or decides to look at pursuing a deficiency judgement, why would they want to do this.

Here is the HUD letter link

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-23ml.pdf

So, while I think the intentions are good, I think the actual application will be small.  What I’ve been seeing in the Twin Cities marketplace is that most lenders are refusing principal reductions and instead opting for foreclosure.

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FHA Mortgage Insurance Change-October 4th

For 30 year mortgages, the upfront is moving down from 2.25% to 1% and the monthly is moving from .55% to .9% for those putting less than 5% down and .85% for those putting more than 5% down payment.  Here is a link to an article discussing the changes:

http://www.washingtonpost.com/wp-dyn/content/article/2010/08/05/AR2010080506663.html

The question you might be asking is “is this a consumer benefit?” Here is one interpretation:

http://www.thinkbigworksmall.com/mypage/archive/1/52542/

On a separate note, doing a short refi with an FHA loan MAY be possible if the servicer agrees.  Here is the FHA rule:

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-23ml.pdf

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Data.gov – A Cool Site With Lots Of Great Info

http://www.Data.gov I just found this site and wanted to share it.  It has a ton of info and reports.  If you have a project or just an “inquiring mind”, this is sure to be a hit.  Check it out and get the data you need.

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FHA Loans, What and Why Are They?

By Tom Maneval

Federal Housing Administration (FHA) home loans are a great option for many homebuyers and homeowners looking to purchase or refinance. FHA home loans are specifically useful to borrowers who cannot make a big down payment, who want low monthly payments, whose credit is not great and qualifying for a conventional loan is difficult for them.

Congress created the FHA in 1934 and it became part of the Department of Housing and Urban Development (HUD) in 1965. The FHA is not a lender. The FHA is the largest insurer of mortgages in the world. Lenders are insured by the FHA against losses as a result of a homeowner defaulting on their mortgage loan. It insures single and multifamily homes including manufactured homes and hospitals. The FHA is the only government agency that does not cost the taxpayers anything operating entirely from the proceeds from its mortgage insurance which is initially part of the mortgage payment.

This program allows a first time home buyer, who might otherwise not qualify for a home loan to obtain one because the risk is removed from the lender by FHA who insures the loan. With the recent subprime lending collapse, the FHA home loans have become cool again, as mortgage lenders and brokers are flocking to the latest FHA loan programs. FHA has been around for decades, and there are many innovative programs to help different segments of the population to realize the dream of home ownership. A common misconception is that FHA home loans are for first time homebuyers. The fact is you can only have one FHA loan at a time whether it’s your second home or fifth. The mortgage limits for FHA home loans are set on an area-by-area or county-by-county basis.

This type of insurance is an attractive benefit for FHA approved and authorized lenders. If the homeowner defaults, the lender gets its money from the FHA. The lender or broker works with prospects to qualify their loan application to FHA guidelines for approval for this insurance for the loan.

FHA loan guidelines also provide attractive benefits to home buyers as qualification is usually less stringent than conventional loans. Plus, all FHA home loans are FULLY assumable, adding one more layer of protection for you and your family. Having an assumable loan at a good interest rate would be part of a good plan for selling your house in the future especially if the interest rates have gone up.

If refinancing a home, the current loan DOES NOT have to be an FHA loan. Refinancing an existing FHA home loan is actually called a streamline refinance. FHA loans are for all homeowners that are buying, or refinancing their home. FHA mortgage loans assist existing homeowners to convert their ARM to a reduced rate refinance loan that ensures a set fixed payment every month until the mortgage is paid off. With FHA refinancing, homeowners can count on market-low mortgage rates to pull cash out up to 85%, and in some cases 95% loan to value. FHA loans are for all homeowners that are buying, or refinancing their home.

Each type of FHA loan is unique and must be applied for individually. Attention is given to one’s ability to make payments and handle life’s expenses. Less attention is given to FICO scores when applying for an FHA loan than with a conventional loan. Qualifying for an FHA home loan is done by using a set of debt-to-income ratios that are a bit more in your favor than those used for conventional home loans.

The following two FHA loan requirements are important for qualifying: Housing expenses should not exceed 29% of your gross income; total indebtedness should not exceed 41% of your income. FHA home loans require a smaller down payment as well. Down payments for FHA home loans are low, generally 5% or even as low as 3.5%. The finance package in a nutshell is: FHA insurance + lender financing = FHA loan. Ask your lender for assistance in learning which FHA mortgage is right for you.

FHA home loans are available in rural and urban areas. FHA home loans are not loans granted by the government, but FHA home loans are mortgage loans that are guaranteed by the Federal Government. FHA home loans are generally offered at reasonable interest rates, and guarantee the mortgage company that the loan will be paid. So whether you are refinancing, buying your first home or your fifth, try out FHA.

Got more questions? Contact an FHA Loan Specialist today.

http://www.tmfinancialsolutions.com/?page=services

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http://EzineArticles.com/?FHA-Loans,-What-and-Why-Are-They?&id=2812903

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FHA Mortgage Loans are Back and Just in Time

By Aaron Gordon

When I first started in the mortgage business, at least one in four of all of my buyers got an FHA loan. The rates were fantastic, the down payment requirements minimal, and the credit requirements were close to meaningless. Most first – time home buyers got an FHA loan.

In the last three years, over 600 families have trusted me with their home loan needs. Of those 600, I did a total of two FHA loans over that time. One in 300.

I wasn’t alone. FHA guaranteed less than 5,000 loans in California last year. In 2003, they did over 100,000. A 95% decrease in demand. Nationally, FHA loans are down 50% from a few years ago.

FHA loans lost their popularity in the past few years for numerous reasons. Loan limits were too low for the fast-appreciating real estate market, income documentation guidelines were too strict, and appraisal restrictions were very difficult.

Subprime lenders, with looser guidelines, capitalized and met this demand.

Home values increased more than FHA lending limits did. The average home in Las Vegas was around $300,000. The FHA loan limit was around $270,000. Subprime lenders would go over $1 million.

FHA requires full documentation of your income and a 3% down payment. Subprime lenders were doing 100% loans with stated income with scores as low as 600.

Although sometimes flexible, FHA guidelines limit your debt-to-income ratio to 41%. Many subprime banks were letting borrowers go to 55%.

With rising sale prices, more borrowers went with stated income loans. FHA wouldn’t allow this. Subprime did.

The FHA appraisal requirements were much more strict and this also turned off many sellers. Subprime lenders had no additional requirements.

The FHA loan was, quite frankly, a last resort. Subprime had taken its place.

Today, that has changed. With all of the recent guideline changes, the subprime loan is nearly dead with anything less than 5-20% down. Many subprime banks have gone out of business. Many more will.

FHA is back!! Once again, borrowers are looking at this as a primary option, especially first time homebuyers.

There are two types of mortgage loans; government loans like FHA and VA, and then there are the rest, which are called conventional loans.

100% financing on conventional loans is not as readily available as it was, particularly for those with marginal credit. FHA has not changed. 97% financing was and is available regardless of credit score. In the last three months, I have closed five FHA loans.

FHA recognized their business was getting hurt by increasing home values so they dramatically increased their loan limits.

In Las Vegas today, the FHA loan limit is $304,000. This is right in line with our average sales price. The timing could not be better and, as a result, FHA loans are back as a very viable loan option.

If you have very little or no money available for a down payment, bad-to-fair credit and feel like you have way too many bills, FHA may be your key to homeownership today.

FHA does not loan money, they insure loans. You don’t go to the FHA to get a loan. You go to a mortgage company that has been approved with the FHA. These companies have special permission to underwrite and close the loan.

You can buy a single family home, a duplex, triplex, or 4-plex. FHA will even insure loans on manufactured/mobile homes.

As an approved FHA lender, when we do an FHA loan, it is insured by FHA. If the loan goes into default, they guarantee it. This means the loan has very little risk to the lender. As a result, the rates are nearly equal to that of a conventional loan, even though the credit scores may be way worse.

Rates on conventional loans are usually based on credit score. The better your score, the better your rate. This is not so with FHA. Everyone, regardless of score, gets a great rate.

FHA was started in the 1930′s to assist first-time homebuyers. The goal was to help families with lower and moderate income get home financing. The program was geared for minorities as well.

Many lenders in today’s subprime mess are pointing the fingers at each other. They believe that countless numbers of the homes going into default today are because of high subprime rates. They believe these homes would not be in jeopardy with an FHA loan with a much lower rate.

For example, last week I closed a borrower on an FHA loan. His credit score is 611 with limited trade lines and 3% down. His interest rate is 6.250% on a 30 year fixed, which he will never have to refinance if he doesn’t want to.

Last year, because of the loan amount, this loan would have probably gone subprime with an interest rate of closer to 8.000% on a 2 year fixed rate, that would have likely forced a refinance in 24 months.

And he doesn’t have a prepayment penalty!! FHA doesn’t have prepayment penalties. As you know, most subprime loans have prepayment penalties and if you want it waived plan on the rate going up by 1-2%.

The program works and provides incredible options for borrowers whose only choices in the last few years have mostly been awful.

There are many advantages to an FHA loan.

You are only required to put down a 3% down payment and the lender can help you get it. It can also be gifted from a close friend, a relative or a non-profit organization that provides financial assistance.

There are many private down payment assistance companies (DAPs) that can help you with the 3% down payment. The FHA allows this and works with these companies. You have likely heard of a Nehemiah. Nehemiah is a DAP. If you do a conventional loan, this is not allowed.

You can have less than perfect credit. In fact, your credit can be pretty bad. FHA is far less concerned about your credit score than they are your history over the last two years in paying your bills on time. They will often ignore previous financial troubles and other blemishes on your credit report.

There are no “set” guidelines about credit. There is much more flexibility at the underwriting level.

For example, I recently had an FHA loan where the borrower was putting down his own 3% and not using a DAP, he was employed for over two years, and he has no late payments for the past two years. He also had four months reserves. His credit score was under 550, his debt to income ratio was 47%, and he only had one current trade line. The loan was approved. The FHA rate at the time was 6.125%.

As opposed to most conventional lenders, which have strict guidelines, FHA underwriters have some discretion to look at the overall strength of the file and make a decision. For example, even though it is commonly thought your debt to income ratio must be 41% or less to qualify; I have seen FHA loans approved with debt to income ratios over 50%.

Some of the FHA guidelines are more strict. You do have to be two years out of bankruptcy from the date of discharge and you must have some good re-established credit to get an FHA loan.

If you had a foreclosure you likely need to wait at least three years for an FHA loan and your credit should be pretty clean after that date.

If you can prove the foreclosure occurred because of extenuating circumstances like the death of a spouse or a serious illness that prevented you from working, they will sometimes make an exception to this as well.

The FHA has many different choices of loan programs like 30-year fixed, 15-year fixed, 1, 3, 5, 7, and 10 year ARM’s too. Interest only is not available.

The rates are excellent as I discussed above. The fees are controlled by FHA so you usually pay less for the mortgage too.

In today’s market, there is a lot of bank-owned on the properties that are in need of pretty substantial repair. The FHA has a program that allows owner-occupied borrowers to finance up to $35,000 in the mortgage to make these repairs.

In a conventional loan, these repairs need to be made before the close of escrow. In many cases, the seller doesn’t want to make these repairs and offers the property “as is.” The buyer can’t afford to make the repairs and certainly doesn’t want to make them before they own the house. This usually kills the deal after the home inspection or appraisal.

The FHA has a plan for this. The program is called a 203(K) and it allows for the appraiser to consider the value of the home after all of the repairs and renovation is made. You get to buy the home, fix it up to be livable, and then you get to include all these costs in one easy loan. And you still only have to put 3% down. No other loan program allows for this.

When the loan is closed, the repair/renovation money is withheld in escrow, as well as additional reserve funds of 10-20%, to pay for these improvements and any overages that may occur that weren’t factored at the time.

The contractors go in, fix the house, and then they get paid through the withhold account and reserves. The biggest catch here is, once again, the home has to be owner-occupied. This program is not available for investors or second home buyers.

In today’s market, the only negatives to an FHA are loan are loan limits, which are $304,000 and that unless you put down 20%, which most people don’t, your FHA loan will require mortgage insurance.

Mortgage insurance (MI) is handled a little differently than you are used to with a conventional loan. For one, it’s usually a bit cheaper. FHA mortgage insurance is not based on credit score like conventional loan MI is. It runs 0.5% of the loan amount and is broken down over your monthly payments.

FHA also has an upfront insurance premium that is 1.5% of the loan amount. That premium is due at the close of escrow and can either be paid in full at close or added to the loan amount. As most FHA borrowers have very little money to put down, this premium is usually financed into the loan.

The good news here is that mortgage insurance, as of January 1, 2007, was made tax-deductible, so that helps as well.

And how about this? FHA loans are assumable!! If you want to sell your home, you can simply transfer it over to your buyer and he doesn’t have to go out and get a new loan. The buyer does have to meet the FHA credit standards, but as I have already touched on, those are very reasonable.

The bottom line is if you are a first-time homebuyer or you are a bit more credit-challenged and your lender suggests a subprime loan you should ask for FHA as an option.

In addition, if you are being quoted more than the “going rate” for a loan, you believe you can support your income with paycheck stubs and W-2′s, and the loan amount is $304,000 or under in Las Vegas, you will also want to ask about an FHA option.

If your preferred lender says FHA is not for you for any other reason other than loan amount or income documentation, and suggests a subprime loan, you may want to get information from a different lender. Not all lenders are permitted to do FHA loans. You want to make sure the reason why you are being steered away is not simply because they can’t do the loan.

Aaron Gordon is a top-producing Senior Mortgage Consultant with Maverick Residential Mortgage in Las Vegas, NV. His monthly newsletter currently goes out to over 10,000 real estate agents and other professionals in the Las Vegas area. He helps over 200 families each year who trust him in their mortgage needs in many states. He can be reached by email at aarongordon@maverickmortgage.com or you can see more newsletters at aarongordon.net

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