Major changes go into affect on the FHA loan program on Monday July 14, 2008. These changes are very significant and will impact the affordability of these loans for many borrowers, especially those will less than stellar credit who can’t put 5% down. Basically, almost everybody in todays market.

Essentially, the Upfront Mortgage Insurance Premium (UFMIP)and monthly Mortgage Insurance IMI) will now be risk based. Even though the borrower has the option to pay UFMIP in cash upfront, it is typically financed into the loan. Bear in mind that UFMIP is not part of the regular closing costs. FHA has always charged a flat upfront mortgage insurance premium for every borrower regardless of credit risk. Until last week UFMIP on the 30 year fixed FHA loan was at 1.5%. The monthly mortgage insurance payment has also always been fixed at 0.5% for the 30 Year loan. These percentages will now change effective Monday.

UFMIP will now be charged on a risk basis, i.e., based on your credit score. It will range from 1.25% for lower-risk borrowers to 2.25% for riskier borrowers. In dollar terms this means that on a $200,000 loan UFMIP can range from $2,500 to $4,500. Remember this is on top of the closing costs and down payment already due. Since this can be financed into the loan, your final loan amount will reflect this cost. Having poor credit will now be expensive even on FHA loans.

Monthly mortgage insurance will vary from 0.5% and 0.55% and is determined by the loan to value. If you are putting less than 5% down than its set to 0.55% but if you’re putting more than 5% down it will be 0.5%. Monthly mortgage insurance is calculated by multiplying the percentage to the loan amount and dividing by twelve. So on a $200,000 loan and a MI rate of 0.55% your monthly mortgage insurance payment is $83.34.

First time home buyers who fall in the hefty 2.25% UFMIP bracket do have a way to obtain a slight reduction to UFMIP. If you are borrowing more than 95% of the purchase price (loan to value) and your credit score is below 559 then you may be eligible for a reduction in your UFMIP by 0.25% - so it would be 2.00%. However, you need to complete a HUD-approved pre-purchase counseling session. FHA will only provide the discount after you have successfully completed the course and will ask for a certificate of completion.

Additional Reading on FHA: Is the FHA Loan Program Right For Me?

Relevant FHA Down Payment Assistance related posts on other blogs:

Arizona Republic Article on DPA
Dear HUD, Stop Being a Bully
Real Estate Road Signs - “Buy A House for $500 Down”
Down Payment Assistance Programs

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Tags: FHA, mortgage insurance, upfront mortgage insurance
Categories: Credit Scores, FHA, Mortgage Insurance, Uncategorized
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Okay most everyone knows what I think about this massive bailout package Congress is about to pass. In case you missed it, I think it’s a sham. Seriously. A big sham. How else do you explain this to the 30% of tax payers who are not homeowners. How about the 80%+ homeowners who pay their bills on time, buy what they can afford and read before they sign? Yeah. How about these tax payers.  Mr. and Mrs. Renter who lives within your means how about you pony up some dough so that we can clean up the mess our Wall Street pals and a few over excited folks made over there.

Okay.

Take a deep breath.

Aaaaaaaaahhhhhhhhhhh!

Now. Here are some of the details of the $300,000,000,000.00 mortgage rescue plan currently being “debated” in the Senate. From the Dallas Morning News:

They would receive a refundable tax credit of up to $8,000, or 10 percent of the home value, on purchases of unoccupied housing.

As part of a regulatory overhaul of Fannie Mae and Freddie Mac, the mortgage finance giants, the bill would permanently increase to $625,000, from $417,000, the limit on loans they can purchase from lenders in expensive housing markets. That would make it easier for borrowers in those areas to obtain mortgages at discounted rates.

Later on in the same peice it says:

The Senate bill would provide $150 million to expand counseling for borrowers to prevent foreclosure and establish stricter lender disclosure rules to make plain the maximum monthly payment for an adjustable rate loan.

The bill also establishes an Affordable Housing Trust Fund, to be financed by $500 million to $900 million in fees from Fannie Mae and Freddie Mac. Initially, the trust fund would cover any expenses related to the foreclosure rescue plan, meeting a demand by Senate Republicans that taxpayers not pay for the program.

Under the refinancing plan, only borrowers seeking to remain in their primary home would be eligible, shutting out real estate speculators and owners of vacation homes. And lenders would first have to agree to cut the principal balance of loans to roughly 85 percent of each property’s current value, a substantial loss in many housing markets.

Arizona Mortgage Team has a great post with all the details too.

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Tags: bill, Congress, housing rescue, Mortgages
Categories: Congress and Government, Debt, Economics, FHA
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I receive a lot of questions on the Home in Five Down Payment Assistance Program. The most popular question is of course regarding the availability of funds for non-targeted areas. Well, if you were waiting for these funds before making your purchase then wait no more. We have some good news today. I received an e-mail this morning that there has been $2,000,000 released for down payment assistance in non-targeted areas.

What does this mean to you then?

This means that money is now available for down payment assistance on properties that are outside the designated targeted zones but inside Maricopa county. Just so everyone is clear here are some quick facts:

• Borrower must be fully approved for a loan program which allows the use of down payment assistance (such as FHA)
• Borrower can use funds to purchase anywhere in Maricopa county.
• The borrower does not need to be a first time home buyer (for these funds).
• Have a property in escrow, appraised and underwritten - since the money runs out quick.
• The rate on this program is 6.3% and the assistance is 5% of the purchase price.
• Funds are disbursed on a first come first serve basis.

This program allows up to 5% down payment assistance.  Funds can be used to pay closing costs as well, it just depends on how you end up structuring the loan with your loan officer.

Just a reminder that these funds are HUGELY popular and go fast, so if you are anywhere close to finding a property…this is a SUPERB time to take the plunge!

Read more on the Home in Five Down Payment Assistance Program.

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Tags: Down Payment Assistance, maricopa county
Categories: FHA, Mortgages, Uncategorized, down payment assistance
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Two key Senators on the Senate Banking Committee have reached an agreement to help distressed homeowners.

According to Bloomberg:

“The primary goal is to keep people in their homes, but also to help establish a floor and a bottom” to the housing slump, Dodd, a Connecticut Democrat, told reporters during the call.

The proposed legislation would a create a Federal Housing Administration program to insure up to $300 billion in refinanced mortgages for struggling borrowers after loan holders reduce principal. The Banking Committee is scheduled to debate and vote on the plan tomorrow.

According to CNN Money:

The deal was struck between the top Democrat and Republican on the Banking Committee: Chairman Christopher Dodd, D-Conn., and Ranking Member Richard Shelby, R-Ala.

“This legislation is good news for both the markets and homeowners,” Dodd said in a statement. “The bill addresses the root of our current economic problems - the foreclosure crisis - by creating a voluntary initiative at no estimated cost to taxpayers which will help Americans keep their homes.”

Dodd and Shelby had been in prolonged negotiations over the bill.

A key sticking point has been Shelby’s push to shield taxpayers if borrowers default on their payments after getting government-backed loans. He has said that he wants the FHA plan funded by redirecting money that Dodd’s original bill earmarked for a new affordable housing trust fund. The funds would be paid by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).

I’ve already expressed my thoughts on this bill in a prior post called “FHA: The Be All and End All of Loans“. I’m just glad that the tax payer is not on the hook for any of this - if you’re to believe Uncle Sam that is.

Image: Shared under creative commons license from submarginals’.

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Tags: assistance, FHA, foreclosures, homeowners, senate
Categories: Congress and Government, FHA, Mortgages
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With all the press FHA loans has garnered recently we have received quite a bit of inquiry on this government insured mortgage. We have been able to qualify most who have contacted us, however, we’ve had to disappoint a few. The crazy thing is the reason for denial wasn’t even something related to the borrower. It was entirely based on the property they were seeking to mortgage. While there are relatively few property related hurdles for single family homes, when it comes to condominiums and FHA it’s a different story entirely.

Basically, it boils down to the condo itself being FHA approved. So, if you are thinking of purchasing a condo or refinancing a mortgage on a condo, and would like to use the FHA loan program, the first thing you need to do is make sure it is FHA approved. The loan goes nowhere if the condo in question is not on the FHA approved list. To help you the HUD maintains a master list on its website, but to be double sure, I suggest contacting a FHA approved lender.

If you are curious about what qualifies a condo for FHA approval, the Mortgage Porter has written a fantastic post on this topic. Here are some of the requirements she highlights from the FHA guideline:

1. At least 51% of the total units in the project must be owner occupied.
2. At least 90% of the total units in the project have been sold.
3. No single entity owns more than 10% of the total units in the project.
4. The project, including common areas, is complete with no special assessments and no legal actions pending.
5. The owners association has a reserve plan and a reserve fund , separate from the operating account that is adequate to prevent deferred maintenance

Feel free to contact me if you have a particular property in mind and want to find out if it is FHA approved.

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Tags: Condo approved, FHA, Mortgages
Categories: FHA, Mortgages, Real Estate
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FHA here, FHA there, wherever you look it’s FHA these days. With the increase in loan limits, competitive loan rates and very low down payment requirements often times its the only loan program that makes sense in todays credit crunch. And it appears the Federal government is looking to expand the reach of this program and try to help borrowers in distressed situations.

Last week,a key committee in the House passed H.R. 5830, otherwise known as the FHA “Short Pay” Loans Bill. The main provision in this bill would allow FHA to insure loans for troubled borrowers. This bill seeks to insurance upto $300 billion in home mortgages. According to MortgageNewsDaily:

…the FHA will guarantee a new loan to a troubled borrower if the existing lender will agree to accept a short payment (i.e. less than the outstanding balance of the loan) in full payment of the old loan. The new loan would be limited to no more than 90 percent of the property’s value and must have terms that the borrower can reasonably be expected to pay. When the borrower sells or refinances the home the borrower will pay from any profits either an exit fee equal to 3 percent of the original loan amount or a declining percentage of any net proceeds attributable to home appreciation (from 100 percent in year one to 50 percent in years four and beyond,) whichever is larger. The government, therefore, would only be at risk if the borrower defaults on the new loan in which case he would lose the house.

Other than helping the homeowner stay in their house I don’t see what else it gives them. Their credit will still tank - since they did a short sale refinance. Which means higher interest rates on anything else they ever decide to use credit for - such as a car or credit card. However, being able to keep your home is a huge boost.

Sounds good right? Well not exactly is my answer. Citigroup Global Markets research released a report last Friday stating that this move by the government could go either way:

The analysts — weighing the benefits of insurance premiums and interest cost paid against re-default rates and estimated losses on foreclosed homes — calculated the government could earn as much as $31 billion or lose up to $20 billion.

Keep in mind Congressional leaders estimate the program to cost between $3 billion and $6 billion. Wow. Does anybody even understand the scale of these expenses anymore? As Senator Everett Dirksen once said “a billion here and a billion there, and soon you’re talking about real money.”

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Tags: FHA, H.R. 5830, Refinances
Categories: Congress and Government, FHA, Mortgages
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The downpayment assistance program, which we participate in, the Home in Five Program (only for Maricopa county) had been running out of funds recently. Actually to be more precise funds for non targeted areas had been running out, there was always plenty of money for targeted and priority areas. Late last week the program announced that it would be reallocating funds to non-targeted areas. For those not familiar with the distinction, let me clarify the definitions:

Non-targeted areas: All areas outside of the targeted and priority areas within Maricopa county. There are income limits determined by household size and loan size limits based on the property type. The main rule is that you need to be a first time home buyer in order to purchase a home in this area (using the funds from the Home in Five program).

Targeted Areas: This encompasses areas designated in Maricopa county by the program and is determined by census track numbers. The income limit and purchase size limit is higher than for non-targeted areas. Additionally purchasing in this area entitles you to a better interest rate. You do not need to be a first time home buyer to take advantage of the down payment assistance if you are purchasing in this area.

Priority Areas: These are areas within the targeted areas which are being given additional preference. Hence, the income and loan size limits are even higher and the interest rates are even better than for targeted areas.

The process of determining whether or not a property is in a targeted or priority area is in fact rather cumbersome. Contact me or Aimee with an address and we can look it up for you. Just a reminder, the funds are disbursed on a first come first serve basis and the program makes no guarantees on availability.

Further reading on the Home in Five Downpayment Assistance Program is available here.

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Tags: assistance, down payment, maricopa county
Categories: FHA, Mortgages
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Recently I wrote about how a mortgage approval pretty much lives and dies through income verification these days. While it may seem like a dramatization it really is not, in fact its almost an understatement. This is because not only is income verification important but your employment history is equally important. I bring this up because recently I’ve had to qualify a young couple for a home and the employment history of the co-borrower became a cause for concern.

This young couple, whom we eventually were able to approve, had an excellent credit history and were not first time home buyers. In fact considering how young they were I was very impressed with their home buying savvy. The main issue for this couple was that they needed both of their incomes to qualify for the house they wanted. Using both incomes meant they were well within the DTI limitations for the loan program and were in a very strong financial position.

The kicker was that the co-borrower had recently rejoined the work force after having stayed home with the kids for a few years. This posed a slight problem for the loan approval because certain criteria had to be met in order to use this co-borrowers income for loan qualification purposes. Since we were doing a FHA loan program the co-borrower had to me the following criteria:

1. The borrower must have been working for at least one year on the current job.
2. The borrower must have worked at least two years before leaving the workforce to stay at home with the children.

Both of these conditions needed to be met in order for the co-borrowers income to be used. The FHA underwriter made it clear that meeting only one was not sufficient. In our case the co-borrower was able to furnish W2’s for two years from their last place of employment and it helped that she had been working for the past year. So, we passed on both counts. Certainly a hurdle that no one had expected had been crossed and everyone was pleased.

FHA certainly doesn’t want to penalize a stay at home mom or any other kind of borrower who had to temporarily leave the workforce. But a stable job history is the only way to determine the earning potential for a borrower. So, if you are in this kind of situation make sure you have the necessary documents to prove to a lender that you will indeed be able to make the monthly payment.

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Tags: FHA Loan Program, income verification, Mortgages
Categories: FHA, Mortgages
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One of the most common questions I receive from readers of this blog is regarding the status of the FHA Modernization Bill. Both chambers have passed differing versions of the same bill and the outstanding issues need to be resolved before it can be sent to the President for his signature. The President has promised to sign it and in fact has been urging Congress to send him a bill to sign!

Many ask me if I know when the bill will be forwarded to the President. I just wish I had that kind of access and connections, so in simple terms, I don’t know when this will happen. However, I just read some good news. CNN is reporting that the bills have been resolved and the a joint bill will be sent to the President this April:

NEW YORK (CNNMoney.com) — By early April, both chambers of Congress are likely to tie the bow on a bill that would expand the reach of the Federal Housing Administration, which aims to provide safe loan alternatives to subprime mortgages and make homeownership more accessible.

Different versions of the FHA modernization bill passed in the House and the Senate last year, and both Senate Banking Committee Chairman Christopher Dodd, D-Conn., and House Financial Services Chairman Barney Frank, D-Mass., said last week that the differences between the chambers could be resolved in short order.

I promise to have an update on this as soon I find out!

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Tags: Congress, FHA, Modernization Bill
Categories: Congress and Government, FHA, Mortgages
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One of the major fallouts from last years mortgage market meltdown is we are having to re-educate everyone on the kinds of loans we can do and the level of documentation required to write such mortgages. I think when I tell people I can not do this or that type of loan, they think I’m the only one who can’t and think surely another lender can. Oftentimes that is not the case. There are certain programs and features which NO ONE in the industry can do. These things simply vanished last year. Gone. No one does them anymore.

Take for example a question I received this morning:

What if we did an 80/20 loan? We shouldn’t have to put anything down correct?

Borrowers have long memories because I don’t even think of 80/20’s anymore when I do a pre-qualification. This is because 80/20 loans are no longer available. And it’s not just here at CTX Mortgage either but everywhere in the industry. In fact 80/20 loans have been gone for a while now and will likely never come back again (I’ve even already updated my spreadsheet analysis I give to borrowers - it no longer has any trace of 80/20 type financing). For a while FannieMae’s MyCommunity and Flex mortgages filled the gap left by 80/20 loans. But now that mortgage insurance providers will not insure greater than 95% in declining markets, these loans are no longer an option!

The only 100% loans available these days is FHA or VA. And in realty FHA is not a 100% program. They only lend up to 97% and expect you to come up with 3%. They are lenient on where you come up with this 3% and even allow you to obtain it from non-profits such as AmeriDream, Nehemiah and others. The catch of course is that the seller has to agree to participate in this arrangement and a sellers participation is not always guaranteed. Also, don’t forget that FHA has a loan limit of $346,250 in Maricopa and Pinal county.

Additionally, if you were planning on having the seller pay for closing costs that means you’ll be asking for more from them and costs can quickly add up. While in today’s buyers market you maybe able to find sellers willing to accommodate you, it is still something that needs to be understood as you make a purchase offer. This is especially true if you’re looking at bank owned homes.

So, unless you are willing to purchase under the FHA loan limit, only work with sellers willing to contribute towards your purchase or, you are a military veteran then you will be required to put money down. Remember if you are a first time home buyer or are willing to purchase within a certain restricted/targeted area than you can use the Home in Five bond program for the down payment.

Bottom line: things are different than a few months ago. So, do not assume anything and ask lots of questions. By the way, yes, if the lender gets irritated with all your questions then go on to the next one! Things truly are not the same and you have every right to ask as many questions as you like.

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Tags: 100% Financing, FHA, loans, Mortgages
Categories: FHA, Mortgages, Real Estate
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