Monthly Archives: August 2012

FHA Loan Requirements – Here’s What You Need to Do to Qualify For an FHA Home Loan

If you have been trying to get a home loan with a traditional mortgage and have been unable to do so, you will want to look at applying for an FHA home loan. The requirements are not as strict and you need less money for a down payment. While these are probably the most important issues for you, there are a set of guidelines that must be followed to qualify. This article will give you the basic requirements. The actual lender may have some additional qualifications that they want to see.

91499534The home that you are purchasing must be for your personal use. Acquiring a loan for an investment property is not allowed. When you are applying for the FHA loan you will be required to produce a social security number that is valid. This type of loan is specifically for homeowners, to help people achieve the dream of living in their own home.

You will be eligible for an FHA loan if you are a legal resident of the United States. There is no stipulation that you have to be a citizen of the United States, just that you are living in the country lawfully. If you are not of legal age to sign a contract such as a mortgage you will be denied the loan.

Not every bank or lending institution can offer FHA loans. You will need to find one that is qualified to do so. Once you have done that you can expect to provide the following information: income verification, your assets, credit history and the liabilities you have. Your FICO score will be attained for the purpose of the loan, but it is not as critical to achieving success.

There are no income limits that would stop you from getting an FHA loan. However, you must show that you are able to pay the monthly mortgage payments. This is why the proof of your income is needed.

While the FHA lender does look at FICO scores they do not have to be a high as a traditional loan requires. The laws recently changed with regard to the score needed. The typical score they would like to see is 620 plus, but considerations can be made if you have had a good past payment history.

If you have had a bankruptcy in your past, then you must wait at least a year before applying for an FHA loan. It is considerably longer if you try for a traditional 30 year fixed loan.

Many first time buyers won’t have a credit history either because they are young or have paid cash for everything. This should not deter you from applying. When you have a good rental history, paid your bills promptly and perhaps had a chance to put some savings aside you have an excellent opportunity to get the loan.

Loan Modification Vs FHA – Hope For Homeowners Program – Comparative Analysis!

In the last 3 or 4 years, a large number of homeowners have been trying to complete a “loan workout” with their current mortgage lender to lower the interest rate and improve the terms of their loan. Many lenders have chosen not to accept any new terms, rather, let the property go into foreclosure.

89771687Because lenders have an overwhelming number of properties in foreclosure, they are starting to accept loan modifications via their loss mitigation departments. The time is ripe for consumers (who own homes) to take action and request that their loans be modified towards better terms and a lower interest rate they can afford, if they have high interest rate sub-prime loans or are at risk for foreclosure.

Since, the rate of foreclosures is increasing, everyday, the federal government, congress and the president have approved and signed a new bill which will allow homeowners to take advantage of a new “FHA – Hope for Homeowners Program” designed to save more than 400,000 homeowners from foreclosure. This program will go “live” on October 1st, 2008.

The new FHA loan program will assist homeowners who are currently in foreclosure, close to foreclosure or those who have high interest rate mortgage loans like those called sub-prime loans. The program is different than a loan modification in several ways.

The following is a bulleted layout of the deference’s between completing a loan modification and getting approved to do a FHA -Hope for Homeowners program.

Loan Modification:

1. You can recast your current loan into different terms, with the hope to benefit from a lower interest rate, which is fixed rather than an adjustable interest rate.

2. The costs of the loan modification are rolled on the “back-end” of the loan, which will increase the amount of money you owe.

3. The loss mitigation department may choose to keep the amount (that you own on your loan) higher than your current home value. Or they may choose to lower that amount, some, but not as much as it could be to make your new payment comfortable in the long term. This could mean that you may be in financial jeopardy, in the future.

4. It’s a fact, what cause your current lender to be interested in keeping your loan on their books are the servicing rights. They make money servicing your loan over the term of the amortization schedule. The problem is that many lenders have filed for bankruptcy or just got out of the business (due to poor credits markets) and the servicing rights have been sold to other investors. This often causes a strain, since; the servicer does not actually have your loan documents at their facility, so they rely on others to get your original loan information to them for review. This process can cause the loan modification workout to be slow, in many cases. Timing is very important, since, homeowners are not knowledgeable in the process and they often wait to late to get the loan modification process started. It is important to communicate with your current lender and get the loan modification process stated, months before your home goes to foreclosure sale.

5. If your request for a loan modification is rejected, you may want to try it again in a few months, since; some lenders don’t document the loan modification attempt you made. They are often motivated by changes in the housing market and their intent changes as more and more loans go into default. It does not hurt to try again. It is smart to work with a loan modification specialist, a seasoned loan officer or an attorney who specializes in real estate, mortgage lending and loan modifications. They understand how to speak to loss mitigation department, personnel and can get a general idea of the mood and trends of your lenders loss mitigation department.

6. Many loan modification specialist work together with attorney firms to get the loss mitigation departments to act in a timely manner. Those same attorney firms work with the loan modification specialist to make sure the original loan documents are not fraud ridden. This is a good approach, yet it can cost the homeowner additional money, since both the loan modification specialist and the attorney need to be paid for their services.

7. Homeowners are required to pay the loan modification specialists and attorneys for the services, provided. Many homeowners think that the cost will be included in the new loan amount, but this is not the case. Logically, lenders are already losing money when they agree to modify the loan terms and conditions for the homeowner, so, you can bet that they will not agree to “package” the costs of doing the loan modification into the new loan. That cost is paid by the homeowner, directly to the loan modification specialist and/or the attorney. The cost can range between $995.00 and $, 5000.00; as an average. Many loan modification specialist, senior loan officers and attorney firms can work out a payment plan, yet, many require at least 1/2 upfront before they start the loan workout. Understand, there is no guarantee that your loan modification or loan workout will be accepted. You will still have to pay your representation your agreed amount. A large percentage of loan modifications and workouts are accepted. So, it’s a good bet, since, most people do not want to loose their homes to foreclosure.

8. Loss mitigation representatives, (most often) do not require you to pay for a new appraisal. Instead, they have your representative provide census track data, a BPO (broker price opinion) or a print out of valuation from title company market sales data. 9. If you are in foreclosure and costs have been incurred from posting your foreclosure sales data, attorney fees, title costs or other costs; you could be liable for those costs, if our current lender requires it (as a requirement to the loan modification).

10. Loss mitigation departments may choose to approve you for a new loan which is (another adjustable or tiered -fixed loan). Be careful. Do your homework or “talk-it-over” with your representation.

FHA- Hope for Homeowners Program:

1. The federal housing administration (FHA) has required that all homeowners who become approved for this program accept a 30 year fixed rate program. No other loan types will be accepted. You can only qualify for this program.

2. FHA will loan up to 90% of the current value of your property. This means that if you purchased your property for a higher purchase price and currently have a loan amount higher than what the value of the property is presently, you can become approved to do a loan amount at 90% of what your current house is worth.

3. If you have more than a 1st trust deed lien (subordinate liens) on your property and your property value has severely, diminished; your current lenders may take the loss when you get approved under the “Hope for Homeowners Program”. Usually, the subordinate lenders loose, unless they purchase the primary lien. Most do not purchase the 1st trust deed lien. So, the subordinate lender takes a loose on their investment.

4. FHA’s goal is to keep as many homeowners in their homes. They understand that it would be better to do a loan for a homeowner rather than have that property go into foreclosure, be place into the retail real estate marketplace, causing a further degrading of the housing market.

5. The FHA underwriting guidelines are currently more liberal than any other loan guidelines in the current market. FHA is more forgiving in their approach to mortgage lending.

6. The FHA underwriting guidelines have not been disclosed. As October, 1st, 2008 approaches, lenders, processors and underwriters will have a more clear idea as to what is required to get a loan approval.

7. Homeowners will (probably) be required to pay for a new FHA appraisal, as a condition for loan approval and closing. Underwriting guidelines will determine if this is true. The average costs for an FHA appraisal is ranges, $300 – $450.

8. Income to debt ratios will be determined and posted in the underwriting guidelines. Consult your loan modification specialist or loan officer.

9. The loan servicing companies that service, sub-prime loans will (probably) be more inclined to accept a loan modification, since they will want to transfer the lien to FHA, rather than keep it on their books. They have taken huge losses and have an overwhelming desire to get rid if their current problems. Have patience with these lenders, since, they do not keep your actual loan documents at their facilities. They will have to request them. Many loss mitigation personnel are stressed and will want to make a determination as to your file, fast. This is an advantage to you! Work closely with your loan officer to get the items needed for loan submission.

10. If you live in a heavily populated area like Los Angeles, Orange County, San Francisco, Seattle, Portland, Denver, Miami, etc., you will more than likely have a higher percentage of success with a loss mitigation department. This is because there are more homes in foreclosure in concentrated housing areas.

11. Even though we have not seen the FHA underwriter guidelines, (since they have not been delivered to the underwriters) they will be available on or before October, 1st, 2008. We can expect that the guidelines will probably focus on a person ability to make the new housing payment and not the persons credit score. We call this “ability to pay”!

12. If you’re, FHA -“Hope for Homeowners Program” loan application is accepted by FHA; your current lender will still have to accept the condition which FHA places on the loan. This means that your current lender may to take a loss in equity by accepting the FHA loan buyout, offered.

13. The good news is that your current lender (already) understands that they will take a loss in equity, if the property goes into foreclosure. If they don’t accept the FHA buyout, they may have to place your foreclosed property into the retail sales marketplace. This means that they may have to pay a Realtor up to 6% commission, wait for the property to be purchased, incur additional holding cost, pay a gardener, electricity and water bills. All the while, they realize that the property will probably be reduced in value even more as additional foreclosure properties come on to the marketplace. This is not a rosy situation for them, so, most will realize that it would be better to sell the loan to FHA and take less of a financial loss.

14. The main benefit to your current lender in accepting the terms of a FHA buyout is that under the FHA guidelines, they can benefit from a portion of any equity gain in the property for up to 5 years, at the time FHA buys the loan. If the homeowner chooses to sell the home within the 5 year period after the close of the new FHA loan; the lender can participate in a percentage of any equity gain. This single condition will cause many lenders to accept the FHA loan buyout. Ask your loan officer for information regarding lender participation in an equity gains.

15. Many lenders are fully; “FHA approved lenders” and will require that your loan be recast within the FHA loan department of your current lender. Therefore, ask your loan officer if your current lender (note holder) is FHA licensed. This will save you time and headaches, since; many loan officers will try to do the loan on your behalf without determining if your current lender wants the new FHA loan on their own books. This may be a condition for an FHA loan approval, by your current lender. If our current lender is already an approved lender, they might as well sell the loan to FHA, direct, correct?

16. Third party cost like, attorney fees, loss mitigation fees, foreclosure posting fees, etc., will be absorbed by your current lender under the FHA – Hope for Homeowners Program. You will not incur these fees under the program. The lender will take this loss, too.

17. As part of the Foreclosure Prevention Act of 2008, 1st time homebuyers are encouraged to purchase homes between April, 2008 and July 2009. They can receive up to $7500 dollars in tax credits from the federal government. This program has been established to speed up the housing recovery by getting people to purchase homes. Additionally, it will cause home sellers to purchase homes, as well, since they are often “move up” buyers. This program is part of the overall attempt to correct the bad housing market.

18. Credit Score vs. Your Ability to Make the Payment: These two factors will be outlined in the underwriting guidelines. I would expect that the ability to pay will override the credit score issue, since, most people having problems making their housing payments, already, have degraded credit scores. Consult your loan officer for details.

FHA 203k Loan Guidelines and Requirements

The FHA 203k loan requirements and guidelines for renovation has the same qualifying requirements as a standard FHA 203B loan which has the most flexible guidelines with minimal down payment than any other type of loan at this time. The difference between the two is that the FHA 203K will allow for the repairs, rehab or remodeling of your home to be included into the new loan while the FHA 203B won’t. So, what are those qualifying guidelines:

Credit and Credit Scores:

89692484Although lower credit scores are acceptable with FHA loans most lenders will require a minimum credit score of 640. Depending on the lender the minimum credit score can vary and exceptions could be possible.

Bankruptcy and foreclosure:

Chapter 7 is allowed if it has been 24 months after the discharge date, provided that good credit has been re-established.

If the Chapter 7 is less than 24 months (but not less than 12 months) it may be allowed provided the reason for the BK was due to extenuating circumstances. Along with that the buyer or homeowner should be able to exhibit the ability to manage financial affairs currently and that the BK isn’t likely to recur.

Chapter 13 is allowed after 12 months of the pay-out period provided the performance has been satisfactory and customer receives court approval to enter into the mortgage transaction.

Foreclosure or Deed-in-Lieu is allowed after three years. Court ordered judgments and tax liens must be paid. For existing homeowners Tax liens may be included in the refinance.

Income and qualifying ratios:

The FHA 203k like all FHA loans are full documentation loans meaning proof of income is required.

Full or part-time income can be counted with two years of continuous history with some exceptions for schooling, training, maternity leave etc.

Self-employed /1099 income must be stable with a two-year history.

Rental income is also acceptable with a two-year history

Miscellaneous income is acceptable, including child support, alimony or maintenance payments and Note income but must show a 12-month history and evidence that the income will continue for the next three years

Qualifying ratios are 31/43% which means up to 31% of your gross income ( for w-2 earners) or (net income after expenses for 1099 & self-employed) can go towards the total house payment and up to 43% of your income can go to both the total house payment and other revolving & installment debts. These ratios are bench marks but can be exceeded with an automated approval or compensating factors.

Flexible Down Payment, Source of funds and Reserves:

3.5% minimum down payment is required and can come from checking, savings or other depository accounts such as 401k’s. Down payment and closing costs can also be a gift from relatives, significant others or cash-on-hand with paper trail.

Contributions up to 6% for closing cost can come from interested parties involved in the transaction such as the seller and cash reserves are not required on 1-2 unit properties

Well, I hope this helps in giving you a general idea on what the FHA 203k guidelines and requirements are for qualifying. Keep in mind that each lender can have their own variation when it comes to qualifying so the sooner you get started the sooner you will know what to expect.

FHA Loans Help First Time Home Buyers

Being a first time home buyer is both an exciting and frightening time. You cannot wait to find the house of your dreams, yet you worry about finding a lender, the interest rates and the final monthly payment. These concerns double if you have ever filed bankruptcy or have blemishes on your credit. This is why so many first time home buyers turn to FHA (Federal Housing Authority) loans. Since 1934 the FHA has been helping first time buyers like you make their housing dreams become a reality.

Why FHA?

89291818FHA loans offers many benefits that conventional lenders do not. They are much more lenient in a variety of ways; ways that would normally get you a big fat “NO” on other home loan applications. Let’s take a few moments to explore these benefits and why you should apply for an FHA loan when purchasing your first home.

Your Credit Score

Traditional lenders require a credit score of at least 720 before they will even consider approving you for a home loan. FHA, however, will approve you with a credit score of 620. Have you filed bankruptcy? No problem. Yes, you have to wait a bit, but with FHA the time is much shorter–two years after filing they will approve your application. If you haven’t filed bankruptcy, but have collections or late payments, they tend to overlook these provided you are now making payments on time. Liens, however, are not forgiven.

Down Payments and Interest Rates

With an FHA loan, your down payment is only 3 percent, versus the typical 20 percent required by most other lenders. They also permit the seller to pay up to 6 percent of the closing costs to make the process even easier on you. Although your FHA interest rate is variable (there may be some fixed rate FHA Loans), their rates are so low you actually pay less over the life of your loan than a person with a 30-year fixed mortgage rate.

Application Process

It is actually fairly easy to get approved for an FHA loan, as they are lenient about who they lend to. You must have steady employment and meet the credit requirements, which we talked about earlier. They do expect a reasonable explanation for late payments, such as the loss of a job or a serious illness.

Importance of Debt to Income Ratio

Your debt to income ratio plays a vital role in any lender’s decision. They take into consideration all your current debt (i.e. car and credit card payments, school loans, etc.), and will add in your potential mortgage payment. FHA loans are much more lenient about this as well. They allow a 50 percent debt to income ratio, which is extremely high in the lending world.

Now that you have read this article, it is my hope that your hope is rejuvenated and your mind at ease, at least a little. Although your credit life may not be perfect, you still have a fighting chance at buying the home of your dreams, thanks to the Federal Housing Authority. During a time and economy that is making it difficult for first time home buyers to obtain a mortgage, FHA loans are giving you back your dream. Run with it.

FHA Streamline Refinance Guidelines and Details

FHA Streamline Refinance guidelines and details for current homeowners that have an FHA mortgage. The only homeowners that can take advantage of an FHA streamline refinance is homeowners that currently have an FHA loan on their property.

Are you FHA (Federal Housing Administration) Streamline Eligible?

  • 89291778Currently have an FHA Mortgage.
  • Most recent 12 month payment history is on time.
  • Net Tangible Benefit – FHA requires that your payment decrease by at least 5% per month or go from an ARM (adjustable rate mortgage) to a fixed rate mortgage.

There are big advantages when looking into an FHA streamline refinance, one in particular is that there are no appraisals required, which is a huge win for homeowners that currently owe more than the home is worth. Since the FHA currently backs the loan, they are already responsible to the lender if a homeowner were to default on the loan and foreclose. So it is in the best interest of the FHA to refinance a borrower into a lower rate and lower payment, without worrying about the value of the property.

There are no loan to value (LTV) limits on an FHA streamline refinance, unlike the HARP program. Some lenders still put a cap on the LTV limits of a HARP loan, whereas FHA, there are no limits, no matter what lender is chosen. For example, a homeowner could have a mortgage that has a balance of $400,000, but the home is worth $50,000, as long as the FHA backs the loan and it is a benefit to the borrower, then they can refinance with no appraisal needed.

Another big benefit with FHA streamline loans is the mortgage interest rates that come with them are typically lower than a conforming or conventional loan. Right now, an FHA 30 year fixed rate is in the low 3′s and a conforming loan 30 year fixed rate in the mid 3′s.

Some of the benefits relating to the guidelines are there is no income verification. Which is also a big win for homeowners because in these economic times, there are many homeowners that are now working for lower paying jobs than when they originally bought their home. As long as you currently have a job, you can qualify with this guideline.

Credit score is a little different, even though FHA requires a minimum of a 500 credit score, most lenders will only approve a borrower with a 620 or above credit score. Also, when is comes to credit worthiness, a borrower can only be late on a payment one time in the last 12 months and must be current at the time the streamline refinance is complete.

Closing costs may not be rolled into an FHA streamline refinance, the only cost that can be rolled in are the Upfront Mortgage Insurance Premiums. Either the borrower will have to come to close with the remaining closing costs or they will have to take a slightly higher interest rate for a “no closing cost” type refinance.

FHA Mortgage Insurance Requirements

There are two different types of FHA streamline refinances, when it comes to the mortgage insurance requirements. If your current FHA mortgage was written before June 1st, 2009, you may be eligible to refinance your loan with significantly less closing cost.

Normally, when someone refinances an FHA using the streamline program the Upfront MIP (Mortgage Insurance Premium) is 1.75% of the current loan balance and the Annual MIP is anywhere between 1.20% to 1.25% of the original loan amount.

The Cost Associated For Example:

  • $200,000 Loan at 1.75% Upfront MIP and 1.25% Annual MIP
  • 1.75% Upfront MIP equals $3,500
  • 1.25% Annual MIP equals $208.33 a month

But if your FHA mortgage was endorsed prior to June 1st, 2009, the Upfront MIP will be only.01% and the Annual MIP will be just.55% of the current loan amount.

The Cost Associated For Example:

  • $200,000 Loan at.01% Upfront MIP and.55 Annual MIP
  • .01% Upfront MIP equals just $20
  • .55% Annual MIP equals $91.67 a month

That is a savings of $3,480 in closing costs for the Upfront MIP and a savings of $116.66 per month or close to $7000 over 5 years for the Annual MIP.