Monthly Archives: August 2013

Legislation Seeks to Increase FHA Loan Down Payments

The House Financial Services Committee drafted legislation (the FHA Rural Regulatory Improvement Act of 2011) that seeks to raise the required down payment on Federal Housing Administration-backed loans to 5 percent, and would also lock home buyers out of financing closing costs.

Proposal Worries Lending Expertsfotolia_4133298_XS

This proposal has been denounced by Mortgage Bankers Association, the National Association of Realtors, and the National Association of Home Builders. It’s still not clear if or when this proposal will move forward, but one thing is certain: at the time of this writing, buyers can currently secure an FHA loan with just a 3.5 percent down payment and, in most cases, roll closing costs into the loan as well.

 Current Down Payment Structure Keeps Homes Within Reach

Even though buyers can get into a home with a down payment of as little as 3.5 percent, that minimum is extended only to buyers with good credit scores (at least 580). Buyers with a FICO score of 579 or lower will need to make a down payment of 10 percent. Also, the FHA program has high standards for the underwriting process, including income verification and other documentation. This ensures that home buyers are truly invested in their property, and also lowers the default rate and makes for a much less risky loan on the lender side of things.

Under the FHA program, if you purchase a $600,000 house under the program, you’ll need to provide as little as $21,000 in the form of a down payment to close escrow. (No money loans are a challenge in today’s market – be sure to ask your mortgage professional for more details on this topic.) HERA limits set in July 2008, and extended in subsequent years, are set to revert soon: “Barring Congressional action, FHA loan limits will revert back to loan limits determined under HERA for loans insured by FHA on or after October 1, 2011.”) But if you can afford to pay 10 percent down, to cover the excess, you can potentially get into a pricier house. With the U.S. Department of Housing and Urban Development reporting a 2008 median home sale price of $560,000 in Orange County, this means a lot of options are open to Orange County home buyers.

Obviously, legislation like this could affect Orange County home loan rates. If you want to buy in Orange County with a FHA Loan, act now to make sure you have all the options available to you.

Buying a Condo in Orange County with a FHA Loan

What if you want to buy a home, but a house is out of your price range, or perhaps you just prefer the ease and convenience and not having to care for a lot of property. How about a condo? It is possible to get a Federal Housing Administration loan for a condominium. As far as the FHA is concerned, buying a condo (at least from the buyer’s perspective) is not much different from buying a standalone, single-family home. It just requires a special approval process.

Condo Confusion

Because of continued confusion over how FHA loans work with condos, along with changes made to the approval process in 2009, the FHA has clarified the “rules” on its website.woodbury

In order to seek FHA approval for a condominium loan, the buyer must:

1. The buyer must take out a loan with a term of up to 30 years.

2. The unit must be in a condo building that has at least two dwelling units.

3. The unit can be “detached or semi-detached, a rowhouse, a walk-up, or an elevator structure.” It cannot be a condominium hotel, a timeshare, a houseboat, or have more than one dwelling per condominium unit. And the project must be primarily residential.

4. The loan must be made by a bank, mortgage company, or other lending institution that is insured by the FHA.

Finding a Condo

However, you can’t just pick any condo. The FHA maintains a list of condominium projects that meet its lending criteria. (Just like with houses, the FHA has set FHA loan limits in Orange County for condo purchases. Since the program is insuring the loan, it limits its risk by setting these guidelines.)

To find FHA-approved condos, search the website for “condominiums” to find the page with drop-down menus and blank boxes where you can put in the name of the condo project you have your eye on, or just search by city or ZIP code. Your mortgage professional can also help you with this. In fact, even if a particular development is not on the list, some lenders have special authority to seek approval for a loan.

You may find that not all lenders are well-versed in setting up FHA loans for condos, especially in new developments and in cases where the borrower seeks to put less than 20 percent down. Make sure you choose a professional who is familiar with the unique condo approval process set out by the FHA.

The FHA’s Short Refinance Program

A little-known program offered through the Federal Housing Administration can be a lifesaver for qualified borrowers who are underwater on their home loans. It’s called the Short Refinance Program, and it’s the FHA’s way of offering a mortgage refinance loan that is manageable even for home owners with a poor loan-to-value ratio.

The program is only available to borrowers who are current on their payments, but who owe more on their mortgage than their house is worth. The home also must be the owner’s primary residence. The homeowner must images (44)qualify for the new loan, and have a FICO score of at least 500. It’s only intended for those who are NOT in a trial loan modification period and don’t already have an FHA loan (for those that do, there’s the FHA Streamline Refinance program).

How Short Refi Works

Thanks to the Short Refinance Program, unveiled in September 2010, homeowners don’t have to feel trapped in a privately held mortgage with a too-high interest rate and unfavorable loan terms. If approved, they can lower their payments significantly. Not everyone will qualify (consult your mortgage professional), but in many cases, the FHA refinancing process under this program will result in a new FHA mortgage with slightly positive, or even neutral, equity.

“We’re throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined,” FHA Commissioner David H. Stevens stated at the time. “This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product.”

Major Banks Involved

At least five major banks have signed on to participate in the Short Refinance Program: Bank of America, Citigroup, JP Morgan Chase, Ally Financial/GMC, and Wells Fargo.

One condition is that the current lender has to agree to “write down” a percentage of the excess principal – but the government will help make up that cost, making it more appealing to the lender (and almost certainly a better bet than a foreclosure or short sale.)

The program is somewhat controversial politically, but as of this writing it is still an option for homeowners who want to stay in their homes and build equity under more affordable circumstances.

FHA 101 for Every Home Buyer

For every first time home buyer, the lack of familiarity of purchasing a home, its details, processes, lists of documentation, and amount of time and consideration is nothing short of an overwhelming experience when you don’t know what to expect, do, or where to start.

Luckily, for first time buyers the Federal Housing Administration (FHA) offer’s loan programs designed to get you approved. Because FHA loans allow for an easier process over conventional style options, FHA lenders images (45)provide loan requirements attainable beyond others. Below are five primary reasons on why first time buyers benefit from choosing a FHA lender for their home mortgage.

1) Credit History

With an FHA loan, most past credit problems are often considered more lightly during review and are often dismissed in the approval process with a written description. These include areas of bankruptcy, late payments on accounts within a framed timeline, and collections (disregarding federal liens such as tax and student loan defaults). With a credit score minimum of 620, FHA lenders are helping to aid in more people becoming homeowners over others every day.

2) Down Payment

The greatest part of applying for an FHA loan is that the amount of money upfront is substantially lower then conventional loans that require up to 20 percent in funds for a down payment. Where as first time buyers typically have yet to establish that amount of funds within their portfolio, FHA loan requirements make it a bit easier to purchase with requiring only 3 percent of the loan value to be paid in the closing costs; allowing buyers to enter into the next phase of their financial future. Other positive items available are gifts from family members and coverage of closing costs by the seller.

3) Rates

Within today’s market, FHA offers low competitive rates providing an overall lower monthly mortgage. With a low mortgage rate, homeowners enjoy the ease of a much less amount paid out through the life of the loan; meaning the better the rate, the less amount of money you pay for your home during your entire ownership. This is often in direct competition with the traditional 30-year fixed mortgage.

4) Application Ease

As long as you are able to meet the requirements placed by the FHA within your credit, have an amount of 3 percent to place down towards closing costs, verifiable positive employment history…chances are high in your favor for approval.

5) Debt to Income

Despite more normally required limits, FHA lenders allow for a high debt-to-income ratio. This amount accounts for outstanding credit card accounts, car and student loans, and other monthly expenses, with the understanding that if you are able to maintain your current payments along with an anticipated mortgage payment (add up each item of debt, including the estimated mortgage payment, and divide by your monthly income) the FHA will allow up to a 50 percent debt-to-income ratio.

FHA 101 Overview…

  • Credit History
    • past credit problems are accepted more easily
    • areas include bankruptcy, late payments during an explained timeframe, collections
    • does not easily excuse federal and tax liens taxes,
    • does not easily excuse defaults on student loans
    • accepts minimum of a 620 credit score
  • Down Payment
    • requires only 3 percent of the loan value to be paid at closing
    • may be a gift from a family member
    • allow up to 6 percent in seller concessions (seller can pay up to 6 percent of the closing costs)
  • Rates
    • low competitive
    • pay less amount through the life the loan
    • competitive to the traditional 30-year fix
  • Application Ease
    • strong chance of approval within the minimal requirements
  • Debt to Income
    • allows a high debt-to-income ratio
    • 50 percent debt-to-income ratio (debt +  estimated mortgage payment,

divided monthly income)

Can I Attain A FHA Loan With Non-Traditional Credit History?

With the recent rise of FHA loan limits to $729,750 for Orange County, Los Angeles, Ventura, and many additional areas across the country, totaling over 660 markets and with as little of a down payment as low as 3.5%, the large possibility it provides for future homeowners has grown tremendously. With larger loan limits provided FHA loan programs, more and more people are now eligible to qualify for a government insured home loan.

Now that the limits have been lifted up by the mutual agreement of congress for FHA loans, 1st home buyers are interested in an applying for FHA loan programs but asking the question, “would we still qualify for an FHA 160018787loan with having a non-traditional credit history?”

For many, the recent years of economic up’s and down’s, employment and or release of a position, families have had to be creative in their history as they continued to manage their financial accounts, bills, and other living expenses. It was not uncommon for people to drastically reduce and or eliminate the use of credit in order to maintain a health financial structure for their living. So what does this mean for those wanting to move forward into home ownership who have chosen not to use means of credit?

Within the FHA rules and regulations, it states that applicants with non-traditional credit histories should be examined and worked with carefully by the lender; however, it also continues to state that non-traditional credit, or lack there of for a credit history, is not quite enough to disqualify a potential borrower from attaining an FHA home loan as shown below:

• HUD 4155.1, Chapter 4, Section C states | “The lack of a credit history, or the borrower’s decision to not use credit, may not be used as the basis for rejecting the loan application…some prospective borrowers may not have an established credit history. For these borrowers, including those who do not use traditional credit, the lender must obtain a non-traditional merged credit report, [known as a NTMCR], from a credit reporting company, or develop a credit history…”

A Non-Traditional Merged Credit Report (NTMCR), states that items acceptable are to be derived from any available source within the list followed below:

• History of rental payments
• Record of utility payments
• Automobile insurance payments
• Other means showing direct access from the credit provider

Thus, despite having both a high credit score as well as a long standing line of credit history, YES, FHA loan programs do accept and are available to potential borrowers with non-traditional and/or lack of credit histories whom are looking to become a 1st home buyer and noted that each applicant for an FHA loan is considered and reviewed independently based on a case-by-case basis. So be prepared and be sure you are able to provide all the necessary documents required. Attaining an FHA home loan for any 1st time home buyer is a great achievement and one that is within reach for all those ready to buy.

HUD Gives Grant To Four Southern California Communities

If you are moving forward as a FHA 1st time home buyer and currently looking within the areas of Orange County, Los Angeles, and or Ventura County, then you will want to know about the recent announcement made by the Federal Housing Administration and the Department of Housing and Urban Development just a few days ago.

As of December 9th, the Federal Housing Administration and U.S. Secretary Shaun Donovan for the Department of Housing and Urban Development (HUD) has announced the grant approval and implementation of $19 images (43)million to be placed for community development and affordable housing within four designated communities within Southern California. HUD also states that this annual funding, in addition to the community development, will help individuals to be able to find affordable homes for families whom are currently living on the streets and provide permanent housing for those living with illness.

U.S. Secretary Shaun Donovan was quoted stating, “This year’s block grant funding requires tough choices that we would not have made in better circumstances.” Donovan continued to with, “As we work under the challenges of our nation’s deficit, we must also understand that these programs are absolutely essential in promoting community development, producing affordable housing, helping our homeless and even supporting long-term disaster recovery.”

As a first home buyer with the available FHA loan programs available, the increase in FHA loan ceiling limits, and the community contribution for development and affordable housing made by HUD, the benefits as a 1st home buyer continue to increase by illustrating opportunity as a 1st time buyer, positive pricing through affordable programs within the market, and financial strength over the longevity of one’s investment in first time home buying.

The four communities mentioned in the approved community and affordable housing grant are shown below within each of the community recipient breakdowns with grant type and amount:

• CDBG $1,234,158
• HOME $722,353
• COMMUNITY TOTAL = $1,956,511

• CDBG $2,028,175
• ESG $97,703
• HOME $1,105,645
• COMMUNITY TOTAL = $1,956,511

• CDBG $7,875,755
• ESG $379,364
• HOME $4,534,441
• COMMUNITY TOTAL = $12,789,560

• CDBG $952,686
• COMMUNITY TOTAL = $952,686

Providing a GRAND TOTAL of $18,930,280 for the four areas.
For and FHA 1st time home buyer, knowing and understanding all of the various terms, departments, and various players within the real estate industry can be a daunting and overwhelming request. To better help understand where the allocated amounts shown above are going, as listed on the HUD’s website, the abbreviations for CDBG, HOME, and ESG, are defined and explain as the below:

CDBG | Community Development Block Grant Program
Since 1974, the CDBG has provided approximately $134 billion to state and local governments to target their own community development priorities. The rehabilitation of affordable housing and the improvement of public facilities have traditionally been the largest uses of CDBG although the program is also an important catalyst for job growth and business opportunities. Annual CDBG funds are distributed to communities according to a statutory formula based on a community’s population, poverty, and age of its housing stock, and extent of overcrowded housing.

HOME | Home Investment Partnerships Program
HOME is the largest federal block grant to state and local governments designed exclusively to produce affordable housing for low-income families. Since 1992, more than 600 communities have completed nearly 950,000 affordable housing units, including 403,000 for new homebuyers. In addition, 224,000 tenants have received direct rental assistance.

ESG | Emergency Shelter Grants
ESG provides homeless persons with basic shelter and essential supportive services. It can assist with the operational costs of the shelter facility, and for the administration of the grant. ESG also provides short-term homeless prevention assistance to persons at imminent risk of losing their own housing due to eviction, foreclosure, or utility shutoffs.