Is FHA the best option for a low-down-payment buyer?

Click on the image below to view a detailed analysis that will breakdown both programs both short term and long.

We’re all looking for ways to help buyers repurchase in as short time as possible. Although FHA and Conventional programs require at least 3-4 years, Veterans can purchase a home in a shorter amount of time. VA requires 2 year seasoning after the completion date of a short sale in order to purchase another home.

If the following DON’T exist, you may purchase a home right after:

• No mortgage late and installment payments within the prior 12 months of completing the short sale
• No foreclosure or bankruptcy action within the last 2 years

Veterans that were able to short sale their home without being late on their payments, for reasons of relocating or for hardship situations  such as medical reasons or loss of job may also buy a home shortly after. Borrowers may not execute a short sale to take advantage of declining market conditions and purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.

If you have any questions or if you would like to discuss your VA options feel free to call me. I’m all ears!

The 203k rehab loan has been existent for quite some time, but is a commonly an overlooked product. I personally appreciate this product in our current market because of its flexibility, relatively low-interest rates, and the fact that you can take a run-down house and turn it in to a home you can be proud of; all in one shot.

How the FHA 203k Rehab Loan works, in a “nut shell”

Can’t get your offer accepted?

The Cons of a 203k Rehab Loan

There are a few things that can cause major headaches or may even cause an underwriter to deny a loan.

• Derogatory changes in credit
• Changes in income or employment
• Non-traceable bank deposits

In this blog I will be covering non-traceable bank deposits due to  it being a common occurance. I have to admit, even I make cash deposits once in a while and  pay no mind to it. If you’re considering buying a home it’s important  to start being more aware of your banking habits, among other things. Lenders are currently looking at 2 months of bank statements, therefore; begin your banking transformation at least 2 months prior to shopping for your new home.

Hypothetically speaking, if you do end up finding a house before you clean up your bank statements a verification of deposit can be ordered directly from your bank and used to verify your bank funds. The verification will show the current balance and a 3 month average. If the current balance is substantially more than the average balance, a bank statement will most likely be required  as evidence for the large increase in your balance. Again, if there are cash deposits showing on that bank statement then you may run into a delay or even a denial… if it can not be corrected.

If you are interested in becoming prepared to buy a home, feel free to set up a consultation with me. In this meeting, a thorough analysis of your bank statements will be performed to ensure that we are preparing you for a smooth, stress-free home buying experience. If I notice patterns in your banking habits that I foresee causing problems I will coach and guide you to make better decisions about handling your deposits.

***Updated 4/11/2012  – FHA is delaying the effective date of the following topics:

• Handling of disputed accounts
• Paying off collections and judgements

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If you thought all the guideline changes were over, guess again, HUD has once again decided to spice things up. Apart from the mortgage insurance revisions, there are some changes that will affect self-employed borrowers and people who may have some collections on their credit.

Self-employed borrowers

A profit & loss (P&L) and Balance Sheet will be required if more than a calendar quarter has elapsed since the date of the most recent calendar or fiscal-year end tax return was filed – with no exceptions. Additionally, if income used to qualify the borrower exceeds the two-year average of tax returns, an audited P&L or signed quarterly tax returns obtained from IRS are required.

It’s extremely important that a self-employed borrower keep up with their tax filings. Providing a profit & loss and Balance Sheet is not a bad thing, but it’s one more thing that may open up a “can of worms”.

Collections

If a borrower’s total outstanding balance of all collection accounts is equal to or greater than $1,000 the borrower must resolve the accounts or paid in full at the time of, or prior to closing. The borrower may enter into payment arrangements with a minimum of three months verified-payments to avoid any complications.

If the total outstanding balance of all collection accounts is less than $1,000, the borrower is not required to pay off the collection accounts as a condition of mortgage approval.

Identity Theft

Disputed credit accounts or collections resulting from identity theft, credit card theft, or unauthorized use, etc., will be excluded from the $1,000 limit under the terms shown below.

• A credit report or letter from the creditor, or other appropriate documentation, to support that the borrower filed an identity theft or police report to dispute the fraudulent charges.
• Provide documentation to show all disputed or collection accounts are resolved, verified as not a debt to the borrower, arrangements made for payment, or paid in full.

It’s important to take the appropriate precautions in order to avoid any and all of these changes. Protect your credit, but if you do have collections make arrangements to pay or settle them before entering in a loan transaction. If you need help and guidance in correcting your collections pick up the phone and give me a call at 951-662-3389. I’ll coach you through each step and I’ll show you what you need to do to qualify for a loan.

Many people have a belief that if they don’t have credit they can’t buy a home. Generally, an applicant must have 3 sources of tradelines with a minimum of 1 year of them being open to qualify for a home loan. For such programs like FHA or USDA there are alternative methods of proving your ability to repay your obligations which an underwriter can use to make a loan decision.

I’ve been able to help many people with zero to little credit achieve loan approval. How you ask? Well, non-traditional credit can be used in place for traditional credit to prove ability to repay.

What is non-traditional credit?

Non-traditional credit are alternative sources that show your history of on-time payments. These sources can be as follows (listed in order of most impact to an underwriter):

• Rental history (cancelled checks or a letter from a property manager)
• Utility bills (Online printout showing payment history or letter from the utility company)
• Medical Bills (cancelled checks, online printout, etc…)
• Health Insurance (12 month of statements or letter from the insurance company)
• Auto Insurance (12 month of statements or letter)
• Cell phone bill (cancelled checks, online printout, etc…)
• Television or Internet bills (cancelled checks, online printout, etc…)

In efforts to strengthen the FHA Mutual Mortgage Insurance Fund, both FHA up-front (UFMIP) and annual mortgage insurance  premiums will be increased for case numbers obtained on April 1st, 2012 and later.

The UFMIP which is currently at 1% of the base loan amount will be increased to 1.75% therefore, raising the borrowers loan amount and payment. The majority of borrowers elect to have this amount rolled into their loan as opposed to paying it with their closings costs towards the close-of-escrow, but the option is always available.

The annual premium (paid monthly) will also increase by .10% raising it to 1.25% for standard loan amounts and an additional .25% for high balance loans bring that to a total of 1.5%.

To summarize the effects of these changes on a $250,000 sales price, the payment difference would be $31. In a 5 year period the difference would add up to $3,425.  The chart below will demonstrate how this change will affect a borrower’s payment. Click on the image below to access the interactive analysis.

If you’re considering either purchasing a home or are in the position to streamline refinance utilizing an FHA program, it would be wise to take action and avoid these increases. You will need to obtain an FHA case number which are issued for bona-fide loan application (must have a property address) with a mortgage originator.

Official mortgagee letter to be release soon.

The Delayed Financing Rule

If you’ve purchased property within the past six months whether it was for investment purposes or as your primary residence, you are now eligible for a cash-out refinance. Prior to this program an applicant had to be on title of the subject property to be able to cash-out on any equity. Title seasoning has been waived!

Qualifying guidelines

• The new loan amount is not more than the actual documented amount of the borrower’s initial investment in purchasing the property, plus the financing of closing costs, prepaid fees, and points (subject to the maximum LTV, CLTV, and HCLTV ratios for the transaction). The LTV/ CLTV and HCLTV will be based off the lesser of the purchase price plus documented improvements or current appraised value.
• The purchase transaction was an arms-length transaction (Buyer and Seller must not have been related by any means)
• The purchase transaction is documented by the HUD-1, which confirms that no mortgage financing was used to obtain the subject property.
• The source of funds for the purchase transaction can be documented (bank statements, personal loan documents, HELOC on another property), sourced and seasoned for two months. Any loans used as the source for the purchase transaction will be required to be repaid on the new HUD-1.
• All other cash-out refinance eligibility requirements are met and cash-out pricing is applied.

Note: The preliminary title search must not reflect any existing liens on the subject property. If the source of funds to acquire the property was an unsecured loan or HELOC (secured by another property), the new HUD-1 must reflect that source being paid off with the proceeds of the new refinance transaction.

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Who can use this program?

This program was designed for any borrower who paid cash for their property. For an investor, this program will enable them to cash-out the funds that were initially used to purchase the property to either expand their real estate portfolio by buying more property or to simply replenish their savings. For a homeowner who bought their home to live in, the ideal strategy is  used to increase their probablity of their offer being accepted; by submitting “cash offers” which are favored due to not having to go through the loan process. Once the home is theirs they can turn around and mortgage the property and cash out the funds.

Other notes about this program

• The max loan amount will be based on 75% of the value of the property, but no more than the initial funds that were used to buy the property plus closing costs, points, pre-paid fees.
• You must meet all regular Fanniemae guidelines including credit, assets, debt-to-income, collateral, etc…

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Property flippers and Real Estate agents who represent flippers have something to celebrate. FHA has extended the temporary property flipping waiver announced in 2010 to December 31, 2012. The temporary waiver removes the restriction that prohibits FHA financing of properties being sold within 90 days of seller acquisition. Under FHA’s temporary guidance, all sellers and properties meeting the following requirements are exempt from FHA’s current property flipping restrictions:

• The purchase transaction must be arms-length with no identity of interest between borrower and seller or any other parties participating in the transaction (Note: FHA defines “identity of interest” as “a sales transaction between parties with family relationships or business relationships.”) If the sales price is 20 percent or more higher than the seller’s acquisition cost, the property flipping waiver applies only if the lender obtains the following documentation:
• Evidence the seller has completed sufficient legitimate renovation, repair, and rehabilitation work to substantiate the increase in value (contracts and paid receipts and/or a second appraisal indicating repairs completed and the value of those repairs) – If no or minimal repairs were completed, the appraiser must indicate the reason for increase in value since seller acquisition, and
• Copy of a property inspection completed by an inspect or having neither an interest in the property or a relationship with the seller. The inspection must include all of the following elements:
• Property structure, including foundation, floor, ceiling, walls and roof
• Exterior, including siding, doors, windows, appurtenant structures such as decks and balconies, walkways and driveways
• Inspection of roofing, plumbing, electrical, heating and air conditioning systems
• Interior inspection
• Inspection of insulation, ventilation systems, fireplaces and solid-fuel-burning appliances such as wood stoves
• Only the following sellers are exempt from the inspection requirement above and second appraisal requirement:
• Seller is a relocation company or employer who acquired the subject property as the result of an employee transfer.
• Seller is any one of the following: HUD, VA, GNMA, FNMA, FHLMC
• Seller is a non-profit approved to purchase and sell HUD-owned properties with re-sale restrictions
• Seller is a lender or property disposition firm hired by or affiliated with a lender who acquired the property through foreclosure
• Seller is a non-profit agency who acquired an abandoned or foreclosed property using a Neighborhood Stabilization Plan (NSP) grant
• Seller recently inherited the property
• Seller is a state or federally chartered financial institution
• Seller is a local or state government agency
• Seller recently transferred property to his own revocable living trust, often referred to as a “family trust” or “inter-vivos trust”

Anti-flipping rule affected sellers of renovated foreclosures in a way that they were less likely to take an offer from an FHA buyer because they would have to wait the 90 days, covering the carrying costs and risking vandalism and other problems arising from vacancy.  Many of today’s homes are bought with FHA financing and by waiving the 90 day flip rule this drastically reduces the bottleneck to getting homes sold in neighborhoods submerged with foreclosures.