Archive for the 'Home Loans' Category
FHA Loans – Income and Employment Requirements
Posted by Paul Gonzales | Leave A Comment »
This is the third in a series of four posts that deal with important aspects of FHA financing. The first post provided an overview of the program while the second post detailed FHA credit requirements. This post will discuss the income and employment requirements necessary to obtain an FHA home loan.
Income Documentation
For employees this is quite straightforward. Copies of the most recent paystubs covering at least one month and W2s for the previous two years are required. Complete Federal income tax returns for the previous two years may be required as well.
For self-employed people signed copies of personal tax returns for the previous two years are required. If the business is a legal entity such as an “S” or “C” corporation, partnership or other legal entity then two years of business tax returns are also required. A signed year-to-date Profit and Loss statement (P&L) will be needed to complete the income documentation. FHA guidelines state that 25% or more ownership in a business is considered self-employment.
Types of Income for Employed People
The lender will review the paystubs together with the W2s and tax returns to establish a baseline amount of income as well as stability of the income. In general, if base income is increasing they will likely be able to use the current income amounts. On the other hand, income that is declining over the past two years will result in an averaging of the income. A significant decline in base income will require a written explanation.
- Overtime – to be counted it must have been relatively constant for the past two years as well as currently. There must be the prospect that it will continue and the employer will be required to state that it is likely to do so on a written Verification of Employment. If used it will be averaged over time and added to the base income
- Bonuses – the rules are similar to considering overtime.
- Commissions – will be averaged over the prior two years and must demonstrate reasonable stability; tax returns will be reviewed and unreimbursed business expenses will be deducted from the income
- Child support, alimony and spousal maintenance – such income can be included provided that it can be shown to continue for at least the next three years. It must be documented by a divorce decree, court order or separation agreement and actual receipt of the income documented by cancelled checks, bank statements or other positive means.
- Retirement income – Pension and Social Security income is acceptable and must be documented by award letters, IRS form 1099s and current “pay advices” (stubs). Again, there must be the prospect of continuing for at least the next three years
- Insurance and government income – workman’s compensation, long-term disability or other similar income must be documented and expected to continue for at least three years
Self-Employed Income
Income and expenses will be analyzed from the past two years tax returns and current P&L. The earnings will be averaged over this time period. Income that appears stable or increasing will be considered, whereas declining earnings may not be considered acceptable.
Minimum Length of Employment
Stable employment in the same general field of work or business for two or more years is considered minimum. Going from being an employee to self-employed, even in the same line of work, gets special scrutiny. A person who has been self-employed for at least one year AND has at least two previous years of employed experience in the same field may be considered. Formal training or education in the same line of work during the prior two years may be considered in lieu of employed experience.
The next post in this series will discuss the financial assets and down payment requirements for obtaining FHA financing.
For more information contact Paul Gonzales, Manager, Countywide Mortgage Inc (760) 746-7388 or paulforloans@aol.com
Related Posts: CW Mortgage, Financial news, Home Loans, Homeowners, Mortgage News, Real Estate News
FHA Home Loans – Credit Requirements
Posted by Paul Gonzales | Leave A Comment »
This is the second in a series of four posts that deal with important aspects of FHA financing. The first post provided an overview of the program. This post will detail the credit requirements necessary to obtain an FHA home loan.
Traditional Credit History
This describes the typical credit history that most people tend to establish over time. As consumers utilize credit in its many forms (credit cards, car loans, student loans, mortgages etc.) detailed histories of how they have managed their credit responsibilities are collected by at least three credit bureaus. In addition, each bureau also computes a composite credit score commonly known as your FICO score (stands for Fair Isaac Corporation, the company that created the current credit-scoring models).
The FHA lender will review the FICO scores as well as the details of the individual’s credit history to determine how well a Borrower has managed credit in the past. NOTE: You may obtain a free credit report once each year, from each of the three major bureaus (Equifax, Experian and Transunion) by going to www.annualcreditreport.com. There are many websites where you can obtain your FICO scores, usually for a fee. One popular site is www.myfico.com.
Derogatory Credit
You knew we would get there eventually. Derogatory, or negative, credit are the dents and dings that people can incur in their financial lives. Here is a breakdown of how FHA lenders consider such items:
- all derogatory items within the last 24 months require a written and signed letter of explanation
- “minor” derogatory remarks older that 24 months do not require explanation
- all “major” derogs require written explanation, regardless of age (the FHA lender determines what is minor vs. major)
- collections are considered major derogs and must be explained; most FHA lenders will require them to be paid off
- judgments must likewise be paid off unless a verifiable repayment plan is in force and all payments have been made to-date
- a foreclosure must be at least 3 years old, but may be less than that for certain documented extenuating circumstances beyond the Borrower’s control (I.e. serious illness, death of a wage-earner). Divorce will not normally be considered.
- Chapter 7 bankruptcy discharge must be at least 2 years old with no new derogatory credit issues after the discharge; may be less than 2 years with acceptable extenuating circumstances. Less than 12 months not allowed
- Chapter 13 and/or Consumer Credit Counseling allowed with at least a 12-month history of on-time payments; permission of the bankruptcy court or counseling agency is required
Non-Traditional or Alternative Credit
The FHA allows for Borrowers without traditional credit histories to document their bill-paying behavior by showing on-time payment of other types of consumer bills such as rents, utility bills and car insurance. Such documentation cannot be used to enhance an existing traditional credit report or offset other derogatory credit
A Final Word On Credit
As you can see, the FHA has certain minimum standards and requirements, yet also allows FHA-approved lenders a certain degree of discretion in some areas. It is up to the lender’s underwriter to render a final decision on the creditworthiness of a particular Borrower. Some lenders may add additional requirements as well, but can never ignore or toss out FHA guidelines. Click here to go to the FHA’s consumer website.
The next post in this series, to post here shortly, will discuss income and employment requirements for obtaining FHA financing.
For more information contact Paul Gonzales, Manager, Countywide Mortgage Inc (760) 746-7388 or paulforloans@aol.com
Related Posts: CW Mortgage, Financial news, Home Loans, Homeowners, Interest Rates, Mortgage News
FHA Loans – The Basic 203(b) Home Loan
Posted by Paul Gonzales | Leave A Comment »
This post will be the first of four brief articles covering the most important aspects of what has become the darling of the real estate market – the venerable FHA home loan.
Established in 1934, the Federal Housing Administration, as stated on its website “…. has served as an economic backstop working hand-in-hand with lenders to provide consumers with access to safe and affordable loans, even during times of tremendous market volatility as with the current subprime situation“.
This post will describe some highlights of the most common type of FHA financing, known as the Section 203(b) loan.
Subsequent posts will detail credit requirements; income and employment; and finally, assets, down payment and cash required to close.
Maximum Loan Amount
The current limit is the same as it was in 2009, varies county-by-county and is the lesser of 125% of the median house price in a given area, or the following amounts:
- Single family unit – $729,750
- Two family unit – $934,200
- Three family unit – $1,129,250
- Four family unit – $1,403,400
Property Types Allowed
As noted above, FHA financing is available for single-family homes, condos and PUDs as well as 2 to 4 family properties provided that they are owner-occupied. Second homes and investment properties are not allowed. Condominiums must be FHA approved and HUD recently made it somewhat easier for a lender to initiate the approval process if necessary.
Other Notable Features
- Can be used to purchase or refinance a primary residence
- Minimum allowable down payment is 3.5% of the purchase price (for homebuyers with FICO scores below 580 the minimum down payment will be 10%)
- Down payment can be gifted
- For now the “Upfront Mortgage Insurance Premium” (UFMIP) is 1.75% of the purchase price; however this will be increased to 2.25% April 5, 2010. FHA still allows this premium to be rolled (financed) into the loan
- Seller can credit up to 6% of the purchase price to closing costs (HUD plans to lower the maximum amount of Seller credit to 3% later this year, the date to be announced)
- No financial reserves required for 1 or 2 units, 3 months reserves for 3 to 4 unit properties
- Allows non-occupant co-borrowers (for example, Mom and Dad can be on the loan to help qualify, even though they will live elsewhere)
- Allows cashout refinancing to 95% of value ($417,000 maximum; 85% over $417,000)
- No prepayment penalties
- A borrower can have only one FHA loan at a time (fairly obvious since these are strictly owner-occupied loans and a person cannot have two “primary” residences. Exceptions: you are relocating, selling your home to purchase a new home, or a divorce situation.
- U.S. citizenship is not required: the borrower must have a valid Social Security Number, hold Permanent Resident Alien status or be eligible to work in the United States and hold the appropriate work visas.
Watch for the next article in this series to be posted very shortly which will detail the credit requirements for obtaining an FHA home loan.
For more information contact Paul Gonzales, Manager, Countywide Mortgage Inc (760) 746-7388 or paulforloans@aol.com
Related Posts: Buyers, CW Mortgage, Condos & Townhomes, Financial news, Home Loans, Homeowners, Interest Rates, Mortgage News, Real Estate News, San Diego
Important 2010 Dates for Home Buyers and Investors
Posted by Paul Gonzales | Leave A Comment »
If you thought 2009 was a transitional year in real estate, here comes 2010! Largely through the intervention of the Federal Government there are a number of very important dates that home buyers and investors need to be keenly aware of. Knowledge truly is power – being aware of these upcoming changes, and more importantly how to leverage them, can make this a stellar year for purchasing real estate! Here are those events and dates:
- March 30th – The Federal Reserve is scheduled to terminate it’s subsidy of low mortgage interest rates and cease purchasing mortgage-back securities. Many experts speculate that this could add a half to possibly a full percentage point to mortgage interest rates
- April 5th – The Up Front Mortgage Insurance Premium that FHA will charge homebuyers will increase by a half point, from 1.75% to 2.25% of the purchase price. Other important FHA changes to come – reduction of the maximum seller contribution from 6% to 3% of the buyer’s closing costs (expected to happen sometime in the Spring)
- April 30th – The home-buyer tax credit ($8,000 for first-timers and $6,500 for buy-ups) expires with purchase contracts dated after April 30th. Buyers must close escrow no later than June 30th
- May 1st – Fannie Mae’s 3.5% assistance to home buyers who utilize the HomePath program will expire
- February 1, 2011 – HUD’s temporary waiver of the 90 day anti-flipping rule will expire
As in many things in life “Timing is Everything“! If you are thinking of buying or refinancing a home or investing in real estate this year, these dates are of vital importance to you. It’s time to get moving!
contact Paul Gonzales, Manager, Countywide Mortgage Inc for more information (760) 746-7388 or paulforloans@aol.com
Related Posts: CW Mortgage, Financial news, Home Loans, Mortgage News, San Diego, Short Sales, tax credit
FHA To Increase Insurance Premiums and Reduce Allowable Seller Contributions
Posted by Paul Gonzales | Leave A Comment »
The FHA has announced plans to increase the up-front mortgage insurance premium (UFMIP) required from home buyers from 1.75% of the loan amount to 2.25%. On a $300,000 loan, for example, the UFMIP will increase from $5,250 to $6,750. The good news here is that the homebuyer will still be allowed to finance the premium into their loan. The monthly mortgage insurance premium will not be increased at this time.
The second major change announced today is that the maximum contribution a Seller is allowed to make toward the Buyer’s costs will be reduced from 6% to 3% of the purchase price.
Also, for buyers with FICO scores below 580, the minimum down payment will be increased from 3.5% to 10% of the purchase price.
The increase in the UFMIP will be implemented on April 5, 2010. The other changes are expected to be imposed later this Spring. Watch here for more information on these important changes to FHA financing rules.
for further information or questions, contact Paul Gonzales, Manager, Countywide Mortgage Inc. at (760) 746-7388 or paulforloans@aol.com
Related Posts: Buyers, CW Mortgage, Financial news, Home Loans, Mortgage News, Real Estate News
