Archive for the 'Mortgage News' Category
FHA Loans - Down Payment, Reserves and Mortgage Insurance
Posted by Paul Gonzales | Currently 1 Comment »
This is the fourth and final post in a series that deals with important aspects of FHA financing.
- The first post provided an overview of the program.
- The second post detailed FHA credit requirements
- The third post discussed the income and employment requirements.
- This post will discuss the down payment and asset requirements necessary to obtain an FHA home loan.
Minimum Down Payment
In today’s challenging market, this is probably the most attractive feature of the FHA home loan - the minimal down payment requirement. For years the minimum requirement has been 3% of the purchase price. Effective January 1, 2009 this will increase to 3.5%, still a great deal especially for first-time homebuyers. This benefit is enhanced further by the flexibility allowed for the source of those down payment funds, as discussed below:
Reserve Requirements
Reserves are funds that a buyer has “left over” after purchasing the home. Most conventional home loans require enough reserve funds to cover at least two months of mortgage payments including property taxes, insurance, mortgage insurance and home owner’s association (HOA) dues if required.
FHA financing does not have a reserve requirement if purchasing a 1 or 2 family property (a 3 or 4 family property requires at least three months of reserve funds).
Acceptable Sources of Funds
- Borrower’s depository funds - Funds owned by the Borrower in bank accounts, stocks and bonds, Certificates of deposit, retirement accounts such as 401k plans
- Gift funds - Can come from a wide variety of sources, including family members, a close friend with established close ties to the borrower, an employer or labor union, charitable or non-profit organization, government agency or a public entity such as a city through a homebuyer’s assistance program. A couple important caveats: the gift funds must be thoroughly documented and provide a clear paper trail. Depending upon the source of the gift funds, such documentation will include a detailed “gift letter”, copies of cancelled checks and bank withdrawal slips or evidence of bank wire transfer. There must be reasonable evidence that the qualified donor has the financial ability to give the gift. As of October 1st, 2008, funds from certain non-profit organizations which are matched by donations from the home seller can no longer be gifted to the buyer
- Sale of existing home - proceeds from the sale of an existing home may be used to purchase a new home with FHA financing
- Sale of personal property - the sale of a car or other personal property is acceptable as long as the funds can be paper trailed to the sale
- Cash or “mattress money” - this requires a written explanation describing the source of the cash, how it was accumulated and how long it took to accumulate. Such cash accumulation must make sense for the borrower, such as not having a checking or savings account or credit accounts.
- Commission from sale of property - acceptable if the borrower/buyer is a licensed real estate agent and entitled to a commission from the sale
Mortgage Insurance
A lesser appreciated, but very vital benefit of FHA financing, has to do with mortgage insurance, or MI. Until recently, it was generally easy to avoid having to pay for mortgage insurance when purchasing a home with less than 20% down payment. This was accomplished by getting a second mortgage to “piggy back” with an 80% first mortgage. Thus a qualified buyer could buy a home with little or no money down by obtaining two mortgages. In the reality of today’s markets such second mortgages are all but non-existant or exorbitantly priced.
The only remaining option for a homebuyer with less than 20% for a down payment is to pay for mortgage insurance. In certain areas such as California, most companies that provide such insurance have limited the maximum coverage to 90% (or less) of the purchase price. In addition, they have tightened their underwriting guidelines and it is indeed more difficult to actually qualify for the insurance.
Enter the FHA home loan. It is generally considered easier to qualify for MI under the FHA and it will go to 96.5% of the purchase price. In short there is a significant portion of the home-buying population who have no other option than FHA financing just for these two reasons alone.
In a Nutshell…
FHA financing may not necessarily be the best fit for everyone in the home-buying market. However, these hallmark features of the FHA home loan - minimal down payment and reserve requirements, flexible sources of funds and availability of mortgage insurance - are far and away the primary reasons that many home buyers, particularly younger first-time home buyers, seek FHA financing. It’s clear to see why.
Special Note: Pursuant to recent legislation addressing current housing issues, various departments of the Federal government are working on implementing new programs and expanding the role of the Federal Housing Administration (FHA) in dealing with these issues. As these programs are actually implemented and become available to consumers, look to PicturePefectSanDiego.com for new posts describing them in detail.
Read more articles and valuable tips about financing by Paul Gonzales
You can contact Paul at (800) 775-7334 or paulforloans@aol.com
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New Conforming Loan Limits Announced For 2009
Posted by Kevin Kueneke | Currently 1 Comment »
After months of speculation, we finally know what the new 2009 high balance conforming loan limits are for San Diego and other “high cost” areas. The Federal Housing Finance Agency (FHFA) said that the $697,500 number we enjoyed for part of 2008 is dropping to $546,250 in San Diego.
Some areas such as Los Angeles-Orange Counties, San Francisco, San Jose, and Santa Cruz are having their 2009 numbers set at the new maximum of $625,500.
According to FHFA’s press release, the 2009 loan limits were calculated using 115% of median house prices as determined by the Federal Housing Administration (FHA) whereas the 2008 loan limits were calculated using 125% of median house prices.
So what does this mean? It means that anyone currently in escrow in San Diego with plans to borrow more than $546,250 needs to do everything they can to get their loan closed before 12/31/2008 or face significantly higher interest rates. There is almost a 2% interest rate difference between loans less than $697,500 and loans greater than $697,500 (also known as true jumbo loans) because conforming loans are guaranteed by the government (FNMA and FHLMC). Guidelines are also more strict for true jumbo loans than for conforming and high balance conforming loans.
As expected, the Federal Housing Administration (FHA) announced that FHA Jumbo limits will match the high balance conforming limits. The Department of Veteran’s Affairs (VA) said that VA Jumbo loans with zero-down payments will be allowed up to the high balance conforming loan limits through the end of 2011. This is good news for FHA and VA buyers as they will still be allowed to take advantage of these programs for higher priced properties.
Any questions or comments? Please email me at Kevin@MyCWMtg.com
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Loan Modification Success
Posted by Rachel LaMar, J.D. | Currently 1 Comment »
Many homeowners have been hit hard by the recent changes in the housing market. We all know someone who has been threatened with foreclosure or is fearful that they will lose their home due to interest rates resetting, job loss, illness or other factors.
Some homeowners took equity out of their homes in good times and with decreased values they now find that their homes are worth less than what they actually owe. All this fear has lead many to foreclosure, including intentional foreclosure or “walk aways.”
Whether it’s a friend, neighbor, family member or yourself facing this issue the fact is that it effects all of us by bringing down property values. The reality is that there are other options to foreclosure and walking away, including loan modification.
This option is getting a great deal of attention in the media right now due to the lenders’ panic to come up with solutions to foreclosure. The good news is that modifications are easier to get now than before, but you have to understand how to to approach this subject so that you can successfully work with the bank and possibly save your home.
The following information is from my book, Mortgage Walkaway Options. Let’s start with the basics. A loan modification occurs when there is a change in one or more of the terms of a loan, which reduces the loan amount and generally m
akes payments more affordable.
In simple terms, it means refinancing a loan to a lower amount. The lender and borrower must agree in writing to change the terms of the loan. Up until now many lenders didn’t want to speak with borrowers who had not yet defaulted on their loans.
This is because they had a plethora of active files sitting on the desks of their loss mitigation department already, and they were having trouble dealing with the ones who were in default and did not have the manpower to add more files that were not yet considered risky. Luckily that seems to be changing. There are a few recent regulations and announcements that will help you achieve a successful loan modification.
Firstly, if your first loan is with Bank of America or JP Morgan Chase you are in luck. B of A, now one of the largest lenders in the business, announced in October that it was going to begin review of all of its loans that were variable interest rate loans and option ARMs. Upon review, the lender plans to notify homeowners if they qualify for loan modification, and then to work with the homeowners toward resolution. Chase also announce it is putting a hold on foreclosures with the intent to work out modifications with qualified borrowers.
This news is HUGE for several reasons: one, it takes the burden off the homeowner to try for resolution with a lender who often does not have time nor manpower to help.
Two, the bank is actually being proactive in preventing more foreclosures, which will help many stay in their homes and eventually help the real estate market and likely induce other lenders to follow suit.
If your loan is with another lender who has not yet instituted such a policy, you can seek help under the newly enacted government plan, Hope for Homeowners. This legislation took effect October 1, 2008 and allows you to refinance your loan into a new 30-year fixed rate loan if you qualify.
Your loan will be based upon an appraisal of the CURRENT market value of your home, so if prices have gone down since you purchased your new loan payments will be based upon current values, making them much more affordable. 
This program requires you to contact the lender to initiate the process. There are important considerations you need to be aware of in regards to this program. For example, if you sell your home after the modification takes place the new lender will be entitled to a percentage of the gain on the property (appreciation and equity sharing). The amount changes over time.
Also, you will not be able to take out equity on your property after the change unless these second liens are directly related to property maintenance.
To understand fully the ramifications and qualifications under this legislation you can go to the website, www.MortgageWalkawayOptions.com and download my book, or you can feel free to call me and I will be happy to help you. My direct number is (760) 310-9466.
Most importantly, know your options in the face of foreclosure and educate yourself BEFORE taking any action. Right now is a great time to modify a loan, as there is a general consensus among lenders that this option benefits them the most (as does it benefit you, the homeowner).
Take advantage of the programs available to you so that you don’t have to lose your home or worry about an upcoming rate change. Just as important, you need to be in constant contact with your lender–keep a record of all correspondence and communications with your lender and be vigilant–keep calling.
If you are not having luck there are numerous counseling groups that can assist you. My favorite is HopeNow. They can be reached at (866)995-HOPE (4673). Best of luck to you!
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FHA Loans - Income and Employment Requirements
Posted by Paul Gonzales | Currently 1 Comment »
This is the third in a series of six 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.
you can contact Paul Gonzales at (800) 775-7334 or paulforloans@aol.com
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