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We were fortunate to get an offer - yes they need 3% down payment assistance and yes they need up to 3% towards closing.
Buyer's loan says they are going FHA via Nehemiah (to give them the 3% dp). Despite the assistance, I understand its still anyone's guess
if FHA will go for it.
Can any one tell us, what to expect when a deal goes to an FHA Underwriter? Is it state specific (we are in Maryland)? Any guess on how long underwriter takes? Is it really different from in-house lending? Is there anything in particular that drives FHA? Any thoughts, greatly appreciated.
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FHA guidelines have been tightening across the nation as well. Some lenders have gone back to minimum credit scores from what I have heard. FHA is government insured so the guidelines are looser but the person still has to make sense to get a loan. DPA (Down payment assistance) is a big layered risk right now so hopefully your borrower is strong. Unfortunately, there is no way you are really going to know your deal is safe until you have got your check in your hand. I know that is not what you want to hear but you have to be prepared either way. Make sure you are looking for the approval letter from the borrower's lender within the alloted time in your contract.
Times vary by institution so that is a hard one to answer. You want to find out if the lender is a Direct Endorsement lender (which means they can sign off on the loan directly rather than waiting for FHA, or a supervisory lender has to). If you care to post the institution than maybe we can address this a little clearer.
Thanks ELender - its Flagstar Bank - we were told via the agent the Buyer is waiting for FHA, so I guess its what you mentioned above :-) Supposedly they should get a response by end of the month. It's been weeks. Thanks for the insight
Oi, I guess some people haven't learned from other people's mistakes. If they have no down payment, that means they have no savings. If they have no savings, how can anyone be sure this new mortgage payment won't strap them down in debt and they won't default in two months when the boiler goes and they have no money to fix it (or any other of the one million things that can possibly happen)? I'd do this loan, if their ratios were at 25/27. I have two FHA deals right now, both are putting up funds and will have money left over after the closing. Deals like this one make me cringe. Yikes.
I took an FHA loan on 4/8 at 4:00 I had the loan commited by 5:00 on the 9th and the loan is closing on the 2/25 tomorrow. If a lender is telling you that it will take longer because it's an FHA loan you need to find another lender.
I haven't notcied any real change in the FHA guidelines the changes I have seen are with lenders that place overlays on the FHA guidelines.
Nehemia is acceptable to Countrywide on 203B loans and either citi or chase does not have an overlay for DPA. I would have no problem with that loan. Unless the property didn't appraise. Which is likely to be an issue 6%....3% for nehemiah & 3% closing cost concessions.
Andrew, are you saying we should still loan 100%+ to borrowers who have shown no ability to save? I can't get behind that. Not these days.
We still take those loans but there cannot be layered risk. We don't want to see payment shock, NSF's on the bank statements, late pays in the last 24 months....
I can do those loans- I'm just saying shouldn't we all learn our lesson? I get that they can be approved- but unless they are at a 27% DTI, I wouldn't touch this one in good conscience.
That's a pretty broad brush you are applying...so even if a borrower was getting a gift you would apply the same feelings to? They have no ability to save either....
27% is an exaggeration, but yes, if someone needs dpa + a seller's concession, should they be buying a home? What if something goes wrong? It's more of a moral question. Sure, great, they qualify- but should they???
What I am saying is that the loan is a loan that can be done. Underwritten to current guidelines. Do I think it is right no, as a matter of fact I think that Nehemiah and Ameridream should not be allowed, but they are. I do not make the rules......I play by them.
Just because we can do something, doesn't mean we should. Loans like this scare me. Defaults are at all-time highs, why add a few more? Yes, to answer the original poster's question, this can be done. No, it is not state specific. No, they should not be taking over a month to get an approval. That's all fine. What is bothering me is the use of these programs in today's market. That's all.
I don't have any issues with these loans being done so long as they meet the rest of the parameters. I wouldn't want to see a loan with DPA with any of the other risk layers. Companies are starting to decline a lot of these now. Until I can get to the point where I can make decisions like that (program parameters) I'm going to keep following the guides. I'm with AA though as far as Ameridream and Nehemiah.
Jennifer, I agree with other sentiments here...it's a good thing you aren't a D/E Underwriter for FHA. I, myself, used an FHA loan to purchase my first home many years ago. I had tight ratios and I was gifted my downpayment by a family member. I didn't have any substantial savings or liquid reserves either. I have never made a late payment on a mortgage...and I have bought and sold 5 homes since. So you would have declined my loan if you were underwriting? Well...that is why FHA underwrter go through an inordinate amount of training and oversight from HUD.
I am more than willing to get a DPA for a borrower even if they are able to come up with the down payment on their own. If the money is available to them, I will help them take advantage of that. Most U/W's won't approve an FHA purchase with a DPA if the ratios are excessively high and there aren't compensating factors to offset that risk. But every FHA loan is approved based on its own overall merit...and everyone's situation is different. Again, you must remember that the Underwriter shoulders the responsibility for that loan as a part of their annual report card from HUD. They don't approve loans unless there are justifiable reasons to do so because they can lose their CHUMs number, and subsequently their ability to underwrite FHA, if they have a high rate of default on loans that they approve.
While I believe the industry as a whole, and certain originators specifically, are to blame for a fair portion of the bad lending practices over the past several years, I don't think it is fair to swing so far in the other direction that we become the "housing police" for society. HUD has been insuring loans for a very long time, and I am fairly confident that they are pretty good at what they do. I, for one, am not going to deny the opportunity for homeownership to any of my clients if HUD sees fit to insure their mortgage...regardless of the specific financial situation of the borrower. People do amazing things witht heir finances when they have the opportunity to own a piece of American Real Estate. We need to have a little bit of faith in that.
I don't write the guidelines and even if I disagree with them, I will not tell a borrower that I can't help them when I can. That is just wrong!
If the borrower qualifies for the loan even at 150% of the value of the property and have the ability to repay the loan I really don't see the issue.
You are arguing because they haven't saved that they don't have the ability to repay the loan. Who am I to tell someone what they can or can't afford?
Who am I to tell someone what they can or can't afford?
I have to agree with that. At some point people need to take responsibility for their own lives and not wait for others to tell them what to do. It seems like every day I read a sob story about someone who was "fleeced" by their mortgage broker into taking on more than they could afford. It's usually about someone who makes 1/4 what I do and got a bigger mortgage than I would feel comfortable with.
Sorry guys- we are supposed to be the experts here. A little guidance can actually make a difference. They may still end up going for it and getting in over their heads, but why have that on your conscience?
I think FHA has ratios set to do what they were meant to do. Make homeownership a possibility for those that show an ability to pay their debt on time but just have not been able to save money for reserves. I also believe it is our responsibility to help people achieve their dreams of owning a home.
I don't get it. So you are saying that if a young couple came to you to buy their first home, you'd max them out on their pre-approval and say 'you can afford X amount- go shopping!' without giving a thought to the future for them? Maybe I like to think more long term, but I wouldn't put someone in a loan that had them strapped for cash just because they qualified for it. As discussed, debt ratios do not take into account certain things- not the least of which would be our rising energy costs. Don't we have a responsibility to make sure they have a strong financial plan for the days after closing???
Jennifer, go ahead and send the clients that you are "turning away" in the interest of your high-minded sensibilities to me. You are not going to single-handedly stem the tide of foreclosures in this nation...no matter what DTI guidelines you support. The Law of Large Numbers suggests that no matter what you do, a certain number of people will screw up their finances; whether they are renters or homeowners.
I hardly believe that a 41% debt ratio is failing to take their other obligations into consideration. If you had tried to tell me that I couldn't afford the first home I purchased (with 42% ratios, I might add), I would have told you to mind your own business....and I would have done so rightfully. I knew that I had utilities and food....because I HAD ALREADY BEEN PAYING FOR THOSE ITEMS ALONG WITH MY RENT. The mortgage actually worked in my favor with regard to net income because I was able to adjust my W-4 witholdings as a result of the large tax deduction the mortgage was giving me. I, like many people, actually had more net income after I bought my home.
Most folks blow more money on useless expeditures (such as dining out, movies, name-brand merchandise, soft drinks, etc.) than they need to...and therefore, have a lot more disposable income than might be apparent. I'm not suggesting that we don't say something if we feel a client is over-extending themselves (i.e. if they have, fore example, a 65% DTI)....but suggesting that they have a "twenty-something" DTI is a rather bold supposition in my opinion. If you want to save the planet, buy a Prius and let the underwriters make the determinations of debt ratios.
Again, the 27% was an exaggeration. However, so is your use of 41%. I take it you've never had a 50+% DTI cross your desk? FHA- not conventional either. And I'm glad you brought up the 65% DTI. Who was it, New Century that had refis, 100% cashout up to a 60% DTI??? What happened to them? What mess are we in right now?
And no, I won't be sending them to you. I am just going to advise them to find a cheaper house. Thanks for your offer to help though :) It IS our business to advise them. If they don't like the advice, tough luck. I guess they can go to someone like you who will pretend that it's perfectly healthy to eat beans and rice for three meals a day, and if the boiler fails just bundle up! :)
Let's just agree to disagree here. You think I'm overstepping my bounds by advising clients on what they can and cannot afford, I happen to think that's part of our job description.
Interesting thoughts, but I must say I'm with SalemFive's majority on this. BUT that does not mean I think a lender like Jennifer is bad lender. As she said if more crooked brokers at least paused & thought about it & explained to their client - SOME of the mess we see today would not be.
However, no one likes a Paternalistic/Maternalistic way of doing things. i.e. 1st new construc. condo I looked @ in 2004, was @ the max of my budget. The onsite builder POC was KIND ENOUGH to say "hey I can put you in it if you want, BUT if condo fees go up or spit happens as it does w/ life (car problems, hospital bills, gas $4,etc) things will be VERY TIGHT."
He gave me a CHOICE & I bought an older condo 30k below which held its value a lot better when I went to sell in 06 than the new product. Now I wouldn't blame the Finance Guy if I CHOSE to buy at my max, I would blame my SELF! Simply put folks do w/ they want even when presented w/ reality. Some folks are just determined to buy a Benz for 100k even though they make $35k per yr. They say Oh, I will refinance or I will sell it get a PT job anything but the truth - I can't afford it!!!!
I just went into contract on an FHA mortgage with DPA through Nehemiah. Monthly income: $10,000, PITI: $2000. I have about $15,000 in savings. Instead of paying 8-9k for a 3% downpayment, I am using some of that money for furnishings and reserves for emergencies. I have a mid 700 score, but carry about 30k in debt that I am reducing drastically. I plan to live in the house for at least 10 years and I locked 2 days ago at 5.5% with 1/4 point. What is the problem? Would you lend to me?
MC- good points- people do have to shoulder the responsibility of their choices. And I apologize for taking your thread so off track! :) The builder who gave you that choice sounds like me- it is very wise to look out for people- not in the sense that we have to baby everyone, but just to open their eyes and make sure they know what they are getting into. That's all I ask.
Jen - No Problem! I learned a lot about FHA by reading where this thread. I mean the 2 times I bought before in (04' & 05') NO ONE - I repeat NO ONE would even accept a contract that had FHA or VA financing in it. I put 7 contracts, w/ escalating clauses - 5k over list - you name it in 2004 before I finally got a bite! And only because I offered 12k over list (Md/Dc area) To this day I have yet, to use my dang VA certificate & I dont even have to pay the funding fee. :-) It was all exotic products that would be refinanced later when values when UP!
Well we ALL know which way values went since 2006. But some crooked broker would have looked @ someone like BuyerBoy & gave him a crazy jacked up loan, despite his obvious good credit & resources. Just so they could make some $$$$
Are you a loan advisor or a certified financial planner?
Do you also advise your clients on the insurance coverages they carry or negotiate the purchase and sales for them, maybe give legal advice as well...
I will and will continue to let my buyers know when I feel they are stretching themselves, but since I am not the one that is making the payments it is not my place to tell them they can't afford the loan when they meet the guidelines.
Thanks mclark- Your points are taken. It is interesting how the government loans were frowned upon just a few years ago- now, they practically a godsend for high LTV loans. Good luck I hope this works out for you- and your buyers! :)
Andrew, no need to drag this out. I think I've explained how I do business, and you have explained how you do business. End of story. Not sure why this offends you so much.
Buyer boy- YES I would- you just said you had reserves, and healthy ratios. I am talking about people who are going to be stretched thin, have no money in savings, and are going to pay larger utility bills than they are probably used to. It sounds like you have a nice nest egg in case something goes wrong. you locked two days ago at 5.5% with just a .25%? Impressive- through a Zillow lender?
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