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College is getting more expensive and based on what I have seen since I was twenty, I don’t think the costs of college are going to go down anytime soon.  So if  you happen to be a parent that is sending one of your kids off to you already know that it is going to be expensive regardless if it is Sanford Brown or Stanford.  But what you may not know is that there is an FHA loan program that may be able to help you lessen the financial blow by saving some money on rent while Junior is there.

Enter the FHA Kiddie Condo loan.

FHA Kiddie Condo Definition

The FHA kiddie condo loan is actually not an “official” FHA loan program – it is actually a way of describing something that FHA allows called a “non occupying co-borrower”. Since the implementation of the non-occupying co-borrower rule, enough parents used the program to buy their college student a condo that the nickname of FHA kiddie condo loan has stuck.

FHA Kiddie Condo Program: General Guidelines

When getting an FHA loan, if one or more of the borrowers will not occupy the property as their principal residence the following rules will apply:

• Maximum loan-to-value will be 75% unless the borrowers are related by blood, marriage or law (except for rare circumstances) or for properties that are 2-4 unit properties
• Everyone who is on the loan, must sign the loan documents and is fully liable for repayment on the loan
• Everyone who is on the loan must meet the credit score guidelines set by the lender
• Rules are established so that parents can’t develop a portfolio of rental properties

With the rising costs of college and the recently depressed price of real estate, it may make more sense than ever to look into the FHA Kiddie Condo loan as a way to make sure you get the best bang-for-your-buck.  If nothing else, it may be your child’s first finance-related course – taught in the real-life school of hard knocks.

Photo credit: Wikipedia

If you happen to live in a home that has a party wall, chances are when it comes to refinance if you don’t have a party wall agreement, it may come up as an issue.

But it doesn’t have to be — it really all depends on the lender … and sometimes more importantly the title company!

Party Wall Definition
When getting an FHA loan, a party wall or common or shared wall is a wall that is located on or at a boundary line between two adjourning structures or parcels of land. A “Party Wall Agreement” is an agreement that identifies ownership and responsibilities between the owner of attached dwellings and parcels of land who share a “party” wall.

Party Wall Ownership: Who Owns A Party Wall?
A party wall is used by the owners of both properties and each share equally in the ownership of his/her portion of the wall. I usually see party walls most frequently in attached dwellings or row housing, but it also may be common where a shared driveway exists on both properties and where a shared wall fence exists.

Party Wall Requirements
A copy of the agreement, if one has been drawn, is usually not required to close a loan, unless the title insurer takes exception to it in the title policy. If the title insurance company takes exception, then chances are that you are going to need to provide a copy of the existing agreement or an agreement must be drawn between the owners. Generally speaking, any kind f legal binding agreement between the parties will be sufficient.

Now.

Practically speaking, if you have a party wall as part of your property but no party wall agreement in place, when it comes time to refinance …

It puts a damper on the party.

Recently Listed — A Simple Definition:

“Recently listed” refers to the situation where someone may have had their property listed for sale, the property didn’t sell and now are trying to refinance the property.  Lenders have guidelines regarding recently listed properties – and each lender will have different (but similar) guidelines about recently listed properties.

Recently Listed— An Expanded Definition:

Many people who try to sell their home decide at some point to take their home off the market for one reason or another.  When interest rates are low, sometimes they decide something similar to “well, if I can’t sell it – maybe I can just refinance and get a lower payment”.  If you find yourself in this situation, be sure to ask your loan officer about the recently listed guidelines at their company.

Generally speaking, here are a few common recently listed guidelines:

• If you want to refinance with cash out, you are going to have a longer waiting period from when the property was no longer waiting to be sold.  A “normal” time may be as long at 180 days.
• If you refinance with no cash out, just want to get a lower interest rate – a common waiting period is 30 days.
• Depending on what type of loan (FHA loan, Conventional loan, etc.) the recently listed waiting period may be different.
• The underwriter will pay particular attention to the appraisal.  It must not be listed for sale and will need to verify that the listing has been withdrawn or expired.  A second appraisal may be requested or required.
• The underwriter will look carefully at evidence that you are currently occupying the property.
• A letter of explanation stating that you intend to occupy the property and outline a reason that you were trying to sell the house – and why now you are applying for a refinance.

If you have recently listed your home for sale, but have taken it off the market and are now applying for a refinance – it isn’t impossible to get done, but it is important to be informed about possible things the underwriter wouldn’t normally scrutinize as closely.

Recently listed.

Things change – just be ready to explain why when refinancing a property you tried to sell but didn’t.

Safe Mortgage — A Simple Definition:

As part of the Frank-Dodd financial reform bill that passed earlier this year, mortgage lenders will be required to hold 5% of the risk of a loan that is packaged up into a mortgage-backed-security. When the law was passed, there was an exemption for certain loans called “qualified residential mortgages” from the rule that requires lenders to hold 5% of the risk.

Currently there is a discussion of what qualifies as a “qualified residential mortgage” and a decision on what exactly qualifies as a qualified residential mortgage is sometimes also referred to as a “safe mortgage” because the lender can lend money on a safe mortgage and not be required to retain 5% of the risk.

Safe Mortgage — An Expanded Definition:

Should you really care what the decision is as to what mortgages can be determined to be safe mortgages?

Probably.

Simply put, whatever mortgage products are determined to meet the qualified residential mortgage exemption are most likely to be the ones that lenders focus on providing and possibly may become the only mortgage products that lenders will provide over time.

The most probable types of loans that will require a lender to retain 5% of the risk include loans that:

There is also a big “maybe” group of mortgage products that are up for debate as to whether or not lenders will be required to hold 5% of the risk including adjustable rate mortgages and interest only mortgages.

Regardless of what mortgage products are determined to be safe mortgages – one thing that is likely to happen as a result of the Frank-Dodd act passed is that whatever mortgage products that are defined to not meet the qualified residential mortgage exemption are not very, well …

safe.

Agency — A Simple Definition:

When buying a house using a Realtor, the Realtor has an “agency” relationship with you and is bound by certain legal items that also include ethics/fiduciary responsibility items.  When choosing a mortgage lender, there is not currently a set of laws that establish an agency relationship with your loan officer – which essentially means buyer beware when choosing a lender.

Agency — An Expanded Definition:

Even though there is a nationwide mortgage licensing effort making its way through the states, there is still nothing in place that establishes an agency relationship between home buyer and loan officer.  At best, your relationship with a loan officer can be guided by the fiduciary duty / moral set of guidelines that your loan officer will get you the best possible deal for your situation.  This fiduciary responsibility of the loan officer has quite a bit of wiggle room and you will most likely find that what is right for one lender may differ for another lender.

When choosing a lender – no matter what lender you select – it is important to remember that they work for the bank and have the bank’s interest in mind when helping you select your loan.  Don’t be confused that your loan officer has the same agency type of relationship with you as your Realtor — they don’t.

Stability Of Income — A Simple Definition:

One of the factors that underwriters will consider on a loan application is “stability of income”.  The stability of income risk factor is one where the underwriter will attempt to measure how likely it is that your income may continue based on what your previous work history looks like.

Stability Of Income — An Expanded Definition:

While there may be a wide range of things an underwriter can consider regarding the stability of income, there are a few specific things that an underwriter will look at when considering the stability of income.

These include:

Gaps in Employment – If there are any gaps in employment that are longer than one month, be ready to provide an explanation.  If you happen to be a seasonal worker, allowances can be made but be ready to provide documentation.

The Probability Of Continued Employment —  What are the chances of continued employment at your current employer? What are the chances that you can get a similar job based on your qualifications, previous work history, education and location.

Frequent Job Changes — If you have a history of changing jobs, it isn’t necesarily a bad thing as long as you can document that you have changed jobs for advancements, more money, benefits or other related topics.  Remember, the underwriter is looking at the stability of income – not necessarily how long you have been at one company.

Stability of income is one of the important items that an underwriter will consider when you apply for a loan.  By keeping in mind the simple items of: gaps in employment, the probability of continued employment and frequent job changes you can be ready to provide explanations — before the underwriter even asks for them.

The topic of immigration reform is having a polarizing effect on the nation. It sparks interesting debate on both sides of the issue. I know, I know, my grasp of the obvious is legend! What isn’t quite as obvious is how it could have an effect on mortgage lending, specifically re-financing.

We know how FHA views insuring loans for lawful permanent and non-permanent resident aliens.

FHA Guidelines For Legal Permanent Resident Aliens

For people who have been granted permanent resident alien status, FHA will insure their loan under the same conditions as people who are US citizens. The lender is required to document that the borrower is a permanent resident alien in the loan application and evidence of permanent residency must be provided.

FHA Guidelines For Legal Non-Permanent Resident Aliens

FHA will even insure a mortgage made to non-permanent resident aliens as long as the borrower is going to occupy the property as their primary residence and the borrower has a valid social security number. If the borrower has less than one year of history of having their non-permanent status renewed, it is up to the lender to determine the likelihood that the borrower will be granted a continuation with the US Government. So as to the question whether or not a resident alien can receive FHA insured loans:

Yes, FHA will insure the loans as outlined above for both lawful permanent resident aliens and non-permanent resident aliens.

Yes, there are lenders who will loan money to lawful permanent or non-permanent resident aliens.

What About Illegal Residents?

This is a legitimate question that doesn’t seem to receive any of the media attention that swells around the bigger issue of illegal residents:

What about all of those people who financed homes with “fake” social security numbers in the late 1990′s or early 2000′s who are currently making their payments but cannot refinance due to the updated qualification verification?

I don’t have an official estimate, I would guess there could be many, many, many people who are currently residing in homes that were financed with dubious SS documentation provided to lenders prior to the current database verification process. This could certainly prevent them from being able to re-finance.

Today’s Mortgage Definition is: Primary Residence

Primary Residence — A Simple Definition:

When getting a mortgage, one of the factors that will influence the rate and terms of your loan is whether or not you will occupy the property as a primary residence.  Generally speaking, the best deals on mortgage terms are available to people who are going to occupy the property as their primary residence. Also, generally speaking you can only have one FHA insured loan at one time.

Primary Residence — An Expanded Definition:

When getting an FHA loan, it is generally not possible to have more than one FHA loan per borrower.  Anyone who owns a home (either alone or with someone else) that is insured by FHA generally can’t get another FHA insured loan except under the following circumstances:

Relocation – if you are relocating to another area that is not within a reasonable commuting distance from your current home, you can get another FHA loan without being required to sell your existing home that currently has FHA financing.

Increase in Family Size – You can get another home with an FHA loan if you have an increase in the number of legal dependents where your present house no longer meets the family’s needs.  If this is the case, you must pay your current FHA loan down to 75% LTV and a current appraisal must be used when determining the 75%.

Vacating a Jointly-Owned Property – If you are getting divorced and are moving out of your house that is currently financed with an FHA loan, you can get another FHA loan if you can qualify for it financially.

Non-occupying co-borrower — A non-occupying co-borrower on a property that is being purchased with an FHA-insured mortgage as a primary residence by other family members.  This is often the case with what is known as “FHA kiddie condo loans”.

Primary residence.

It matters whether the property you are buying is going to be your primary residence or not.  When getting a conventional loan, it matters for the rates and terms of the loan and when getting an FHA loan, it often matters whether or not you can get a loan at all.

Today’s Mortgage Definition is: Subordination

Subordination — A Simple Definition:

In the mortgage arena, most of the time when someone refers to a subordination, they are referring to a process involving second mortgage on a property. If you are interested in refinancing your home and you have a second mortgage, you will need to get a subordination agreed to by the lender who holds the second mortgage. In plain English: getting a subordination completed by the lender who holds the second mortgage means that the lender agrees to have their loan remain in second position while the loan in first position is refinanced.

Subordination — An Expanded Definition:

In most cases, your loan officer or a member of the loan officer’s team will do virtually everything required to get a subordination completed. The general steps to getting a subordination completed include:

• Contact the lender who holds the second mortgage and get a copy of the subordination requirements.
• Complete a subordination application with the information required – typically it is information about the current first mortgage, the new first mortgage and appraised value.
• Follow up with the lender who holds the second mortgage until the subordination is approved.

Now that rates are low, many people are going through the refinance process and subordination(s) are a common occurrence. While it can be tricky to get a subordination approved, if you have a second mortgage it is important you remember that you will want to discuss the subordination requirements with your loan officer before either of you spend a great deal of time and effort into refinancing your first mortgage.

Why?

Because if your second mortgage lender won’t subordinate your loan, there is virtually no chance that you can refinance your first mortgage.

Be sure to ask your loan officer about subordination of your second mortgage if want to refinance.

Today’s Mortgage Definition is: FHA 2/1 Buydown

FHA 2/1 Buydown — A Simple Definition:

An FHA  2/1 buydown is an option when getting an FHA loan where you can “buy down” the interest rate for a period of 2 years by putting a lump sum of money into a buydown account that will supplement the payment schedule on the loan for 2 years.  The payment the borrower will pay in the first year of the loan will be calculated on an interest rate that is 2 percent lower than the “note rate”.  In the second year of the loan, the payment that the borrower will make is calculated on an interest rate that is 1% lower than the note rate.  After the first two years have passed, the remaining 28 years of payments are calculated at the note rate.

Although the 2/1 buydown isn’t widely used, it can be a very useful financial tool for people who expect their income to increase after a brief period and want to stretch a little bit to get into a larger/nicer home.  I personally had a 2/1 buydown for my first condo that we bought in college where we expected to be able to “graduate and get real jobs” about 2 years after we initially bought the condo.

FHA 2/1 Buydown — An Expanded Definition:

FHA 2/1 buydowns are a fairly small percentage of the overall number of FHA loans done and while it used to be true that you could qualify at the reduced interest rate, this is no longer the case.  When getting an FHA loan, if  you want to participate in the 2/1 buydown program you must qualify at the note rate that will be on the loan.

The general criteria that must be present when doing an FHA 2/1 buydown include:

• The mortgage must be a purchase-money mortgage, not a refinance of an existing mortgage.
• Buydown funds may come from the seller, lender, borrower or other party.  Funds from the seller or any other interested third party are considered seller contributions and must be included in the six percent limit on seller contributions.
• The mortgage must be a fixed-rate loan on an owner-occupied residence.
• The buydown must not result in a reduction of more than two percentage points below the interest rate on the note.
• The buydown must not result in more than a one percentage point annual decrease in the interest rate. The borrower’s payment may only change once per year.

In all honesty, I don’t entirely know why there aren’t more FHA 2/1 buydowns done in the current housing downturn.  When done correctly, they can be a great tool for first time home buyers to stretch a little bit to get into a home and leave a little bit of money left over each month to help fix the place up.

Will FHA 2/1 buydown accounts start to gain momentum?

Only if people know about them.