Author Archive

Today’s Mortgage Definition is: FHA Required Repairs

FHA Required Repairs — A Simple Definition:

Many times when buying a house that has previously been a distressed property (either a short sale or a foreclosure), at least a few repairs will be required.  According to FHA, there are required repairs and repairs that are not required in order to have the property qualify for FHA financing.

FHA Required Repairs — An Expanded Definition:

At the broadest level, a required repair is anything that represents a risk to the health and safety of the occupants or the soundness of the property.  A few examples of required repairs include (but are not limited to):

• Inadequate access from the bedrooms to the exterior of the home
• Leaking or worn out roof
• Structural problems such as foundation damage caused by excessive settlement
• Defective paint surfaces on homes that were built prior to 1978
• Defective exterior pain surfaces in homes built after 1978
• Evidence of wood destroying insects that have not been treated by a pest control company yet

When the appraiser is writing up the appraisal, if any of the above conditions exist on the property the appraiser will note it in the appraisal and the underwriter will require that the condition be repaired before the loan will be approved.

When buying a home and planning on getting an FHA loan for the property, be sure to be aware what kinds of repairs are required repairs… it can help you avoid surprises in the financing process.

Today’s Mortgage Definition is: Non Purchasing Spouse

Non Purchasing Spouse – A Simple Definition:

When you purchase a house, the non purchasing spouse is the spouse who is not on the loan and may or may not be on title.  Depending on the state that you live, the non purchasing spouse may have a big impact on qualifying for a mortgage… even though they are not on the loan.

Non Purchasing Spouse –An Expanded Definition:

In some states, if you have a spouse who is not going to be on the loan a required document will be signed where the non purchasing spouse relinquishes all rights to the property and agrees to have no claim on title.  In exchange for signing the document relinquishing the non purchasing spouse’s rights to the property, the non purchasing spouse is not considered a borrower and is not required to sign the loan application or be a part of the loan application qualification process.

That said – in some states where there are community property laws, the non purchasing spouse’s debts must be included in the borrower’s debt-to-income calculations and often the inclusion of the non purchasing spouse’s debts into the debt to income ratio means the borrower no longer qualifies.

Non purchasing spouse.

If you think that your spouse can “opt out” of the home buying process and you can still qualify for a mortgage, be sure to double check and know whether or not your state is considered a community property state.

Today’s Mortgage Definition is: VA Loan Certificate of Eligibility

VA Loan Certificate of Eligibility — A Simple Definition:

The VA Loan Certificate of Eligibility is a key ingredient to getting a VA loan which is very popular with people who are Military Active Duty, Reservists, Veterans, and their immediate families.  Simply put – if you can’t get a VA Certificate of Eligibility, you can’t get a VA loan.

VA Loan Certificate of Eligibility — An Expanded Definition:

There is a long list of potential people who could get a VA loan – but rather than break those out, I can offer a simple rule of thumb:

If you are in the military or have served in the military, or you are a spouse or a dependent of someone who was or is in the military you may be eligible for a VA loan and a Certificate of Eligibility.

You can visit the Dept of VA website to check military service requirements for VA loan eligibility.

From a more technical standpoint, the VA loan eligibility certificate is called Form 26-1880 and you can get it directly from any VA regional center, or you can get it online at the Veterans Information Portal.

Most VA lenders can also help you with getting your certificate if needed.

The certificate does not say that you are qualified for a VA loan, it simply means that you are eligible for a VA loan.

To qualify for a VA loan you will have to apply and qualify for it with a VA lender. It is during the application process where you will need to prove your eligibility for a VA loan with your certificate.

Lastly, the Certificate of Eligibility informs your VA lender what loan amount you are eligible to get which is based on your level of military service. In general, full eligibility without a down payment will get you up to a mortgage amount of $417,000. If you are eligible for the full amount and you don’t borrow all of the $417,000 in one mortgage, it is possible to get another mortgage on another property if you meet certain qualification requirements.

For more specific details on this, or other items relating to the VA Loan Certificate of Eligibility, you can speak to your loan officer.

Today’s Mortgage Definition is: FHA Streamline Refinance

FHA Streamline Refinance – A Simple Definition:
The FHA streamline refinance is a refinance program designed for people who currently have an FHA loan to be able to take advantage of lowering their interest rate when rates drop with less documentation than a “normal” refinance requires.  The term streamline refers to the reduced documentation requirements that are designed to streamline the process.

FHA Streamline Refinance – An Expanded Definition:
As interest rates have fallen to the lowest point in decades, many people who can are thinking about refinancing. With the FHA streamline program, there are 2 main options: an FHA streamline refinance with appraisal and an FHA streamline without an appraisal.

For many people who are in an FHA loan and owe more on their mortgage than their house is worth, the FHA streamline without appraisal makes it possible where they can possibly refinance. When you refinance in the FHA streamline program and choose the “no appraisal” option, according to a recent rule change by HUD you can no longer roll the closing costs into the loan. This means that you will need to be prepared to bring in your closing costs – or – possibly have the lender cover a portion of your closing costs in exchange for a slightly-higher-than-market interest rate.

If you refinance with the FHA streamline with appraisal, you can still roll in your closing costs if need be and it is sometimes referred to as a “no out of pocket closing costs refinance”.

Regardless if you participate in the FHA streamline refinance program and go with the “no appraisal” or “with appraisal” option – the key is that you need to lower your interest rate enough for it to make sense. When considering whether or not it makes sense to refinance, be sure to consider how long you will be in the property, what your total closing costs will be and how much monthly savings you will realize by refinancing.

The easiest way to calculate these numbers as to whether or not it makes sense?

Talk to your loan officer. Great loan officers can easily help you know whether it makes sense in your situation.

Today’s Mortgage Definition is: No Cost Mortgage

No Cost Mortgage – A Simple Definition:
The no cost mortgage (also sometimes called the zero cost mortgage) is an option when interest rates are falling and is when the lender agrees to pay all of the closing costs associated with the loan. All closing costs as in nothing is added to your original loan balance.

No Cost Mortgage – An Expanded Definition:
Just because the mortgage is a no-cost mortgage doesn’t mean there aren’t costs — it just means that the lender agrees to pay for the costs in exchange for a slightly higher interest rate. So just because you aren’t paying for an appraisal, an underwriting fee, a credit report fee or any other type of fee doesn’t mean that someone isn’t paying them… it just means that the person paying these fees isn’t you.

One of the common questions people ask is “how much higher of a rate will I get if I want a no-cost mortgage rather than pay my own closing costs?” and the answer is — it depends. As a general rule of thumb, expect to have a .25% to .50% higher rate if you decide to opt for a no-cost mortgage.

As counter-intuitive as it may sound, no-cost mortgages are not always the best financial choice – it depends on your situation. Typically, the longer that you plan to keep the home (or, more specifically, the loan on the home) the more sense it makes to pay the closing cost and get the lowest possible rate.

Is a no-cost mortgage right for your situation? Maybe. But be sure to double check with your loan officer to see what the numbers stack up to be in your situation.

Today’s Mortgage Definition is: FHA Short Refinance

FHA Short Refinance – A Simple Definition:
Recently, FHA (officially) announced that they are allowing FHA lenders to help borrowers who have negative equity in their home get a new FHA loan when the existing lender agrees to a short payoff. This is known as an FHA short refinance. Just a few requirements for people to be eligible for the FHA short refinance program include:

• There must be negative equity
• You must be current on your mortgage payments on the mortgage being refinanced
• You must live in the home as your primary residence
• Your current mortgage being refinanced may not be an FHA loan
• Your current lender must write off at least 10% of the principal balance
• The new maximum LTV is 97.75% for the new loan.

FHA Short Refinance – An Expanded Definition:
The FHA short refinance is not something that is new – in fact, many loan officers have figured them out, tried them and simply gave up trying to help people get them done because it was so difficult to get a lender to agree to accept a short payoff.

In my opinion, the key to having a successful FHA short refinance is going to be to get your existing lender to agree to accept a short payoff. If you get your lender to agree to a short payoff, one other thing to remember is that when you participate in the FHA short refinance program, it could possibly show as a derogatory item on your credit score as well as have tax implications. You will want to contact your tax advisor and be informed of possible credit score impacts that the FHA short refinance program could trigger.

With all of the “ifs” that the FHA short refinance program has circling it (still), I think it is something that many people across the country could benefit from. IF you can get your current lender to agree to a short payoff and IF you are aware and ready for any tax consequences and IF you qualify for the program… well, then the FHA short refinance program is a great solution.

But don’t expect it to be a short process.

Additional Resources
FHA Short Refinance HUD Announcement
FHA Short Refinance Mortgagee Letter
Previously: FHA Short Refinance: Does This Make It Real?

Today’s Mortgage Definition is: UFMIP

Main Entry: u · f · m · i · p
Pronunciation: : \ˈyü ·ˈef · ˈem · ˈī · ˈpē \

UFMIP and MI – A Simple Definition:
UFMIP stands for Up Front Mortgage Insurance Premium and anyone who takes out an FHA loan is required to pay the premium.  This lump sum is allowed to be financed into the loan, so you don’t have to actually write a check for it at closing – but make no mistake, you are still paying it.  MI stands for Mortgage Insurance (in the case of FHA loans, this is the amount of money that you pay each month) and MI is diffferent than UFMIP.  With FHA loans, you are required to pay both UFMIP and MI.

UFMIP and MI – An Expanded Definition:
Many people are aware that FHA doesn’t actually loan you money when you get an FHA loan, they only insure your loan.  The insurance does the borrower no good, the insurance is in the event of a default, then FHA agrees to pay the lender, not the borrower.

And for this insurance guarantee (having an FHA insured loan), the person who wants an FHA loan gets to make insurance premium payments in the form of UFMIP and MI.

For years, HUD has required that anyone getting an FHA loan pay both UFMIP and MI so that is nothing new.  It is also somewhat common (every couple of years or so) for HUD to adjust either the UFMIP requirement and/or the MI requirement which makes FHA loans either slightly more or less expensive depending on the adjustment.

Recently, HUD has made an announcement that the MI requirement will rise from .55% (annually) of the loan amount to .85 – .9% and has lowered the UFMIP requirement from 2.25%, down to 1%.

Some simple calculations of what UFMIP and MI requirements are going to be effective September 7, 2010 on a $200,000 mortgage:

• UFMIP = $2,000
• MI = $1,800 / year paid monthly ($150/month)

The net change is that on an overall basis, it is going to be more expensive to get an FHA loan.  The UFMIP requirements went down, but the monthly MI increased and the overall effect is that your monthly mortgage payment will now be higher with FHA loans due to higher mortgage insurance costs.

Today’s Mortgage Definition is: No Money Down Mortgage

Main Entry: no mo·ney down mort·gage

Pronunciation: : \ˈnō ·ˈ mə-nē · ˈdaun ˈ· mȯr-gij\

No Money Down Mortgage – A Simple Definition:

A no money down mortgage means that it is possible to get financing for a home where you are not required by the lender to make a down payment.

Essentially, if you qualify for a no money down mortgage you can agree to buy the home and not be required to make a down payment.

You may need to cover the closing costs or other associated fees (unless you get the seller to pay them on your behalf), but are not required to make a down payment.

No Money Down Mortgage – An Expanded Definition:

One of the most common questions I get today is “can I get a mortgage with no money down”? And the answer is…

Maybe.

No money down mortgage options used to be plentiful – there were multiple programs that would allow you to buy a home without robbing your IRA or begging your parents for a gift. But with the credit crunch and tighter guidelines, many programs that used to be available have been eliminated.

Except for two.

The VA loan program and the USDA loan program both have no money down options available for people who can qualify for their programs.

The VA No Money Down Program

VA Loans Require No Down Payment

When financing a home with a VA loan, you are not required to have a down payment, there is no monthly mortgage insurance and the VA funding fee (required to be paid up front) can be financed into the loan.

In order to qualify for a VA loan, you must have a certificate of eligibility and a DD214.

The maximum loan amount for VA loans is generally speaking currently $417,000 and in some cases higher based on the Veteran’s entitlement amount.

The USDA No Money Down Program

The bad news about the USDA loan program is that it has been so popular in the last couple of years that they have run out of funding for 2010. The good news is that they are on the brink of getting more funding – and many lenders are accepting applications for the USDA loan program because funding is on the way.

Legislation that raises the “guarantee fee” to 3.5% and designed to make the USDA program self sufficient so it won’t run out of funds again is currently headed to President Obama’s desk for signature.

With the USDA loan program, the two main qualification points for the USDA loan program are that the property you are interested in purchasing must be eligible for USDA financing and you can’t make more than 115% of the median income for the county where you live.

No money down mortgage programs.

They are still available… if you meet the loan program criteria.

Today’s Mortgage Definition is: Appraisal Cutting

Main Entry: ap·prais·al cut·ting

Pronunciation: \ə-ˈprā-zəl ˈkə-tiŋ\

Appraisal Cutting – A Simple Definition:

When you buy a new home or refinance an existing home, you typically will be required to obtain an appraisal for the property.  Getting an appraisal done involves hiring a licensed appraiser who produces an opinion of value in the form of an “official” appraisal.  This number is known as the “appraised value” of the property.

Occasionally, when an underwriter reviews the appraisal provided by the licensed appraiser, they will engage in the sport of Appraisal Cutting by reducing the appraised value provided by the appraiser by a random, arbitrary number.

Appraisal Cutting – An Expanded Definition:

The sport of appraisal cutting has long been practiced by many underwriters and has left plenty of potential homeowners wondering what exactly happened.  In my experience, it was a common practice for many transactions involving cash-out-refinances but I thought it had tapered off recently.  Apparently, it still happens enough to catch the eye of Fannie Mae who recently announced that they are outlawing the practice of appraisal cutting by underwriters.

Effective Sept. 1, Fannie Mae is prohibiting lenders who sell loans to them from changing appraisers’ appraised value numbers. In guidance issued June 30, Fannie Mae said that if an underwriter has an issue with an appraised value, they must contact appraisers to “resolve” any disagreements about the valuation. If it is not possible to resolve an opinion-of-value dispute, then the only option available to the lender is to order a second appraisal – they are no longer allowed to just chop the value that the appraisal states.

Which makes sense (to me at least) if you think about it – an appraiser goes through the licensing process and is a practicing licensed professional who physcially inspects the property and then comes up with an opinion of value based on his expert opinon according to standard methodolgies.

If an underwriter happens to have a different opinion of what a property is worth, does it make any sense to allow them to engage in the sport of appraisal cutting?

According to Fannie Mae, not any more.