FHA Loans category archives

The maximum $729,750 conforming loan limit is due to expire on Dec. 21, which would drop the loan limit down to $625,500. This is leaving lenders in a bit of a holding pattern as to whether they can approve balances above $625,500 for mortgages they’re dealing with now.

Good news to keep things stable: The Committees on Appropriations agreed this week in a Continuing Resolution (CR) to maintain housing loan limits for FHA, GSE and HECM single-family mortgages at $729,750 through end of calendar year 2010. And, Congress passed a stopgap funding plan that the loan limit extension is attached to — it just needs President Obama’s signature, which is expected today, if not early next week.

That means FHA loans, and GSE (Fannie Mae and Freddie Mac) loan limits will stay the same for another year.

Earlier this week, Treasury Secretary Shaun Donovan was urging Congress to approve the conforming loan limit measure, which is part of his three-part proposal to help heal the housing market:

• Extend the First Time Homebuyer Credit, with strong anti-fraud measures
• Extend Loan Limits for Mortgage Loans
• Secure Financing for the Housing Trust Fund

In today’s economy, many first-time home buyers find it challenging to make a hefty down payment towards a new home loan. Luckily, FHA financing is available for conforming loans (less than $417,000) with down payments as low as 3.5%.

Loans made by FHA (the Federal Housing Administration) haven’t always been applicable to every home on the market because of longstanding guidelines and restrictions. For example, if you wanted to sell your condo to a buyer ready to bring 3.5% down, that buyer couldn’t obtain an FHA loan if your condo bylaws gave the board the “right of first refusal.”

But now, FHA is making it easier to obtain approval for condos. They’re allowing lenders to determine project eligibility, review project documentation, and certify federal compliance for condo projects.

In accordance with the 2008 Housing and Economic Recovery Act (HERA), FHA is implementing a new approval process for condo projects to insure mortgages on individual units closed as of October 1, 2009.

Now, the right of first refusal is permitted - unless it violates discriminatory conduct under the Fair Housing Act. Eligible spheres include projects with 2 or more units carrying hazard, liability and flood insurance. For these projects, no more than 25% of the units can be used for commercial space – and no more than 10% of the units can be owned by more than one investor. Additionally, 50% of the units must be sold and owner-occupied. Projects listed as “Proposed / Under Construction,” “Existing Construction” or “Conversion” are also eligible.

Ineligible Projects include Condotels, Timeshares or Segmented Properties, Multi-Dwelling Units, and Commercial Properties.

So what does this mean for you?

As a buyer
Buying a home is a big investment - and saving for a down payment can be a tough proposition, especially when you include closing costs and tax escrows. FHA is making condo purchases with 3.5% down even easier. Look for FHA-approved buildings (or buildings with pending FHA approval) - and talk with your mortgage consultant to see if you qualify for a low-down payment loan through FHA.

As a seller
Your condo association or developer can work with a lender to get your building pre-approved for FHA loans. This allows for more flexible compensating financial factors for potential buyers (i.e. cash reserves, credit scores, etc.) and attracts more buyers, leads to more saleability, and greater home value appreciation.

I am working on a deal that was originally with another lender as a purchase 203K, the other lender ended up dropping the ball to the point the borrower switched lenders in the 11th hour to close the loan on time as a regular FHA loan.

The borrower purchased the home and has started the renovation on his own, mainly demolition (I don’t recommend doing this prior to closing on a renovation loan).  So few lenders are actually doing these renovation loans….. he ended up back with the original lender trying to do the 203K loan as a refinance. 

While going through the process he came across some of my posts and blog on Zillow.com (thanks for the referral Zillow) and reached out to me.  Because he was so far along in the process I answered a few questions and coached him a little as to how to deal with the current lender to try and expedite his loan closing.  Three weeks go by and he is no closer to closing than he was when I spoke with him originally.  So he decided to apply with me.

I was walking through the project with him when I noticed the house was going to need to be painted and also knew that the proposed budget only had about $250 in it for minor painting.  I knew by looking at it that it was going to cost more than that!  I have to admit that I don’t go out and see every house I write a renovation loan on, although I do need to have a complete understanding of the project so I can spot potential hiccups and delays and address them up front.

Having done these loans for years I have a ton of experience with them and my customers get the benefit of that experience.  It is really tough to explain all the benefits of experience.  Much of what we have learned through experience is 2nd nature and you just do things differently. 

I have a three year old daughter and I am amazed almost moment to moment as I watch her develop.  It is the things that we take for granted I find the most interesting, the way she eats, gets dressed, walks up and down the stairs, climbs over under and on whatever gets in her way, and a zillion other things.  At some point we learn what works best.  We learn that walking around the table, although it may take a little longer than going over or under (or not), may be the most efficient way to get to the other side.

When working with an experienced lender and or experienced renovation lender their experience will make your experience much less stress full!

Below are some of the things I try and walk around:

1.      Self Help – These are almost always a recipe for disaster and I really discourage anyone from attempting to do these projects as self help

2.      Streamline Renovation – 203K streamline although less expensive by about $800 in costs, I have seen too many issues arise as a result of half the funds being disbursed upfront and contractors disappearing or demanding additional payment upfront to finish. 

3.      Cutting corners – eliminating $5,000-$15,000 from a project because you are spending more than you want.  The difference in your payment is usually minimal, and to go through a renovation project and settle for less than what you want tends to do nothing but generate regrets.  If you are going to do it…do it right!

4.      Hud Consultant - Make sure you are working with a good 203K consultant.  I have been working with AM Consults in Malden MA for well over a decade and am extremely hesitant to work with any other consultant.

5.      The Loan Officer – Choose a loan officer that has the experience actually writing these loans rather than the loan officer that just has access to the program.  The loans are more expensive than a standard loan so expect to pay a slightly higher premium for the loan, but don’t get taken advantage off.  I have seen on more than one occasion an LO charge a ridiculous amount for these loans…The Mind set being if the customer is willing to pay that amount I’ll figure out how to write the loan…They may figure it out but you don’t want to over pay to be a guinea pig (sorry animal lovers).

On August 15, homeowners having trouble making payments on FHA mortgages started getting help under the same program that’s been available for people with Fannie Mae and Freddie Mac mortgages. The FHA-Home Affordable Modification Plan (or FHA-HAMP) is designed to significantly reduce a borrower’s monthly mortgage payment to bring it in line with her budget. Since FHA-HAMP has been out, these are the FAQs coming to our site:

1. How can I be sure I have an FHA mortgage? If you bought your home with a low down payment, it’s likely you have one of the 4.8 million FHA mortgages out there. Check the documents you received at closing or ask your lender or loan servicer. You can also visit our website for individual help with this – and don’t worry, all our services are absolutely free to you.

2. Can I qualify for an FHA-HAMP loan modification if I’m current with my mortgage payments? No. FHA borrowers must be at least 1 month behind in their payments to be eligible for an FHA-HAMP loan modification. But an estimated 14% of all FHA loans are 30 days or more past due, so lots of people should be eligible for help.

3. How does the FHA-HAMP program go about making my mortgage payment more affordable? The program helps create a loan modification, working with your lender. The principal is reduced by an amount that brings your monthly payment to no more than 31% of your gross income. This reduction in the principal can be no more than 30% of the outstanding balance.

4. When and how is this principal reduction paid back? A subordinate loan is made for the principal reduction, plus any unpaid interest, property taxes, homeowner’s insurance premiums and other costs. No interest is charged on this subordinate loan, but the deferred money becomes due when you pay off the principal loan, or when you refinance or sell your home.

5. Why should the lender and I participate in FHA-HAMP? You avoid foreclosure and live in your home for a more affordable monthly mortgage payment. You also get $1,000 a year from the government for 5 years, which is applied to the loan balance to reduce the deferred amount due at the end. Your lender avoids the costs and probable losses involved with foreclosure and gets an incentive fee up to $1,250 from the government to modify the loan.

I got an e-mail yesterday asking: What is a 203K loan?  Every once in awhile I need to remember that I sometimes use acronyms and assume everyone knows what I am talking about.  The reality is…in many cases the acronyms do more to confuse folks than to clarify.  So I am going to take a step back and explain a little about the “203K” loan.

This loan program can be used for the purchase or refinance of a property that needs work.  It allows you to borrow the funds you need to purchase and renovate the property.  These loans are not new but took a back seat to other ways of financing the cost to renovate.  With property values no longer increasing by double digits, and with equity loans being capped at 70-80% of current values (rather than 100% you could get just a few years ago), the options for financing renovations are limited.  I started a thread on Zillow asking how folks are paying for home improvements.  Inquiring minds want to know! 

In addition to the FHA 203k program similar programs are offered by Fannie Mae and Freddie Mac.

Well….I figured I would give YouTube a whirl… I finally got around to putting some before and after photos together from a K loan I closed on 12/28/2008.

Purchase Price $192,000

Cost of Renovation $32,642

After Improved Value $260,000

Equity After Renovations $35,000+…..$33,000 can make a HUGE Difference!
I sent my clients a link to my blog when I posted it….This was her response:
“Wow, so cool that you used my pics :)   A month ago another lady was driving by and said she was an appraiser using my house as a comp.  She came in to see the improvements and then when we queried her on what she thought we’d be able to get for this house today she hemmed and hawed, then said, prices have dropped since we bought so we’d probably lose money…. because she can see we’ve put in a ton of money (not true, but that’s what she thought).   Then she said in this market with the economy so bad, I’d be able to get $350,000
That made me very happy :)”     -Owner of the home in the video

Just this morning, I was reading an article that I came across regarding a couple things that are going on with the Federal Housing Administration (FHA)….and it wasn’t pretty.

Basically what’s going on right now is that there are justifiable rumors that the FHA’s reserves (capital) are hovering around dangerous levels.

Congress requires that the magic number FHA needs to be at is 2%. At the moment, its speculated to be down to about 3% (down from 6.5%  in 2007) and if it falls below that mark, Uncle Sam has to come in and save the day once again. (Is it just me, or is this a never-ending cycle? Has anyone seen AIG’s stock quote recently?)

At the moment, FHA’s defaults (90 days+) are nearing 8% and depleting a good portion of FHA’s reserves. While that number may not seem that HUGE, you have to see how all this links together.

Several high-cost areas in the US got hit pretty hard the past couple of years. What goes up, must come down, right?

Well because of those declining markets, FHA decided to increase their loan limits and availability to accommodate the supply/demand in those areas. Who has $140,000 stashed under their mattress in CA to buy that $700,000 home? Not too many people. Well, who has around $25,000? Get the point?

And while this WAS needed to help stimulate buyers, you have to think of what happens on the flip-side. When that $5,000 (est) payment can’t be made anymore, and its time to jump ship, and who gets stuck with the bill? FHA.

FHA then has to tap into their reserves to make good on this.

Think about this for a moment:

In Texas, about 4-5 homes have to foreclose to match that ONE home in California. The odds of 4-5 consumers simultaneously defaulting is not that likely, unless they’re Madoff’s advisors.

The point I’m trying to make is that the high-cost areas are affecting FHA a little bit more than other more stable areas. While I am not saying that FHA lending shouldn’t be available here, I think it would be a good idea (especially now) to implement some more stringent measures before approving every Tom, Dick, and Harry that apply. Last thing we ALL want is to wave bye bye to FHA.

The remainder of the year will be quite interesting. An important incentive is coming to an end ($8k Tax Credit), and as for interest rates, well, let’s just hope they keep steady. Too many good things coming to an end is not a good thing.

Tommy’s 2 Cents

I would safely venture to say that FHA credit score requirements will be going up here in the upcoming months, and as for down payments, I wouldn’t be surprised to see FHA raise them up to 5% later down the line. While FHA loans have been the hot product, you may start to see Conventional loans SLOWLY creep back in and create a “2nd hand FHA loan” if capital continues to diminish and mortgage insurance companies loosen up a bit.

Remember what happened with Sub-Prime loans? High Demand, High Supply, POOF- they’re gone! History always repeats itself, let’s just hope we’ve learned our lesson the first time, and we don’t screw up FHA, especially for Dawson’s sake.

If you have an FHA mortgage and are having trouble making the payments, you may now be able to get help from the government. FHA stands for the Federal Housing Administration, part of the Department of Housing and Urban Development (HUD). FHA provides mortgage insurance on loans made by FHA-approved lenders for home purchases with low down payments. As of August 15, 2009 HUD has made FHA mortgages eligible for their Making Home Affordable program.

It’s called the FHA-Home Affordable Modification Plan (or FHA-HAMP) and it’s designed to permanently reduce monthly payments. HUD Secretary Shaun Donovan announced, “We’re bringing another important tool to the table to help struggling families who are desperate to keep their homes. Tens of thousands of FHA borrowers will now be able to modify their mortgages in the same manner as so many others who are taking advantage of the administration’s Making Home Affordable program.”

UPDATE

HUD has officially moved the deadline to December 7th, 2009.  There is no official announcement online, but I have received an email forwarded from HUD directly regarding the extension.

The deadline has moved from October 1st, 2009 to November 2nd, 2009.  Here is a link to the official announcement.  The actual mortgagee letter has not been updated, so if you download HUD Mortgagee Letter 2009-19, it still states the deadline is October 1st.  Only on the above link is this change mentioned.

Are you condo owner or prospective condo buyer?  Then you need to pay attention to some recent changes HUD (Department of Urban Housing and Development) is making that affects condominiums.

In the past, you only needed to satisfy one of the following two criteria’s to finance a condo unit using FHA financing.

1.) The Condo Project has a FHA warranty

- This requires the Homeowners Association of the condominium project to apply and receive a warranty on the project from the HUD.

2.) The unit must pass a questionnaire called a “Spot Check” done on an individual basis

HUD just released an announcement that they will be changing the guidelines which includes the removal of “Spot Check” approvals which means you will only be able to get a FHA loan on a condo if the project has a warranty. (Mortgage Letter 2009-19).

FHA loans now represent more than 25% of all ho Read the rest of this entry »

To use one of my favorite Dirty Harry quotes, “A Man’s gotta know his limitations.” With all of the talk recently of Fannie Mae Jumbo loans, Fannie Mae High Balance Loan Programs, FHA Jumbo’s, VA Jumbo’s, and the like; I thought it would be a good idea to show you how and where  to find out exactly with the loan limits are in your specific State and County.

The first step is to go to this site: HUD/Fannie Mae Loan Limits .  A couple of important things to remember when navigating this site: you initially just need to input the State(all Counties will be listed), the Limit Type(Fannie Mae, FHA, or HECM-reverse mortgage), and the Limit Year (It’s 2009, folks). Once you find your County, the loan limits are pretty self-explanatory.  If you own a multi-unit property, your loan limits will be higher than a single family home.

For VA Loans, the loan limit is $417,000 unless otherwise noted here: VA Loan Limits  .  Financing may be available above the loan limit for a VA limit with a down payment.  A calculator and examples are listed here: VA Calculations .

Keep in mind pricing and qualifiaction terms may vary with “high balance” loans above the traditional loan limits of $417,000.  I hope this helps!