Archive for the ‘Conventional and FHA loans’ Category

one more thing

January 21, 2010

The Federal Housing Administration (FHA) is channeling their inner Steve Jobs with their continued amending/changing of loan guidelines. You know how Steve operates… even though it appears he is wrapping up the annual “state of Apple” speech, he often comes back back on stage saying “one more thing” and proceeds to introduce a new product offered by Apple.

While Steve talks about a cool new product, currently, the FHA releases tighter loan guidelines – definitely not as fun!  No one knows for sure when the tightening of loan guidelines will end, but recent changes include:

  • a 580+ credit score is now required in order to qualify for the minimum down payment of a 3.5%
  • credit scores lower than 580 will require a 10% down payment
  • the up front mortgage insurance premium will increase from 1.75% of the loan amount to 2.25% of the loan amount
  • seller contributions to closing costs will be reduced from 6% of the purchase price to only 3% of the purchase price

As always, it is more important to know how these changes will impact borrowers. Let’s take a look at each of the changes and their potential impact:

  • CREDIT SCORES – While the FHA itself has not required credit scores, lenders have required a minimum credit score of at least 620 for some time now. The lender required 620+ credit score will probably not change, so the FHA 580 credit score requirement will not apply in most cases.
  • UP FROM MORTGAGE INSURANCE – The up front mortgage insurance premium has been required in some form for as long as FHA loans have existed. The up front premium is charged to the borrower BUT rolled into the loan amount – meaning the borrower is NOT paying the fee out of their own pocket at closing. Ultimately this will only slightly reduce the max purchase price of the borrower.
  • SELLER CONTRIBUTIONS – If a borrower only has enough for the minimum down payment on an FHA loan, the seller usually pays the closing costs and prepaids on the borrower’s behalf.  Under the old guidelines, a 6% contribution of the purchase price would easily cover all closing costs and prepaids on the loan.  However, 3% of the purchase price may not cover everything and borrowers will need to find other sources (gift from a relative, low OR no closing cost loan, etc.) to cover any additional funds due at closing.

In the grand scheme of things, these changes should not have a dramatic affect on borrowers qualifying for FHA loans.  It will primarily reduce the amount of house a borrower can afford to buy.

That said, planning ahead becomes more and more important.  Gone are the days of easy financing and no planning needed.  Anyone looking to buy a home using the tax credits (for first time home buyers OR move-up buyers), need to talk to a professional and make sure everything is in order now instead of waiting until the tax credit deadline and realizing (when it may be too late) that there is a potential problem!

Conventional and FHA loans revisited

January 8, 2010

In 2008, I released a series of posts comparing the pros and cons of conventional and FHA loans.  If you haven’t noticed, a lot has changed in the last couple of years.

On that note, I thought it wise to make note of new guidelines and highlight some changes to existing guidelines for both conventional and FHA loans. For reference, I will also provide links back to the original posts from April to June 2008.

Minimum credit score requirements (click here for the original post):

  • Lenders now require a 620+ credit score for FHA loans (a 660+ credit score for some programs). Credit scores between 620-660 may see a slightly increased interest rate.  – this is a change from no minimum credit score requirements
  • Conventional loans also require a minimum credit score of 620+, but interest rates for scores under 680 see a noticeably higher interest rate. – this is a change from possible approval below 620 and higher rate adjustments occurred below 620.

Credit history requirements (new requirement):

  • Brand new – FHA loans now require borrowers to have at least three active OR recently closed trade lines (accounts) in their credit history.  See this recent post for more details.
  • Conventional loans do not have this requirement.

Minimum down payment requirements (click here for the original post):

  • FHA loans require a minimum down payment of 3.5% regardless of the credit score. – change from 3%
  • FHA down payment assistance programs are no longer allowed.
  • Conventional loans require a minimum down payment of 5% and a 680+ credit score in order to obtain Private Mortgage Insurance.  – no change in the amount needed down, but the minimum credit score requirement is new
  • If a borrower’s credit score is below 680, then a 20% down payment will be required on conventional loans.

Private Mortgage Insurance (click here and here for original posts):

  • FHA loans still require an up front Mortgage Insurance Premium fee of 1.75% of the loan amount. The fee is rolled into the loan amount. – change from 1.5% up front fee
  • FHA monthly mortgage insurance payments are still lower than conventional loans.
  • Conventional loans do not have an up front fee, which is why their monthly premiums are higher than FHA loans.

The last couple of years haven’t changed the overall differences between FHA and conventional loans.  They have however tightened up the qualifying guidelines making planning ahead crucial. If you are looking to buy (or refinance) a home in the next 6-12 months, give me a call to help ensure you everything is in order when you make an offer on a home.

The passing of time

September 18, 2009

Time.  Where does it go? We never seem to have enough of it… We typically wonder if the time is “right”… and for some of us, time is beginning to run out.

Tax credit for first time home buyers – In order to qualify for the $8,000 tax credit, the home must be purchased before December 1, 2009 – which means November 30th. 

You may be thinking “there is still plenty of time.” While there are still 10 weeks remaining, if you haven’t started the process, it’s enough time, but not a lot of time to spare.

Think about it… You’ll need to find a realtor. Then find the time to start looking at homes for sale. After looking at several homes, you’ll make an offer AND wait for the offer to be accepted.  Then you will need to apply and get approved for a loan.  Finally, after all of that, you are ready to buy the home.

Typically the entire process can take somewhere between 6-8 weeks.  Whew, two weeks to spare! However, remember there is a major holiday that will limit the number of closing times available at the end of November. 

Oh, don’t forget about fence sitters who will make the move to buy a home.  Now all of the sudden realtors are busier than normal, closing attorneys are booked, and lender underwriting times may be longer than normal.

The moral of the story – plan on closing at the beginning or middle of November to be sure not to miss out on the tax credit.

Refinancing a home – Rates are at historical lows.  As of this post, a 30 year fixed rate is under 5% and a 15 year fixed rate is in the low 4’s.  That being said, rates won’t stay there forever.  Don’t believe me? Remember late May of this year when rates went from the mid 4’s to almost 6% in about two weeks?

I don’t know when rates will go up, but they will at some point.  If you are thinking about refinancing your home, let’s talk now and see if it makes sense so you don’t miss out.

sand clock

Time… we never seem to have enough of it and wonder if it is the “right” time.  If you are looking to buy a home and get the tax credit OR refinance your existing home, now is the time! I’d enjoy the opportunity to speak with you about your options.

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Hard to say goodbye

May 28, 2009

Sometimes we just don’t know how good something is until it’s too late. Gone are the days of no credit requirements for FHA loans, and it appears the requirements will only get tighter.

Once upon a time, borrowers with bad or no credit turned to FHA loans to buy a home.  FHA did not have minimum credit score requirements and even allowed non-traditional forms of credit such as rent and/or utility payments, college tuition payments, etc. 

Today most FHA programs require a minimum credit score of 620 with a negative rate adjustment for credit scores under 660.

How long will it be before FHA minimum score is 660?!?  Think that sounds crazy? Who would have thought there would have been any credit requirements for FHA loans two years ago?

It is hard to say goodbye to great things, but at least this is a feeling we can all relate to in life. We’re in this together!

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

Buy a home with a $100 down payment

May 11, 2009

Yes, you read that correctly.  Regardless of what you may hear in the news (must have a 20% down payment), there are homes available to buy with only a $100 down payment.  All a potential buyer needs is $100 for the down payment, 600+ credit score, the home must be their primary residence, and well, a pulse!

For more details on the program, you can go to HUD’s website here.  For a quick look at some of the highlights:

– The home must be owned by HUD and requires an FHA loan to purchase the property.

– Buyer must give a full price offer on the home.

– Provisions are made to offset some (if not all) of the closing costs.

The pros to this program are obvious – a home buyer only needs $100 for a down payment and can use an FHA loan (with flexible credit qualifying) to buy the home.

The biggest downside to this program is location, location, location.  The only properties eligible for the program must be owned by HUD.  This makes targeting a home with a certain number of beds/baths, a specific neighborhood, or school district a little more difficult.  It just depends on what is available.

Interested?  If so, you need to find see the homes available. To do that, try this link.  If you are in Georgia, go here.

Don’t believe everything you see on TV or read on the internet.  You don’t need a 20% down payment to qualify for a mortgage.  Homes can be purchased for as little as $100 down through this special FHA program.  Generally, FHA loans only require a 3.5% down payment, and conventional loans only need 5% down.  That is a far cry from the “20% needed” you may hear on the news!

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

A rehab loan gaining momentum

May 7, 2009

We all know there are numerous bank-owned properties available to buy.  We also know that foreclosed homes can be in need of repairs.  What options do borrowers have to buy a home in need of repairs?

Of course the borrower can always pay for the repairs out of pocket, but not everyone has that kind of cash just lying around.  Once upon a time, it was easier to obtain a rehab loan, but those loans are riskier.  In this market, anything “risky” is hard to get and fewer banks offer these loans.

However, there is a loan program that borrowers can use to purchase AND repair/remodel a home.  This program is more readily available because it is backed by the Federal Government. What is it? — an FHA 203k Streamline loan.

With this program, borrowers can acquire money to not only purchase the home, but also repair and modernize the home.  Here are some of the program highlights:

– The basics requirements of the loan are the same as a typical FHA loan. Borrowers must have a 620+ credit score (640+ with some lenders), a 3.5% down payment, and their debt to income ratio can’t exceed 31% on the front end.

– Borrowers can add up to $35,000 to the purchase price in order to make improvements to the home (must have 10% contingency reserve)

– Improvements can include anything from new appliances, updating the kitchen, to building a deck, and even landscaping.  They main thing to remember is the improvement/addition must be a permanent part of the home.

– That said, none of the renovations can involve structural changes to the home (can’t knock out walls, add walls, or even repair existing structural damage)

– “Luxury” items are not eligible for this loan program.  Think something extravagant, like a $5,000 custom made iron front door.

– An additional $8,000 can be added to the $35,000 if you choose to couple the 203k Streamline loan with the Energy Efficient Mortgage program (giving you a total of $43,000 for repairs/remodeling).

– Borrowers can add up to 6 months of mortgage payments into the loan amount so long as they are NOT living in the home while repairs occur.

After reading this list, it is easy to see why borrowers would be interested in a loan program like this.  Banks owning foreclosed homes are also warming up to it because they know most of the homes they now own are in need of some repairs.

For more information, you can check out some information from HUD.gov here and here, or feel free to contact me.

In conclusion, if you are looking at homes and find something that needs some TLC and you have enough for a 3.5% down payment (or can get this as a gift from an approved source), this just may be the loan program for you!

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

The Times They Are a-Changin’

March 17, 2009

The Spring season brings many changes… daylight savings… temperatures rise… flowers bloom… allergic reactions… and thankfully, rain!

As we enter this new season, The Times are a-Changin’ for me in regards to the mortgage industry and my employment.  My time with Hillside Lending came to an end in mid March.  I thoroughly enjoyed working for Hillside, and was sad to leave. 

That said, the current market and changes in the industry forced this decision.  I need to work with a company that can provide loan programs with minimal down payments and lower credit score requirements.  In other words, government secured loans (FHA and VA).

 

So, say hello to Dunwoody Mortgage Services.  Working with Dunwoody Mortgage, I am able to use loan programs that meet my clients lending needs in this difficult environment.  Some of these programs include:

 

         FHA and VA loans with as little as a 3.5% down payment

         $100 down HUD homes:  Any foreclosed home with an FHA loan can be eligible for purchase with only $100 down.

         Stated Income/Verified Asset loans targeted to self employed borrowers

         100% financing for rural development homes

         Of course conventional loans are always available with a 5% down payment

 

As one door closes, I am excited about the new opportunity to work with Dunwoody Mortgage.  If you have any questions about the loan programs, the move, or anything else, don’t hesitate to contact me.

 

Clay Jeffreys
Dunwoody Mortgage Services, Inc.
770-614-1157, ext 153 (o)
clay@dunwoodymortgage.net

 

 

Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services, Inc. and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Dunwoody Mortgage Services seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about Dunwoody Mortgage and available programs, please visit www.dunwoodymortgage.net.

 

 

Government tries to help, but it isn’t easy

February 20, 2009

No one will ever be able to say the government failed to act.  Obama’s stimulus plans provides several ways to help current and future homeowners.  More details of the plan can be read here, but quickly:

– $8,000 tax credit for first time home buyers who purchase a home between Jan 1, 2009 and the end of November.

– Tax credits and incentives to make homes more energy efficient

– A developing plan to help homeowners in trouble of losing their home as well as homeowners who are “at risk” of losing their home.

While these are great strides by the government to help, lenders continue to tighten their guidelines in a couple of ways.  First, more and more cities are being defined as a “declining market” making max Loan To Values at 95%, 90% or less (meaning a borrower must have at least a 5% – 10% down payment). Second, minimum credit score requirements are rising.

For some time now, borrowers were required to have a 620+ credit score to qualify for a conventional loan.  FHA and VA loans were seen as the “safe haven” for this due to their use of non-traditional credit and little or no minimum credit requirements.  Well, not anymore!

Several lenders began imposing minimum credit requirements on FHA and VA loans late last year.  The requirements began around 540… then 580… and quietly moved it up to 600.   Now, one nation-wide bank has updated their credit requirements to a minimum of a 640 score for ALL loan products (conventional, FHA, VA, etc.).   Also, they will no longer accept any forms of non-traditional credit on FHA and VA loans.

It will be interesting to see if other banks follow the lead.  Ironically as I typed this post, I received an email from a different lender who increased their FHA credit requirements to 620.

As the government works to help the economy and individuals, they must balance this act with a market/investor that does not want anything to do with loans from “risky” borrowers.  Ultimately, lenders are forced to tighten their belts (guidelines) in order to make the market/investor happy. This process must be frustrating for everyone involved – the government, investors, banks, loan originators, borrowers, etc. As the saying goes, “if it’s not one thing, it’s another.”

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

Conventional and FHA loans — the saga continues

August 8, 2008

Like an awful horror movie franchise that just won’t go away, here is the sixth post in the Conventional and FHA series. I thought I concluded this five part series over two months ago, but what difference two months can make!  The passing of the Housing and Recovery Act of 2008 (known as HR-3221) will bring significant changes to FHA loans.

and you thought part 3 was bad, sheesh

and you thought part 3 was bad!

— Elimination of some Down Payment Assistant (DPA) programs:  The new law eliminates all programs that allow the seller to provide the down payment for an FHA loans.  Part 4 of this series provides more details of how the seller can provide the borrower with a down payment. Moving forward, anyone with a vested interest in the purchase of the home cannot contribute to the buyer’s required minimum down payment.  Why the change?  It turns out the default rate on these programs is about 3 times higher than the default average on other FHA loan programs.   Borrowers can still receive a gift from a relative, a donation from a non-profit company, a church, etc. — just not the seller “through” a non-profit company.

— Down payment requirements:  The minimum down payment for an FHA loan will increase to 3.5%.

— Up-front Mortgage Insurance Premium Fee:  Part 2 and Part 3 of the series touched on this aspect of FHA loans.  In short, on all FHA loans with less than a 20% down payment, there is an up-front fee for mortgage insurance figured at 1.5% of the loan amount.  That fee is now increasing to 3% of the loan amount.  A $200,000 loan would create a fee of $6,000.  The up-front mortgage insurance fee is financed into the loan amount (meaning the borrower does not have to provide the $6,000 in cash at closing), but that is still an extra $6,000!

— Hope for Homeowners:  The bill provides up to $300 billion in new 30 year fixed FHA loans for “at risk” homeowners to refinance their current subprime loan into an FHA loan.  There are many, many requirements that must be met in order to qualify.  It is estimated that this measure will help a little over 300,000 home owners.  That isn’t a lot of people, but it is better than nothing!

There has been one significant change to conventional loans in regards to down payment requirements.  First 100% financing disappeared, and then 97%.  For a short amount of time, even 95% financing disappeared from Fannie Mae for declining market areas in Georgia (Freddie Mac kept 95% financing).  However, as of last week 95% financing is back with both Fannie and Freddie in Georgia. One lender we work with at Hillside Lending even has 97% financing available again.

While it is definitely not 100% financing, this could still be a significant moment.  It marks one of the first times Fannie and Freddie have loosened guidelines instead of tightening them in the past year and a half.

Back to the Housing and Recovery Bill… there are almost 800 pages to this bill. Needless to say, there is a lot of reading, interpreting, and implementing to be done. I will keep you posted as this story develops.  It seems the Conventional and FHA franchise will continue to churn out more sequels. Let’s hope they are better than Jaws 4, The Revenge!

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.

A Fight for the Ages

June 4, 2008

This is the concluding post for the Conventional and FHA series.  For previous posts, use the following links.

Ladies and gentlemen, boys and girls, let’s get ready to rumble… In the red corner, I give you Conventional loan. In the blue corner, FHA loan.

As we get ready to start this highly anticipated match, let’s take a minute to go over the rules. This contest will list the characteristics of the loan programs, and there will be absolutely no punching below the belt.

Conventional (prime) Loans

— interest rate is generally lower than the interest rate of an FHA loan

— require a down payment of at least 3%

— loans with less than a 20% down payment will require private mortgage insurance

— loan options to avoid private mortgage insurance are available

— mortgage insurance is based on the appraisal value of the home

— relies on the traditional credit score model for qualification

FHA Loans

— loan is partially guaranteed by the Government

— typically carries a higher interest rate than prime loans

— mortgage insurance is required for loans with less than a 20% down payment (called mortgage insurance premium for FHA loans)

— there is an upfront mortgage insurance fee of 1.5% of the loan amount collected at closing

— mortgage insurance based on the purchase price of the home

— there are no options available to avoid paying mortgage insurance premiums

— down payment assistance programs are available

And we are ready for round 1. This is going to be great!

TIME PASSES BY…

The fight is over. They both made it through 12 rounds. What a fight! We are waiting on the judges for the winner… NO DECISION! NO DECISION! I can’t believe it. Someone has to win, shouldn’t they?

Back to reality… Several factors go into qualifying someone for a loan (credit score, credit history, income, assets available for a down payment, purchase amount, etc.). A loan officer choosing one option over the other for you without explaining the pros and cons of each is doing you a disservice.

I will end this series the way it began… I recommend speaking with a mortgage consultant that can provide professional advice that informs and educates you on the pros and cons of each loan program to ensure you get the best fit possible for your mortgage.

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.