Posts Tagged ‘new guidelines’

Fannie Mae HomeStyle rehab loan

May 19, 2010

I regularly receive requests for loan programs that will allow borrowers to make repairs on a home and roll those costs into the loan. Due to the financial crisis and the risky nature of these loan programs, conventional rehabilitation loans virtually disappeared.

The only consistent option was the FHA 203k program, which is a great loan program, but only allows cosmetic/non-structural repairs on a buyer’s primary residence. It would be great if there was a program that allowed both buyers and investors the flexibility needed to do more than just cosmetic repairs… and now there is!

Introducing the Fannie Mae HomeStyle loan program. This is a renovation program like the FHA 203k program, and they share some similar traits.

  • Both programs allow for cosmetic remodeling/repairs
  • The funds needed for the work on the property is rolled into the loan
  • Available on primary residences for purchases & refinances
  • Work must be completed by a licensed contractor

There are similarities, but definitely note the differences.

Fannie Mae HomeStyle:

  • Available for borrowers (10% minimum downpayment) and investors (20% minimum downpayment) on purchases and refinances
  • Structural repairs/changes/improvements allowed
  • Luxury items such as pools, hot-tubs, fences, etc. allowed
  • minimum repair amount of $5,000 required

FHA 203k:

  • only 3.5% down payment required
  • No minimum repair amount required
  • Available for primary residence purchases & refinances only
  • No structural repairs/upgrades OR luxury items allowed
Who can benefit from either of these loan programs? Anyone looking for a loan program that will allow you to knock out a wall or two OR investors looking for a way to cover remodeling costs OR even someone looking for a way to pay for carpet and paint in their new home.
If this is you, program options are now available! Don’t hesitate to contact me to learn more or get prequalified for either of these great programs.
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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!

Out with the old…

December 31, 2009

… and in with new FHA guidelines. Given the time of year, it seems almost appropriate.  Regarding the new change…

FHA loans now require borrowers to not only have a minimum qualifying credit score to be approved for a loan, borrowers also need to have at least three trade lines (accounts) in their credit history.  The three trade lines must:

  • Trade lines can be a credit card(s), student loan, car loan, mortgage
  • Have at least 12 months of history (current or closed account)
  • If an account is closed, it cannot be closed more than 24 months ago or it will not be counted toward the required three trade lines

Because of this new change, even if a borrower has the minimum down payment (3.5%) and a qualifying credit score (620+), they would still not qualify if the new trade line requirement is not met.

Why would FHA require this? There has not been an official statement, but they could be thinking “if there are only one or two trade lines, is the credit score an accurate score based on the limited history.” Regardless of the reason, this is just one more item to keep in mind when looking to buy a home.

I’ve said this before and I will say it again, planning ahead is key.  Knowing where you stand, how much you can afford, and when it the best time to move forward is essential in this ever changing market.