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FHA LOANS

Everything You Wanted to Know to Secure 100% and HIGHER Financing for Your Clients in a Declining Market but Were Afraid to Ask — Including 2nd Homes & Investment Properties!!!. FHA LOANS. WHAT IS FHA?. Federal Housing Administration (division of HUD)

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FHA LOANS

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  1. Everything You Wanted to Know to Secure 100% and HIGHER Financing for Your Clients in a Declining Market but Were Afraid to Ask — Including 2nd Homes & Investment Properties!!!

  2. FHA LOANS

  3. WHAT IS FHA? Federal Housing Administration (division of HUD) Any and all changes are legislated-no major changes can be made without going through Congress Insures/endorses loans – does not purchase them Pays lender if borrower defaults

  4. WHO CAN DO FHA LOANS? • Only originators with FHA – Approved Company • Approval is difficult • Must have audited financial statements • Quality Control Plan • Store Front Operation

  5. IT’S THE GOVERNMENT! • They are so busy they are not even answering the phone in their lender – approval department • 60 days behind on opening their mail • Pays for itself – doesn’t use taxpayer money • Funded through the Mortgage Insurance Premiums (1.5% up front, .5% per month)

  6. FHA MORTGAGE LIMITS • Walton County - $362,790 • Okaloosa County - $312,500 • Bay County - $396,250 • Higher limits for 2-4 family residences (Great rates - buyer must occupy one of them!)

  7. REASONS NOT TO USE FHA FOR A BUYER • FHA loans are for owner-occupied, primary residences only • Buyer must occupy the property within 60 days of closing and use for primary home for at least a year • Highly enforced

  8. MORE REASONS NOT TO USE FHA • Full-doc loan – have to verify income for 2 years • Files are much thicker due to additional documentation required • Always has mortgage insurance for at least 5 years even with 20% or more down

  9. FHA IS FILLED WITH GOVERNMENT RULES, EXCEPTIONS, AND EXCEPTIONS TO THE EXCEPTIONS

  10. FHA IS OFTEN THE BEST FOR YOUR CLIENT • Assumable loan – new borrower has to qualify • Geared for borrowers with little to no money • No prepayment penalty • Better rates, especially for higher LTV’s • Very little risk-based pricing • Lower monthly MI for higher LTV’s • No hit for declining market!

  11. FHA APPRAISALS AND UNDERWRITING • Processing has been streamlined • Automated underwriting • Appraisal requirements have been greatly relaxed • Some minor repairs no longer require automatic repair in order to close

  12. FHA AND CREDIT • Far more lenient than FNMA or FHLMC and MI companies • 500 minimum score if financing above 90% • No minimum if less than 90% (although almost impossible to find investors taking credit scores less 580!) • Rate is not increased for lower credit score – everybody is equal • Can use alternative credit – 3 trade lines, one of which is housing related • Can do an FHA loan 2 Years after a Chapter 7 Bankruptcy (1 year under extenuating circumstances) • In many cases, collections are not required to be paid off prior to closing 580

  13. HOT FEATURES OF FHA • 3% down payment • Source of funds – 6% seller concessions • All funds can be gifted • No reserve requirements • 2nd loan from immediate family okay • Cookie jar or mattress money okay! • Can use down payment assistance (seller can help with this) to get 100% financing

  14. EVEN HOTTER FEATURES • Non-occupant co-borrowers can be used • Neither income nor assets from the occupying borrower are required if non-occupant co-borrower used • 95% cash-out refinance even in declining market (must be owner-occupied for the prior 12 months to do this) • No income limits • With lower credit scores, in some cases payment is lower than Fannie or Freddie even with over 20% down • Seller not *required* to pay any of the closing fees anymore!

  15. NEW RULES – JULY 14, 2008 • Risk based MI, but not rates • FHA Secure is expanded – will no longer have to be delinquent to qualify

  16. POSSIBLE CHANGES, DEPENDING ON LEGISLATION • New loan limits are set to expire on December 31, 2008 • Back to how it was before • FHA Secure expires December 31, 2008 • FHA Modernization Act (HR1872) – passed the house 9/18/07 – up to 100% financing available • Senate Bill – passed 98.5% max financing and increase loan limits permanently

  17. QUESTIONS?

  18. VA LOANS

  19. WHAT IS VA? • The Department of Veterans Affairs • Government regulated and endorsed • Government guarantees portion of loan

  20. WHO CAN DO VA LOANS? • Only originators with VA –Approved Company

  21. VA MORTGAGE LIMITS • $417,000 for 2008 ($625,000 for Hawaii, Alaska, Guam & Virgin Islands) • Only U.S. properties, it’s territories or possessions

  22. WHO QUALIFIES FOR VA? • Retired U.S. Veterans with Certificate of Eligibility • Active Duty with proof of military service • Unmarried surviving spouse of veteran deceased from service-related death

  23. VA UNDERWRITING • Automated Underwriting • Flexible Manual Underwriting • Speedy process because most information for eligibility can be obtained online

  24. VA & CREDIT • Rates are typically lower • No minimum score requirement for eligible veterans • Most lenders/investors will require a minimum 580 • Rate does not increase/decrease because of credit score • Can be approved for VA 2 years after Chapter 7 Bankruptcy (1 year in extenuating circumstances) 580

  25. REASONS TO NOT USE VA • VA loans are owner-occupied only • Buyer must occupy the property within 60 days of closing and use for primary home • Remarried spouse of deceased veteran is not eligible • Full-doc loan requirements

  26. HOT FEATURES OF VA LOANS • Negotiable interest rates • All funds can be gifted • No Monthly MI • No down payment unless required by lender • Reduced fees if put 5% down • Able to finance funding fees into the mortgage • May use non-veteran 2nd party income to help qualify (only the veteran’s portion is secured)

  27. QUESTIONS?

  28. RURAL DEVELOPMENT

  29. WHAT IS RURAL DEVELOMENT? • Census-based • US Department of Agriculture • Guaranteed against loss by USDA • Pays lender if borrower defaults

  30. WHO CAN DO USDA LOANS? • Approved lender with HUD, VA, Fannie Mae or Freddie Mac • State Housing Agency • Farm Credit Service

  31. IT’S THE GOVERNMENT, TOO! • Pays for itself – doesn’t use taxpayer money • Funded through the 2% Funding Fee (which can be financed into the loan!)

  32. LOAN PURPOSE • Purchase new construction • Purchase existing home • Refinance (only if currently have a direct Rural-Development Loan) • Purchase Mobile Home (very limited; difficult)

  33. REASONS TO NOT USE RURAL DEVELOPMENT FOR A BUYER • Geographical Limitations • Maximum Income limitations • Can’t buy house with in-ground pool • Owner-occupied only

  34. INCOME QUALIFICATIONS • Household adjusted annual income cap uses ALL occupants whether on the loan or not, that are 18 and over • Counts gross income, overtime, commission, bonuses, net self-employment income, Social Security, Child Support, unemployment, etc. • Based on family size & county where property is located • http://eligibility.sc.egov.usda.gov

  35. ADJUSTMENTS TO INCOME • $480/Year per minor or full-time student • Verified child care expenses • $400/Year if borrower or co-borrower is over 62 or disabled

  36. * Broward, Pinellas and Monroe are NOT eligible

  37. GEOGRAPHICAL QUALIFICATIONS • ALL of Walton County • Destin • Niceville • Valparaiso • Crestview • West of Hurlburt in Okaloosa County • ALL of Santa Rosa County

  38. GEOGRAPHICAL LIMITATIONS FT. WALTON BEACH & SHALIMAR DO NOT QUALIFY* (But we have a program that does!)

  39. BENEFITS TO BUYERS • Can finance 102% of appraised value, without getting cash back at closing (can get EMD, but no more) • No Mortgage Insurance • 30-Year fixed rate with very competitive rates • No loan limits (DTI/income limitations) • Closing costs can be financed • Unlimited gift or seller contributions • No reserves required

  40. Sales Price: Appraisal: Seller Paying:EMD:Closing/Prepaids2% Funding Fee: $100,000 $110,000 $0 Closing Costs $500 $3,000/$2,000 $2,000 Can Finance: $107,000 and get $500 EMD back

  41. Sales Price:Appraisal:Seller Paying:EMD:2% Funding Fee: $100,000 $105,000 ALL Closing/Ppds. $500 $2,000 Can Finance: $102,000 and get $500 EMD back

  42. QUALIFYING • Debt to Income Ratios = 29/41 • Debt to Income Ratios = 31/43 (for homes built after January, 2001) • Can go higher on DTI w/compensating factors: • 660+ Credit Score • Zero or little payment shock • 2+ years continuous employment at same job • Rental/Housing history for 12 months required if credit score 619 or less (cancelled checks)

  43. OTHER CRITERIA • Do not own a dwelling currently • Lack sufficient resources to secure conventional credit • US Citizen, Permanent Resident, Resident Alien, or Qualified Alien • Have legal capacity to enter contract • Primary Residences Only

  44. PROPERTY ELIGIBLITY • Must have access from a street, road or driveway • Site value less than or equal to 30% of total value • Leasehold estates (where applicable)

  45. OTHER PROPERTY REQUIREMENTS • If on a well & septic, must be tested and meet county requirements • Pest inspection required – deficiencies must be corrected • Escrow for repairs under certain limited circumstances and will be 150% of cost • New construction – must have warranty

  46. FUNDS AVAILABLE • RD Has annual amount of funds (ends Sept. of current year) • Funds must be reserved by the lender but can’t be until there is a contract • Reservation is valid for 60 days • Have been known to run out before end of fiscal year (not recently)

  47. QUESTIONS?

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