Real Estate Information Archive

To follow up from my previous post about FHA mortgage limit changes this year, there are some additional mortgage changes to know in 2014. Buyers who are looking to purchase a new Home need to be aware of current changes in mortgage rules in order to choose the loan that is best for them.

One of the biggest changes involves FHA loan limits. The maximum amount of an FHA loan decreased from $729,750 to $625,000 beginning January 1, 2014. A number of counties across the country saw significant decreases, as the loan limits are based upon median home prices in a given area. The expiration of credits given by the Housing and Economic Reform Act of 2008 has resulted in the agency now approving 115% of the median Home Price in a given area as opposed to 125% previously.

The Consumer Financial Protection Bureau (CFPB) now requires lenders to follow an “ability to repay” mandate when approving loans. This new regulation requires that lenders follow a precise set of guidelines when it comes to calculating income, debt and assets. In doing so, they are granting what the government deems to be a “qualified mortgage” in an effort to reduce the number of foreclosures that take place in the future.

Self-employed workers face even more difficulty when it comes to obtaining a “qualified mortgage” than others will. That’s because the new rules make it more difficult for people without a W-2 form to prove their debt-to-income ratio than it is for others. This is true even for those who have extremely high credit scores and a high net worth. It seems that the government is concerned that tax write-offs will reduce the amount of taxable income a person earns, thereby making income statements less accurate than W2 forms.

Some positive mortgage changes stem with new caps placed on loan origination fees. Those who obtain a qualified mortgage are limited to no more than three percent of the loan amount for points and fees charged by the lenders. Unfortunately, there is no cap on origination fees for consumers who do not obtain a qualified mortgage.

As always, buyers should check with their lender to find out about specific changes that are mandatory by a particular institution.

The rules governing mortgages are continuously changing, and it is important for anyone who is considering a new Home purchase to be aware of them. This year, FHA mortgage limit changes in 2014 top the list of new rules, and an overview of the changes are listed below.

Overview

The Federal Housing Administration sets loan limits based upon county. Beginning January 1, 2014, the maximum amount of a loan decreased in 652 counties nationwide, while subsequently increasing in 89 others. There are no FHA mortgage limit changes in 2014 in the remaining 2,493 counties across the country, and loans insured by either Fannie Mae or Freddie Mac will also not be affected.

Nationwide, the maximum FHA loan amount is now $625,500, as compared with $729,750 that the agency allowed in 2013. The amount allowed will depend on the cost of living in a given area. Previously, the FHA allowed loans that were up to 125% of the local area median Home Price, but the decrease now means that lenders can grant only 115% of that amount instead.

Unequally Affected

The decrease is affecting some counties across the country harder than others. The National Association of Realtors® reports that 146 counties have experienced a 20% or greater reduction in loan amounts. U.S. Finance Post states that buyers in cities such as San Francisco, Los Angeles or New York City are more likely to see FHA rates remain higher than those who live in rural areas.

One of the biggest hurdles in Buying a Home is coming up with the required downpayment amount. The zero down payment days are gone and in fact the 3.5% min for FHA loans may be increasing to 6% sometime in the future too.

Want to avoid PMI payments too? Then you will need to put a min 20% of the purchase price down. If you can show you have 20% equity in a property you can request this monthly payment be removed from your lender on both new and existing mortgages.

Back to the downpayment options..... of course some buyers will simply save up their own cash, even if it takes more time. The good news is that there is some help to boost your down-payment savings, there are resources that you can harness to power your home-buying pursuit:

1. The FHA Bridal Registry.  Yes - thst's right! The FHA Bridal Registry Program enables wanna-be home buyers to apply their families’ wedding cash gifts toward their down payments. And although it’s named a “bridal registry” program, you don’t have to be a newly wed to use it. You could also use this program to collect gifts from graduation, the arrival of a baby or some other major life event in which people want to give you gifts.
   
   The FHA Bridal Registry works like a traditional registry, but it's more flexible. The registrants visit their choice of FHA mortgage lenders and set up what essentially is a custodial savings account for the single purpose of funding their down payment. The couple’s (or individual’s) family & friends can either deposit funds directly into this account or give the cash or check to the couple or individual, who can then deposit it into the account. The account’s flexibility also goes beyond that of traditional down payment gift rules that are applicable to FHA loans, which are detailed below in insider secret #2. With the FHA Bridal Registry Program, the only gift documentation required is “lender and borrower certification of the funds.
2. Family gifts.  Most lenders will allow a home buyer to apply gift money from a family member toward their down payment - within guidelines, that is. First, the lender will require a letter from the giver verifying that it's in fact a gift and not a loan. (They generally frown upon it being a loan because it would add to the buyer’s debt and change their debt-to-income ratio.) And second, the person(s) giving you the money must be a relative. The reasoning here is that a friend will most likely expect you to repay the money, whereas a relative won’t. FHA loans will allow the gift to make up any portion and/or all of the buyer’s down payment, many conventional (non-FHA) loan programs will restrict the proportion of a buyer’s down payment that can come from gift money.  The lender may also have specific ways they want to see the money go into and out of your bank or investment accounts. Before you accept a gift toward your down payment, be sure that you check with your mortgage broker or loan rep to be sure that you’re proceeding correctly.
3. Your Employer.  Some companies offer home purchase assistance programs to employees. Most are government, university, large company and financial industry employers. One example is safety workers: in some areas, safety workers like firefighters and police can have access to down payment grants from their employers if they buy properties are located within the city limits where they are on-call as first responders. Also, many large colleges and universities, very large companies and banks & lending institutions offer down payment help and have below-market-rate mortgage rates set up for faculty members and staffers.  Check with your Human Resources or relocation department to see if any such program is available to you.
4. City/County/State Programs.  Some states, counties and cities still offer programs that lend or will give home buyers some assistance for down payments. These programs vary widely in scope - for instance, many target buyers with low and moderate incomes, while some seek to help the buyers of foreclosed or fixer-upper type homes. Some loans don’t have to repaid - meaning they are given as grants and are forgiven entirely if the buyer lives in the property for 10-30 years, but must be repaid if the buyer sells or rents the home out before the specified time period elapses. The programs generally have a homeowner education component that requires applicants to take personal finance and homeownership preparedness classes before they can receive funds. To learn more, visit your city, county and state websites to learn about programs that might be able to help you or contact us using this website submit form below.
5. Your Retirement Funds.  Many financial advisors would advise against this, but if you have a 401K or Roth IRA account and some years to go before retirement, then you might be able to tap into it or even better borrow from yourself against your own funds for your down payment. Currently, you can take up to $10,000 out of a Traditional IRA with no penalty to put toward the purchase of your first home, but you will be taxed.  You can take as much as you want out of your Roth IRA contributions with no penalty or taxes, though, and as much as $10,000 from your earnings penalty-free for use as a down payment.  The rules get a little tricky, here, so definitely check with your tax and financial advisors. 

And while you can’t similarly draw from your 401K, many retirement and pension plans will allow you to borrow the money from yourself against your funds, then repay it to yourself – at interest. So the choice there comes down to paying your lender back with interest or paying yourself with interest. That choice should be be easy.....you! But first, get some advice from your CPA and/or financial planner. Its possible that this option might not make financial sense for your particular situation.

Remember you can view homes using a direct access to the Board of REALTORS MLS inventory to find homes for sale in Ann Arbor by clicking here, or homes for sale in Saline Michigan by clicking here.

When it comes to private mortgage insurance (PMI), there are several myths that exist that make buyers reluctant to consider a conventional loan with PMI as an option when purchasing a Home. One of the more common misconceptions is that cancelling PMI is a difficult—not to mention time-consuming—process.

The irony is that the majority of buyers don’t harbor those same beliefs or reservations about an FHA insured loan when, in reality, FHA coverage may be less easily cancelled, or take longer to cancel, than PMI.

HPA Makes Cancellation Clearer
When it went into effect as a new federal law, the Homeowners Protection Act (HPA) of 1998—which applies to both FHA and PMI insured loans—required lenders and servicers to provide disclosures regarding MI for residential loans obtained on or after July 29, 1999. Prior to this, consumers were responsible for requesting PMI cancellation if they met two factors: one, their loan balance was paid down to 80 percent of the property; and two, they had a good payment history.

While many lenders obliged consumer requests to drop PMI coverage, consumers had sole responsibility for keeping track of their loan balance.

The HPA established three different times when a lender or servicer must notify consumers of their rights.

At loan closing, lenders must disclose:
• The right to request PMI cancellation and the date on which the request can be made
• The requirement that PMI be automatically terminated and the date on which this will occur
• Any exemptions to the right to cancellation or automatic termination
• A written initial amortization schedule for fixed-rate loans only

Each year, loan servicers must send borrowers a written statement that discloses:
• The right to cancel or terminate PMI
• An address and telephone number to contact the loan servicer for determining when PMI may be cancelled

When MI coverage is cancelled or terminated, lenders must send a notification to borrowers stating:
• PMI has been terminated, and the borrower no longer has PMI coverage
• No further PMI premiums are due

Termination of Coverage
Under the terms of the HPA, mortgage lenders or servicers must automatically cancel borrower-paid MI coverage when the mortgage has amortized to 78 percent of the original property value, with all unearned premiums returned to the borrower within 45 days of the cancellation or termination date. This provision also requires that the borrower be current on mortgage payments required by the terms of the loan, and if the loan is delinquent on the date of automatic termination, a lender must terminate the coverage as soon as the loan becomes current.

Cancellation of Coverage
Also under the HPA, a homeowner has the right to request PMI cancellation when the mortgage balance reaches 80 percent of the original property value. All payments must be current, meaning a homeowner must not be 30 days late on a mortgage payment within one year of their request, or 60 days late within two years.

However, a borrower can only initiate a cancellation request for FHA based on their prepayment of the loan, and even then, it can only be requested beginning five years after the loan origination date.

With PMI, homeowners can request cancellation based on prepayment of the loan, as well as an appraisal. Despite falling property values, it’s possible for homeowners to gain enough equity in their home to request cancellation in less than five years based on a home appraisal.

I wanted to give everyone an update on Condo's, both for Conventional loans and FHA loans.  For Conventional loans, nothing has changed much since spring time.  Below is a refresher of what lenders look for to determine if the condo is considered Warrantable or Non Warrantable.  A Warrantable condo allows lenders to go through our "normal channels" of financing.  A Non-Warrantable condo means that certain items are lacking with the complex.  When a condo is Non Warrantable, they do have an outlet for financing, as long as the borrower qualifies.  These are called "portfolio loans" and require higher mean credit scores, greater down payment and higher interest rate.  Basically the lender is holding the paper and not spinning it off to an investor.  I have forms or questionsaires available to help us determine what the condo community qualifies for.  Just ask me if you would like a copy. 

 

Warrantable Condo ALL MUST BE MET - An established project is one in which (a) at least 90 percent of the total units have been conveyed to purchasers; (b) the project is 100% complete (including ALL units and common elements); (c) the project is not subject to additional phasing or annexation AND (d) control of the homeowners association (HOA) has been turned over to the unit owners.

 

IN ADDITION:
1. Less than 15% of the total units are delinquent in paying HOA fees
2. No litigation pending
3. Project does not permit rental - either short term or long term - of the individual units -- i.e. nightly, weekly, monthly or time shares.    There can be non owner occupied units - not to exceed 30% of the total units  
4. No commercial use
5. No hotel/condo-tel reference in the name, legal, etc.
Condo Questionnaire is required on all attached condos regardless of the LTV.
This is directly from FNMA frequently asked questions 12/08 and is in conjunction with the FNMA 08-34 Announcement.

 

FHA Condo's:

 

There has been a lot of discussion about FHA changing their guidelines on condo's.  They have now pushed back there decision until December 7th.  They have yet to decide on their guidelines and I wouldn't be surprised if it were pushed back even longer.  As a reminder, however, Site Condo's are treated as single family residences (SFR) and lenders still allow for Spot Approval's.  Ask me for an FHA Spot Approval Checklist.  All answers must be "yes" for it to qualify for an FHA loan.  Also, other conditions may apply after getting this filled out.

 

Basically a completed community has a much better chance of meeting the quidelines.

The Department of Housing and Urban Development and the Federal Housing Administration (FHA) announce new sales incentives on HUD Homes being bought as primary residences in Michigan.

 

     1.) $100 Down Payment!

            Purchase a HUD Home with FHA-insured financing and put ONLY $100 down!

     2.) Sales Allowance!

            Purchasers using FHA financing will receive $2,500 at closing to use on repairs, closing costs, or to lower their mortgage amount.  Not using FHA financing? You will still receive $1,000 to assist in paying closing costs!

     3.) Available Statewide!

            This offer does not have restricted areas!  All homes, in Michigan, being purchased as Owner Occupied homes are eligible for these special incentives!

 

**Benefits of FHA Financing**

            Flexible Underwriting.

            No minimum credit scores.

            Competitive, often lower, interest rates.

            Government Insured.

Loss Mitigation

Loss mitigation is the terms used by mortgage companies to describe their programs and department that can assist borrowers in bringing their mortgages current.

 

The number one requirement of Loss Mitigation is affordability of the mortgage.  To be able to assist you, the mortgage company must see a budget that demonstrates to them that the income coming into your Home is sufficient to support all of the household bills.

 

When speaking to your mortgage company, ask to speak to their Loss Mitigation Department, which is sometimes called the Loan Counseling Department.  These are the people that have the authority and knowledge to assist you with becoming current on your mortgage.  Request from them a Loss Mitigation Package for your loan.

 

Find out what type of loan you have (i.e. Freddie Mac, Fannie Mae, VA, or FHA).  When you contact your mortgage company, ask them who the investor is on your loan, or if you have mortgage insurance.

 

Options You May Have

 

         Repayment Plan

This is when the mortgage company can take the amount that you are delinquent and add it on to your regular payment, and spread it out over 3-12 months (some mortgage companies will allow longer).

 

         Loan Modification

This is when the mortgage company adds the amount that you are delinquent to the principal balance of your loan.  If they think that it is necessary, then they may consider extending your loan term to 30 years and/or adjust your interest rate.

         Partial Claim

This strategy is used on FHA loans or those with PMI insurance only.  This is when the insurer of your mortgage gives you a loan for the amount that you are delinquent.  This is a non-interest loan that does not require payment until the sale of the home or until you pay off the first mortgage.

For more real estate information, please call Tom Stachler directly at (734) 996-0000 or go to his web site.

SUBJECT:    The FHASecure Initiative

                       

 The Federal Housing Administration is pleased to announce an initiative that will enable homeowners to refinance various types of adjustable rate mortgages (ARMs) that have recently “reset.”  This mortgagee letter describes how lenders and homeowners may refinance mortgages that, due to the increased mortgage payment following the reset, have become delinquent.  The mortgagee letter also reiterates guidance to lenders about making objective decisions regarding the underlying collateral in declining markets. The FHASecure initiative, which is a temporary program designed to provide refinancing opportunities to homeowners and to increase liquidity in the mortgage market, requires that the loan application be signed no later than December 31, 2008.

 

Refinancing Non-FHA Adjustable Rate Mortgages Following Resets 

 

FHA is currently doing a significant business in refinancing non-FHA mortgages for borrowers who are current under their existing mortgage.  This mortgagee letter extends eligibility to borrowers who became delinquent under their current mortgage following the reset of the interest rate. 

 

FHA recognizes that many lenders are engaged in a variety of loss mitigation activities to keep borrowers in their homes, and applauds these efforts.  This mortgagee letter explains credit policies for refinance transactions involving non-FHA adjustable rate mortgages where the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due.

 

These instructions are designed to permit homeowners, who previous to their reset, demonstrated an ability to meet their mortgage obligations, an opportunity to refinance into a prime-rate FHA-insured mortgage.  In many cases homeowners may be permitted to include mortgage payment arrearages into the new loan amount, subject to existing geographical mortgage limits and the loan-to-value limit shown below. 

 

 

 

 

 

Eligibility Highlights of the FHASecure Initiative

 

·        The mortgage being refinanced must be a non-FHA ARM that has reset.

 

·        The mortgagor’s payment history on the non-FHA ARM must show that, prior to the reset of the mortgage, the mortgagor was current in making the monthly mortgage payments, i.e., the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due.

 

• If there is sufficient equity in the Home, under additional eligibility instructions provided below, FHA will insure mortgages that include missed mortgage payments.  

 

·        Under certain conditions explained below, FHA will insure first mortgages where (1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2) either the FHA-approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing if the indebtedness exceeds FHA prescribed LTV and maximum mortgage amount limits. 

 

·        Mortgagees must determine, as part of the underwriting process, that the reset of the non-FHA ARM monthly payments caused the mortgagor’s inability to make the monthly payments and that the mortgagor has sufficient income and resources to make the monthly payments under the new FHA-insured refinancing mortgage.

 

Additional Information About the FHASecure Initiative

 

·        Maximum FHA loan-to-value ratios 

 

The maximum loan-to-value limits are shown below and are applied to the appraiser’s estimate of value, exclusive of any upfront mortgage insurance premium.  

 

Please let Tom know if you need a good lender referral.  Also, if you are wanting to list your home please contact our office at (734) 996-0000.  Or for those who need help with a property search click the link to get started.