Mortgage 101
Mortgage 101
By Walter Neil and Patrick Mahon of Franklin Loan Center
FHA FINANING 2009
What you need to know about FHA, to become a knowledgeable & successful realtor in 2009. FHA loans have accounted for more than 50% of all the buyers in 2008 and here is why.
· Federal Housing Administration
· Primary Residences Only
· Low Down Payments – 3.5%
· 620 Fico Score Required
· Liberal Qualifying DTI Ratios – easy to qualify
· Subsidized Rates – 5%
· 30 Year Fixed Loans
· No Pre-Payment Penalties
· Full Doc Loans
· New Loan Amounts Until the end of 2009 for Riverside county 500K
· Old Max Loan Amount was $355,350.
Gifts Allowed – Down Payment & CC - Family Members Only
Non-Occupant Co-Borrowers Allowed – Co-Signer - Family Only
· Co-Signer can help with Income & Assets only – Not Credit!
· No Qualifying for Monthly Mortgage Insurance & Subsidized Premiums – Required
o $250,000 LA x .55% = $1,375/Year / 12 = $114.58/Mo
o Not to be confused with Upfront Mortgage Insurance Premium (MIP) Required
o $250,000 LA x 1.75% = $4,375
· This Fee is financed into the Base Loan Amount – creating the Note Amount or $250,000 + $4,375 = $254,375
· Seller cannot pay this fee for the Buyer – but borrower can pay it themselves if they don’t want to finance it. This never happens. Diff. $23
· Seller can pay up to 6% of the Sales Price – towards the buyers recurring & non-recurring CC. - SP $259,000 x 6% = $15,540
· Recurring Fees – Interest, Property Taxes, and Insurance ( Impound Acct )
· Non-Recurring Fees – Lender Fees, Escrow, Title and Appraisal.
Impound or Escrow Accounts are required on all FHA Loans!
· 1st Yr Fire Ins. Premium + 2 Months Reserves
· Property Taxes – Depends on time of year
Non allowable Fees to be paid by buyer – Tax Service $82 – That’s It.
· FHA has Minimum Standard Home Requirements - Property Deficiencies
-Too many to name them all – but some common deficiencies are:
No AC, or AC that blows cold air, No Stove, Any safety hazard, like broken windows, exposed wires, pool half filled, or standing green water. No toilets or fixtures throughout house.
203(K) FHA Rehab Loans – Include the costs to fix deficiencies in the loan.
· Must have a minimum of 5K of hard costs, not cosmetic.
· Borrower must advance $$ upfront for repairs and get reimbursed by bank later.
· Maximum amount of repairs to be financed is 50% of sales price or 35K Max, or which ever is lower.
· Rehab work must begin in 30 days & be finished within 6 months.
· 45 days to close – minimum – prepare your clients for a challenge.
You Might Not Know
· All Borrowers must provide a copy of their SS Identification Cards
· Non-Traditional Credit is no longer available – must have a credit score
· FHA will not finance a home that was purchased in the last 90 Days – Flip Rule
· Household debt for both spouses must be counted regardless of who is on the loan.
· Cannot have more than 1 FHA loan at a time – except for a few exceptions. Relocating & Medical Reasons.
· Co-Sign debts, will only be ignored if the liability is ion both names, and documented with CxC.
Loan Types & Loan Amounts
Traditionally there are only 2 Categories/Buckets when dealing with loan amounts, but with today’s legislation and stimulus packages we have temporarily created 3 Categories/Buckets until the end of 2009.
Bucket 1 – Conforming Loans or Fannie & Freddie
Loan Amounts $75,000 - $417,000
Bucket 1.5 – Conforming High Balance or Fannie & Freddie – Temporary
Loan Amounts $417,001 - $500,000
Bucket 2 – Jumbo Loans or Non-Conforming
Loan Amounts $500,001 & Higher
Bucket 1
· Best Rates – 4.75% @ 1pt 30 Yr Fixed
· Lowest Down Payment Requirements - 5%
· Lowest Fico Scores Required - 620
· Most Liberal Qualifying Guidelines
· Best Product Selection
Bucket 1.5
· Next Best Rates – 5.250% @ 1pt 30 Yr Fixed
· Higher Down Payment & Fico Requirements
Bucket 2
· Higher Rates – 6.5% @ 1Pt Fixed Rates
· Minimum 20% Down Payment
· Higher Fico Scores Required – 680
· Conservative Qualifying Guidelines
Occupancy & Down Payment
Primary Residence
· USDA – 100% Financing
· VA – 100% Financing
· FHA – 3.5% Down
· Conventional – 5% Down ( MI Restrictions )
· Conventional High Balance - 10% Down
· Jumbo – 20% Down
Second / Vacation Home
· Conventional & High Balance – 20% Down
· Jumbo – 25% Down
Investment Property / NOO
· Conventional & High Balance – 20% Down
· Jumbo – 25% Down
Mortgage Insurance (MI)
· Only available on Primary Residence
100% Financing (That’s Correct – It Still Exists)
1) USDA Rural Housing Development Program
USDA – U.S. Dept. Of Agriculture
· Program Qualifications & Highlights
· The Two Requirements to qualify are Property’s Address & Borrowers Income
· To find property eligibility you can go to this website http://eligibility.sc.egov.usda.gov
· Most common areas of interest for us are DHS, Coachella, Thermal, and some parts of Indio.
· Income Limits:
· 1-4 Persons $70, 750
· 5-8 Persons $93,400
· Primary Residence Only
· Low Fico Scores – 620 – Exceptions Made
· No MI
· Liberal Qualifying Ratios
· Gifts Allowed
· No Reserves required
· Great Rates – 5%
· Full Documentation
· No Limit to Seller Contributions
· No Co-Signers Allowed
· No Maximum Sales Price or LA – income limits will determine
· 30 Year Fixed Only
· Maximum Loan Amount 102% - 2% Upfront Fee
· Loan can include CC if Appraisal exceeds the Sales Price
· No Pools allowed
· Write up your purchase contracts on these deals exactly the same way you would on any other deal that has bank financing. Nothing special, no fees required to be paid by seller.
2) VA Loans
· Must be a Veteran & Qualify (Eligibility)
· Primary Residence only
· Good Credit Required – 620 Min.
· No MI
· Funding Fee 2.15% or Higher – Financed
· No Co-Signers
· 6% Max Seller Contributions
· Great Rates – 5%
· Full Documentation
· Appraisal Process is Slow
· Buyer is not allowed to pay certain fees on this loan program. Such as… Escrow Fees, etc.
Canadian Financing - Black & White
· 30% Down
· Minimum Loan Amount $200,000
· 5 Year Fixed Balloon @ 6.5%
· 25 Year Amortization
· 2nd Homes Only – Not Investment Properties
· Full Documentation
· No Pre-Payment Penalties
Reverse Mortgage – Refi or Purchase
Qualifications
1. Age
2. Equity
· 62 years or older
· Equity in home to Refi or down payment for purchase-gift
· Max Loan Amount $625,000
· Down Payment 50%
Misconceptions
· You Loose Title Your Home and any Future Appreciation – Not the Case
· I don’t want to be responsible to pay off the mortgage for my parents - Non-Recourse loan - never owe more than what the home is worth.
FANNIE MAE HOMESTYLE LOANS
Homestyle Loan Program is a rehabilitation loan like the 203K loan for FHA, that allows the cost of renovations to be financed into the loan amount, except with one major difference, this product can be used on 2nd homes, and investment properties.
· 30 & 15 Year Fixed Products Only.
· Primary – 5% Down.
· 2nd Home – 20% Down.
· Investment Property – 25% Down.
· Maximum Renovation costs are 50% of the “as completed” value of the property.
TIDBITS
1. Fannie / Freddie still limit the amount of financed properties you can have. When buying a primary residence you are limited to 10 financed properties. When buying a 2nd home or an investment property you are limited to 4 financed properties.
2. Buying a new Primary Residence, and want to rent out your current home to help you qualify, not so fast.
FHA requires 25% Equity to count rent on existing home
Fannie / Freddie requires 30% Equity
3. Want to refinance you home? Home better not have been on the market in the last 6 months!
4. Never put in a purchase contract a credit for repairs to be done after the close of escrow, only CC credits can be used on contracts.
5. Appraisal Issues – non permitted square footage, lenders won’t give any value to it. Make sure public record matches your listings.
For any other questions, comments or concerns please feel free to contact
Walter Neil at (760) 779-8137
WNeil@Franklinlc.com
Patrick Mahon at (760) 779-8100
PMahon@Franklinlc.com
www.FranklinLoanCenter.com
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