With FHA’s Mutual Mortgage Insurance Fund capital ratio below its congressionally mandated threshold, FHA proposed a series of risk management initiatives aimed at tightening the fund’s criteria. In a notice published in the Federal Register, FHA said it would propose the following changes it said would tighten only those portions of its underwriting guidelines “that have been found to present an excessive level of risk to both homeowners and FHA:” • FHA proposes to reduce the amount of closing costs a seller may pay on behalf of a home buyer purchasing a home with FHA-insured financing for the purposes of calculating the maximum loan amount. HUD said this proposed cap on ‘‘seller concessions’’ will “minimize FHA exposure to the risk of adverse selection.” • FHA proposes to introduce a credit score threshold as well as reduce the maximum loan-to-value for borrowers with lower credit scores, who HUD said represent a “higher risk of default and insurance claim.” • FHA said it will tighten underwriting standards for loan transactions that are manually underwritten. “These transactions have resulted in high insurance claim rates and present an unacceptable risk of loss,” FHA said. HUD noted that the MMIF “remains financially sound” and that the proposals are designed to “preserve both the historical role of FHA in providing home financing during periods of economic volatility and HUD’s mission of helping under-served borrowers.” Source: Mortgage Bankers Association of America Read More »
FHA 203k in a Nutshell Without a doubt the FHA 203 series loan programs are among the best products on the market for buyers with unconventional needs, either due to less than perfect credit, because of a shortage of down payment capital, or due to a need to gain additional capital for necessary upgrades, repairs, or enhancements. Among the 203 series packages available from the FHA is the 203k loan. This loan product provides certain perks which differentiate it from other products in its class. Chief among these is the ability to receive, via an escrow account, access to a line of credit (up to $35,000 in some instances) for repairs and enhancements. This can be very advantageous for new homeowners as homes needing repairs are often priced well below comparable units in the same market. A few stipulations do apply however. The home to which an FHA 203k loan will be applied must be legally habitable according to the guidelines in the state of purchase at the time of closing. To satisfy this requirement some savvy buyers successfully arrange for the seller to handle any legally required repairs needed to make the property suitable for habitation, as part of the purchase agreement. Sellers with a "fixer-upper" are often quite motivated to satisfy any reasonable requirements to secure a sale. Another key benefit is that the FHA 203k, like most other FHA loans, is not credit-based in the same sense as most conventional loans. The FHA 203k qualification process ignores FICO scores (the basis for most other loan qualifications in the marketplace) and focuses more on previous mortgage (or rent) payment history and banking history. Lenders participating in the program follow the Federal Housing Authority's qualification guidelines which allow for individuals or families not otherwise able to purchase property to do so at very competitive rates. Key ways that potential candidates can prepare for the program include, but are not limited to the following: 1) Pay your rent or current mortgage on time for at least a year before applying for an FHA 203k insured loan. 2) Avoid any overdraft charges or negative balances on both your checking and savings accounts for at least a year prior to applying. 3) Order a copy of your credit report and be prepared to pay off any outstanding judgments or collections on your credit report if your FHA 203k approved lender requires you to do so. The FHA 203k program is a wonderful opportunity for prospective homeowners willing to take on properties with aesthetic or structural challenges. Read More »
If you are thinking about purchasing a fixer-upper or if you are currently living in a home that needs work, you may be considering your options for financing the costs of the repairs. With the current state of the real estate market, many lenders have considerably tightened their underwriting requirements, making it more difficult to qualify for a conventional home improvement loan than before. Even if you find a lender who is willing to loan you the money needed to fix up your home, these loans are typically more expensive than most mortgage loans, and you will have two monthly payments to keep up with. You may be surprised to learn that the FHA has programs available to help homeowners and prospective homeowners make the necessary repairs to their homes. Many people may already be familiar with the FHA’s program that helps insure mortgages for homebuyers who may be otherwise locked out of traditional homeownership opportunities. But the FHA can also help people who need to rehabilitate their property. The Section 203(k) program allows homeowners to purchase or refinance a property and finance all of the repairs using a single mortgage loan. One portion of the loan will go towards the purchase of the refinance, and the remaining amount will be placed in an escrow account and released as the work is completed. In order to be eligible for this program, the property being financed has to be at least a year old and you must intend on using the property as your primary residence. 203(k) loans can be used to finance 1-4 family homes, condos, townhouses or manufactured homes. The total cost of the repairs has to be at least $5,000 but cannot exceed $35,000. Repairs eligible for financing under this program include, but are not limited to, structural repairs, remodeling, flooring, plumbing, painting, HVAC work, landscaping, installing new siding and upgrading the home to make it more energy efficient. Even complete renovations and restorations for demolished properties are eligible for financing as long as the existing foundation remains in place. It is also important to keep in mind that the total amount being financed (including the amount of the repairs) cannot exceed the maximum FHA loan limit for your area. If your property only needs minor rehabilitation work, the FHA Streamlined (k) Limited Repair Program may be a better fit for your needs. The FHA unveiled the Streamlined (k) program in 2005 to help people who need to perform minor repairs to their property. Streamlined (k) loans good option for people looking to purchase a home whose pre-purchase inspection indicates that the property needs a little work. Major repairs such as complete renovations, structural repairs and room additions are not eligible for financing under this program. Since Section 203(k) and the Streamlined (k) Limited Repair Program are insured by the FHA, it is relatively simple to qualify, even if you have less than perfect credit. As with all FHA loans, a minimum three percent down payment is required. To learn more about FHA rehabilitation loans, you should contact an FHA approved lender in your area. Read More »
Most consumers understand that owning a home is a great tax shelter. But most consumers do not understand how great these benefits can be. This report will outline some of the major tax benefits of owning real estate. Indeed those who don’t take advantage of these benefits are missing out on the great government give-away! The deduction of mortgage interest and property taxes. A homeowner can deduct the interest on their primary residence and second home up to a million dollars in total debt. You can deduct property taxes on all homes you own. You can also deduct up to $100,000 in home equity debt, regardless of your use of the money. In the vast majority of the states the homeowner will receive a deduction on their state income taxes as well. What does this mean to a typical homeowner? Simply put, the cost of a mortgage is much less than the cost of the monthly payment. For example, if the homeowner is in a 33.0% tax bracket and they are paying $3,300 monthly on their mortgage and $3,000 of this payment is comprised of interest and taxes, the payment after taxes is actually $2,300. Also, do not forget that the principal portion of the payment is a forced savings account that builds up equity as well. So more than ninety percent of the payment can be working to help your financial situation. The $2,300 payment “after taxes” is actually the rental equivalent. For this person, a payment of $2,300 in rent is the same as a $3,300 mortgage payment. How to Pay Less Taxes... 1. Deduct mortgage interest and property taxes 2. Exclude your gain on sale 3. Write off home offices 4. Write off rental losses The Sale of your home may be tax free. If the home has been your primary residence for the past two out of five years, you can exclude up to $250,000 in gains ($500,000 for married couples). So you get to keep the equity you built-up through appreciation. And you can use this exclusion again and again, every two years. Try doing that after you make money in the stock market! The home office. If you use an office in the home, you can deduct the value of the home through depreciation (as well as other expenses such as insurance) in the same percentage as the square footage of the office. For example, if the office is 15.0% of the total home, you can depreciate 15.0% of the value of the home, excluding the lot. When you lower the value of the home through depreciation you still can exclude the gain after selling the home from the lower cost basis. Owning rental properties. If you convert your present home to a rental or purchase a rental property, you can deduct any loss on the rental as long as your income does don’t exceed $125,000 annually. And even if your cash flow is positive, there may be a loss because you can depreciate the value of the property. It is interesting that you can depreciate the value of homes that actually appreciate over time. What a concept! We challenge you to find comparable tax benefits with any other investment. A house is a very important shelter but can be an even more significant tax shelter. Those who don’t take advantage of this are giving back the greatest gift our government ever gives us... Read More »
According to the United States federal government, the Federal Housing Administration (FHA) is a government program administered by Housing and Urban Development to help those Americans who would like to purchase a home but are unable to qualify for a traditional mortgage. These federally insured loans, known as FHA loans, have never been easier to obtain and with the housing and economic crisis that is facing America today, an FHA loan would prove to be most beneficial as an alternate, yet sound course of action for any lender to utilize. FHA loans of course have certain guidelines, as with any lender, but their guidelines allow a lot more flexibility than traditional lending institutions. For instance, FHA loan requirements allow an individual to claim their employment, unemployment income, retirement and social security benefits, alimony, child support, and even rent income that the applicant may be receiving from a relative; as their source of income. What this does is allow the applicant to make their debt to income ratio percentage much more appealing to a lender than if the applicant were to be allowed only their employment as a source of income. In addition, FHA loans typically require no credit or a low credit score of 580 in order to qualify for a loan, also unlike traditional lenders, which require 650 or better. The Housing and Economic Recovery Act of 2008 opened the door for FHA guidelines to be a little more flexible by lowering certain restrictions of FHA insured loans, while increasing loan limits. The development of this Act provided American consumers with a contingency plan in order to not only obtain a loan but a realistic possibility of a fulfilling their dream of being a homeowner. As the economy and housing market of America continues to struggle out of the crisis state it is presently in, lending institutions, as well as realtors and consumers need to be aware of alternate courses of action in order to invest monies back into the economy. The lending institutions and mortgage brokers could obtain one such investment by utilizing the more readily obtained FHA federally insured loan and investing in America’s consumer and the housing future. Read More »
FHA Mortgagee Letter 2010-20 issues guidance on new rule published April 20 regarding FHA approval of lenders and brokers. The letter addresses increased Net Worth for lenders in order to be approved for FHA lenders. The letter sets out a schedule that includes: • Phase I: Effective 5-20-10, all new applicants must have net worth of $1 million. Effective 5-20-2011, all presently approved applicants must have net worth of $1 million, except small businesses which have requirement of $500,000. • Phase II, those approved after 5/20-10 also must have a net worth of 1% of the total volume of FHA loans in excess of $25 million. Correspondent brokers already approved to originate FHA loans will continue to be approved through 12-31-10. All brokers that are required to renew between 3-31 and 5-20 of 2010 must submit renewal application. Correspondents with a fiscal year ending prior to 12-31-09 must have submitted audited financials, and annual certification fee. Those with Fiscal Year ending 12-31-09 or later, FHA will use previous year’s financials, but still must submit application and pay annual certification fee. After 12-31-10 all previously approved brokers must establish sponsorship relationship with approved lenders. No new applications for brokers will be accepted after 5/20/10. All non-approved brokers can originate and process and submit to approved lenders for underwriting and approval after 5-20-10. Source: Federal Housing Administration Read More »
On Thursday, June 10, the House of Representatives passed a bill designed to shore up the finances of the Federal Housing Administration (FHA). The FHA mortgage insurance program has become crucial to the housing market in the last several years as conventional alternatives have become more difficult to obtain. The FHA does not actually fund mortgages, but insures mortgages against default. The FHA requires only a minimal down payment (3.5 percent), and is a major source of financing to first-time home buyers as well as those who have low-to-moderate incomes. The bill would make two major changes to the way the FHA does business: it would give the FHA discretion to change mortgage insurance premiums, and would allow the FHA to protect itself against poorly underwritten loans by permitting it to include indemnification clauses in it contracts with lenders. The FHA currently charges lenders a mortgage insurance premium of 0.55 percent for minimum down payment, 30 year fixed mortgages. The new legislation allows the FHA to increase this amount to 1.5 percent if they so choose. FHA has indicated that they intend to raise the monthly premium to the .85 to .90 range, however, they also had indicated that they would lower the up-front premium which is currently 2.25%. The additional charges are intended to rebuild the FHA’s capital reserves which fell to 0.53 percent of the total number of FHA loans. By law, the FHA is required to keep capital reserves equaling 2 percent of the mortgages they insure. Mortgaged defaults have consumed much of the FHA’s capital reserves and has stoked fears that taxpayers would need to bail out the agency. Under the new law, the FHA would be able to deny FHA access to mortgage originators who issue too many bad loans, and will also allow the FHA to deny insurance payouts to defaulted mortgages that were found to be poorly underwritten. It is possible that this provision would cause FHA mortgages to be received less favorably in the secondary markets, which would raise the cost of FHA mortgages to the consumer. The bill now goes to the Senate for consideration. Among proposals expected to be voted upon will be an attempt to increase the minimum down payment to 3.5% as well as lowering the maximum loan amount which currently is over $700, 000 in high cost areas. Read More »
First-time homebuyers looking to land an $8,000 federal income tax credit may have a little more time to close on their purchases if a Senate amendment unveiled Thursday makes it into law. As it stands now, homebuyers must have signed contracts by April 30 and must close the deal by June 30. They could be eligible for an $8,000 tax credit if they are first-time buyers or a $6,500 credit if they owned and lived in their previous home for five of the last eight years. The closing deadline, however, could be pushed back to Sept. 30 under an amendment offered by Senate Majority Leader Harry Reid, D-Nev., Sen. Johnny Isakson, R-Ga., and Sen. Chris Dodd, D-Conn. The senators said they want to make sure banks have time to process the transactions, especially short-sales, which is a more involved process. "By extending the transaction deadline, we can ensure that everyone taking advantage of this credit can complete the purchase of their new home, Reid said. It remains to be seen, however, whether the amendment will go anywhere. It’s part of a controversial jobs and tax bill that may be radically changed before the Senate approves it. Lawmakers are not scheduled to vote on the bill until next week at the earliest. Source: CNNMoney.com Builders, designers, and architects say now is a great time to build a new custom home or remodel an existing one. Not only are there plenty of unemployed and under-employed workers available, but also property is for sale at bargain prices and construction materials are at bargain levels. "It makes a lot of sense right now," said Stephen Melman, director of economic services for the National Association of Home Builders. "People are available to do the work. They are going to bid competitively so I’m sure that will drive the price down." The only problem could be financing, which can be hard to arrange. Source: Investor’s Business Daily The vast majority of potential home buyers – 87 percent – plan to use a Federal Housing Administration home loan to finance their purchases, according to a new survey from the Home Buying Institute, a consulting service. In a survey of 12,000 home shoppers consisting of two-thirds first-time buyers, nearly 54 percent said they preferred an FHA loan because it requires a small down payment. The remainder chose an FHA loan for these reasons: 19.2 percent thought the qualification process would be easier; 13.5 percent said they didn’t think they could qualify for a conventional loan; 7.7 percent said they had bad credit; 5.8 percent said their income was too low to qualify for a conventional loan. Source: Home Buying Institute Read More »
The Federal Housing Administration (FHA) published new regulations on April 20, 2010 to further reduce and better manage risks to its insurance funds as it continues to play a critical role in today’s housing market. The regulations will increase the net worth requirements of FHA-approved lenders, strengthen lender approval criteria, and make lenders liable for the oversight of mortgage brokers. “These changes support quality mortgage lenders while excluding organizations that are ill-equipped to handle the risk associated with market variations,” said FHA Commissioner David H. Stevens. “That is particularly important now when a robust, competitive mortgage finance market is a crucial element in rebuilding the American economy. Lenders bear the overall risk of FHA-endorsed loans, therefore it makes sense for them to approve their counterparties and have sufficient capital to operate.” On September 18th 2009 Stevens announced a set of credit policy changes that enhanced FHA’s risk management function, including the hiring of a Chief Risk Officer for the first time in the agency’s 75-year history. In addition, Stevens announced his intent to propose new regulations to further strengthen FHA’s risk management. The final rule makes good on that promise and will:
The President has announced a new FHA program which will provide additional refinancing options to homeowners who owe more than their home is worth. This program will provide an option for qualifying homeowners to be refinanced into a FHA loan as long as they are current on their mortgage and their lender reduces their total mortgage debt by at least 10% of the loan amount. The new FHA loan will have a balance closer to the current value of the home–giving homeowners a path to regain equity in their homes and an affordable monthly payment. Total mortgage debt for the borrower after the refinancing cannot be greater than 115% of the current value of the home–including both first and any other mortgages. The homeowner must be current on their present mortgage and must occupy the home. Detailed guidelines will be announced by an FHA Mortgagee Letter in the near future and the program is expected to be available in the fall. As it is voluntary for lenders to participate, FHA has indicated that lenders will notify present homeowners who are eligible for this new program after the guidelines are released. Read More »
FHA has recently released a letter that revises the validity period for appraisals utilized to establish the listing price on HUD’s Real Estate Owned (REO) properties. All appraisals utilized to establish the listing price on an REO property owned by the Department of Housing and Urban Development, with an effective date on or after April 1, 2010, will be valid for a period of 120 days from the effective date of the appraisal. If the buyer is financing the purchase with a Federal Housing Administration (FHA) insured mortgage, a valid HUD REO sales contract must be ratified within 120 days of the appraisal effective date. Previously the appraisals were valid for a period of six months. In addition, the letter also announces conditions for which a second appraisal may be ordered for purchasers of REO properties utilizing FHA financing. Effective with release of the letter, when a buyer is using FHA financing to purchase a HUD REO property, the appraisal that was utilized in determining the list price will remain effective for purposes of obtaining the FHA-insured mortgage. A second appraisal may not be ordered simply to support a purchase price that is higher than the value on the current appraisal. A second appraisal can only be ordered to support a higher sales price if there are material deficiencies with the current appraisal or the current appraisal will not be valid on the date of contract ratification. Read More »
In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, FHA has announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. "As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers," said Donovan. "FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization." With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties. This policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities. The waiver takes effect on February 1, 2010 and is effective for one year. To protect FHA borrowers against predatory practices of "flipping" where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions: • All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction. • In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets specific conditions. • The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (Reverse Mortgage). Read More »
Late in 2009, Congress extended the $8,000 tax credit designed to be an incentive for first-time homebuyers to purchase a home for their principal residence. In addition, the same legislation expanded the credit to include move-up buyers at a maximum of $6,500. The revised tax credit applies to purchases on or after November 6, 2009 and before April 30, 2010. Those who sign a sales contract by the April 30th date must close by June 30, 2010. Below you will find information that will help you determine your eligibility and how the tax credit may help you. What is the homebuyer tax incentive? The credit is 10% of the home’s purchase price, up to $8,000 for first time buyers and $6,500 for move-up buyers. No repayment is required. To qualify, the home must be less than a $800,000 purchase price. Who is eligible? First-time homebuyers are eligible for the $8,000 credit. A person is considered a first-time buyer if he/she has not had any ownership interest in a home in the three years previous to the day of the purchase. Move-up buyers are eligible for the $6,500 credit. Move-up buyers must have resided in their homes for five out of the eight previous years. How does a tax credit work? Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax return, a person has a total tax liability of $9,500, an $8,000 credit would wipe out all but $1,500 of the tax due. What happens if the purchaser is eligible for an $8,000 credit but his/her income tax liability is only $6,000? This tax credit is what is called a “refundable” credit. Thus, if the eligible purchaser’s total tax liability was $6,000, the IRS would send the purchaser a check for $2,000. The refundable amount is the difference between the $8,000 credit amount and the amount of tax liability. Is there an income restriction? Yes. Individuals filing Form 1040 as Single (or Head of Household) are eligible for the credit if their income is no more than $125,000. Married couples who file a joint return may have income of no more than $225,000. Do individuals with incomes higher than these limits lose all the benefit? The credit phases-out between $125,000 - $145,000 for singles and $225,000 - $245,000 for married filing jointly. The closer a buyer comes to the maximum phase-out amount, the smaller the credit will be. The law provides a formula to gradually withdraw the credit. What’s the definition of “principal residence?” Generally, a principal residence is the home where an individual spends most of his/her time (generally defined as more than 50%). It is also defined as “owner-occupied” housing. Are there restrictions related to the financing on the property? The purchaser can use any legal means to finance the property, including government financing such as FHA or state mortgage bonds. Do I have to repay the tax credit? There is no repayment for these tax credits. However, if the home is sold within three years, the credit must be recaptured upon sale. If I purchased in 2008 do I still have to repay my tax credit? The $7,500 credit in 2008 was more like an interest-free loan. All eligible purchasers who claimed the 2008 credit will still be required to repay it over 15 years, starting with their 2010 tax return. Can I use the credit amount as part of my downpayment? Some states and local governments have provided mechanisms to provide for this by providing a loan secured against the credit. Check with your loan officer for such programs. Is there a way to get any cash flow benefits before I file my tax return? Any homebuyer who believes they are eligible for all or part of the credit can modify their income tax withholding or adjust their quarterly estimated tax payments. Sources: National Associations of Realtors and Home Builders. Read More »
The Federal Housing Administration (FHA) recently issued a letter that implements a plan to suspend the Direct Endorsement authority for any operation in a geographic area for a minimum of six months if the company's default rate in that area is 200% of the average for that area. Direct Endorsement authority is granted by FHA to lenders to approve loans directly without sending them to the agency for underwriting. According to that letter, every three months, FHA will review all FHA direct-endorsement lenders' defaults and claim rates for mortgages originated in the previous 24 months. Average default rates, which are defined as 90 days or more past due, will be based on retail and broker originations within area. Initially HUD will focus its attention on those lenders showing particularly high default and claim rates, which is defined as 300% above the norm. This program was authorized by a rule promulgated in 2006. It is expected that this procedure will cause lenders to tighten their underwriting practices so that they do not risk a suspension. The letter also sets out procedures for appears and re-instatement after a minimum of six months. Read More »
The FHA Streamline Refinance Program can save you money on monthly payments for those who refinance their present FHA mortgage loan into a new FHA mortgage loan with a lower interest rate. The program contains several advantages over conventional mortgages with regards to the paperwork required to obtain a new mortgage. Under certain conditions FHA applicants for a new FHA loan under this program do not require a new appraisal. In addition, FHA does not require adherence to the same standards for income qualification as they do on their regular FHA mortgage program. For example, the applicant must show a source of income but does not have to be subject to qualification ratios. FHA Streamline Refinances can even be used if the homeowner no longer occupies the property. Dave Hershman is the top author and a top speaker in the mortgage industry with seven books authored including two texts published by the Mortgage Bankers Association of America. Read More »
FHA has a special program available that is solely for homeowners that already have FHA mortgages. Many homeowners are not aware of the major advantages of refinancing their FHA mortgage with a new FHA loan under the Streamline Program. The program is focused upon achieving a lower monthly payment for present homeowners with a minimum of paperwork. Did you know that a 1.0% decrease in your interest rate can lower your payment by approximately $150.00 per month on a $200,000 home loan. Dave Hershman is the top author and a top speaker in the mortgage industry with seven books authored including two texts published by the Mortgage Bankers Association of America. Read More »
FHA continues to make changes in its mortgage programs to help provide needed financing for increasing numbers of home buyers, as well as owners who want to refinance their existing mortgage. That was the message communicated by FHA Housing Commissioner Dave Stevens at a recent Realtor convention."We must never let over-exuberance overtake the housing market again, and interrupt the housing market and the lives of untold millions of Americans," he told the Realtors. "Our goal must be nothing less than to craft a solid and sustainable housing market – a market with a secure foundation for the future."Pointing to an example of recently implemented changes in FHA programs, Stevens said the FHA mortgage now no longer requires a second appraisal on high-balance loans for properties in declining markets. "We did not find our previous policy to be particularly helpful and were very concerned about the additional burden on lenders and consumers. The new policy change brings industry alignment, streamline loan processing and reduced costs to consumers," he said.
The FHA Streamline Loan has been primarily structured to cost-effectively refinance an existing FHA mortgage for homeowners. Another FHA Streamline loan is designed for home buyers or owners who need to create funds for a home improvement project. This is the FHA Streamline 203(k) Loan. Like the ordinary FHA Streamline Refinance Loans, these are also designed to save costs and paperwork for the borrower and encourage home improvements.The provisions of these loans are similar to the FHA Streamline refinance loans, with a few notable exceptions. For example, the maximum amount of the home improvement loan was raised to $35,000. The previous minimum of $5,000 was recently eliminated. The borrowed amount is added to the home mortgage (purchase or refinance mortgage) and is used for weatherizing the home, removing lead paint and other small-project improvements that doesn't involve major alterations of the home's structure.The borrower is required to use at least one contractor to do the home improvement work. Self-help renovations are not allowed unless the borrower can prove he has the appropriate expertise to do the job properly.In choosing a contractor, FHA guidelines state the homeowner must obtain an estimate that is broken down into specifics regarding the costs of each project. Contractors must sign an agreement to do all the work and estimate the cost amount and time to be expended to complete the project.Homeowners cannot use a FHA 203(k) loan to perform major structural repairs such as altering a load-bearing wall or work that needs architectural plans. If the home improvement project exceeds $15,000 the FHA requires a third-party inspection after the job is completed.It's particularly important to keep copious records through the process of the improvement project, it's stated in the loan agreement form. The homeowner may be required to furnish a "Mortgagor's acknowledgement of satisfactory completion," an inspection report, change orders and other documents.Yes, there's paper work involved in obtaining these loans, but money saved as compared with other forms of financing makes it worth the time and effort. Read More »
A recently completed study on the future home buying market points to a rapid growth in purchases by seniors, as baby boomers enter that category. Also, there will also be a dramatic increase in home purchase transactions by minorities. It’s no wonder that new initiatives like FHA mortgages, FHA refinance, and FHA streamline refinance have been introduced. However, there are a couple of key factors that will have a major impact of the future housing market that are not clearly defined at this point. It’s yet to be determined at those factors will shape up and influence the future market.One of those pending factors relate to decisions to be made by aging baby boomers regarding their retirement home. Will most of them decide to remain in their established area or move to a totally new community? Another f actor is where the increasing number of minorities will decide to settle. With the emergence of these new trends and the current housing recovery you may wonder how much influence these new FHA mortgages will have. Sub-prime loans used to be the stimulus that was driving the housing market for lower and middle income families. Now there are new FHA mortgages and FHA refinance options that are helping these Americans find quicker paths to home ownership.The study, commissioned by Mortgage Bankers Association, found that the overall U.S. population will experience a rapid aging as boomers grow older. At the same time, the nation will absorb large numbers of young recent immigrants. Different regions of the country will have different demands for housing driven by the relative impacts of aging in place versus migration within the country and from abroad. For example, suburban areas will gray faster than urban areas due to boomers aging in place. And there will always be a flow of retirees moving to warmer sun-belt areas.“It’s been said that demographics are the future that has already happened and demographic changes are one of the most powerful forces impacting the residential and commercial real estate and real estate finance markets,” said Doug Duncan, MBA’s chief economist. “The real estate industry needs to appreciate these important trends. Our study provides an insightful analyses of current statistics and valuable projections regarding how these trends will likely play out in the years ahead.”About 30 percent of young households now move each year to a new residence. That percentage slides down to 4 or 5 percent for people in older age groups. Therefore, household mobility that has been a major driver of home sales will fall off as boomers age, the study report concluded. Read More »
Many home sellers and buyers who want to finance a purchase transaction with an FHA-insured mortgage are frustrated by a lower than expect appraisal by an FHA-approved appraiser. With so many new FHA loan programs its important to know what the FHA loan guidelines are. FHA loans – those insured by the Federal Housing Administration – are the driving force for much of today's growing volume of home sales. The low down payment requirements and low FHA interest rates are very attractive to many buyers. FHA loans and FHA loan rates now constitute about 24 percent of all home purchase mortgages, and industry leaders are predicting close to a 30 percent share by the end of the year. The appraising process can support or quickly kill a pending transaction. Since it affects an increasing number of consumers, let's briefly review the role of the appraisal in a home sale transaction. The appraiser is hired by the lender and the process is for the benefit of the lender, even though the home buyer usually pays for it. Its primary objective is to minimize risks for the lender, thus making mortgage financing available for the buyer. The home buyer and seller may have ideas about what the property is worth, but the unbiased (hopefully) estimate of value by an independent appraiser who has carefully inspected the house will be used by the lender in deciding whether or not to approve the mortgage application. Using an example cited on the FHA Website to illustrate lender risks, Joe (a first-time buyer) might have used an FHA mortgage of $110,000 against his purchased home that appraised for $115,000. If Joe does not pay his mortgage payments, the lender will have to sell the property at foreclosure – a costly and time-consuming process. Even if the home sells for $110,000 the mortgage company will suffer a loss on the transaction as they will most likely not recover their foreclosure fees and lost interest income. If the true value of the property was less than the appraised $115,000, the lender will take an even greater loss. However, having a solid, objective opinion about the value of the home will help the lender in assessing the potential risks associated with the loan and prevent a loss due to foreclosure. The Department of Housing and Urban Development (HUD) requires appraisals of all FHA insured loans, except for so-called Streamline FHA mortgages. A Streamline mortgage is an FHA loan used to refinance another FHA loan. It must also meet certain other qualification requirements, but such loans require minimal documentation. HUD plans to tighten the qualification requirements for FHA Streamline mortgages, effective January 1. It should be noted that an appraisal is not the same at a home inspection. It does not guarantee that the home is without flaws. It simply establishes what the appraiser believes is a current and realistic market value of the property, for use by the lender. Read More »
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