Category: First-Time Homebuyer

FHA Amendatory Clause / Real Estate Certification

Posted on by Evan in FHA, For Professionals

Depending on the estimate, FHA loans currently make up approximately 25% of total mortgage originations. Recent experience has led me to realize that although most real estate professionals know what they’re doing, there are still many who need a little coaching on the main disclosure; the FHA Amendatory Clause/ Real Estate Certification.

Download the One-Page FHA Disclosures Amendatory Clause / Real Estate Certification >>

Here are three essential things professionals and consumers need to know:

  • This disclosure MUST be signed by the homebuyer(s), homeseller(s), and real estate professionals (both selling and listing agent) involved in the transaction.
  • What also needs to be filled out? At the top of the form the homebuyer(s), homeseller(s), property address, and date of agreement should be filled in. In addition, the blank space following the “$” symbol in the Amendatory Clause section should be filled with the original purchase price of the offer.
  • The signatures on the FHA Amendatory Clause MUST be dated on the SAME DATE THAT THE RESPECTIVE PARTY ORIGINALLY SIGNED THE EARNEST MONEY AGREEMENT. The signature and dates for the Real Estate Certification are not date sensitive.

Example

If John & Jody Homebuyer write an offer with their real estate agent Shelly Sellalot to purchase a home on September 1st, then John & Jody must sign and date the Amendatory Clause on September 1st.

If the sellers, Jay & Judy Homeseller, along with their listing agent Bob Bigbucks, respond to the offer on September 2nd, then Jay & Judy must sign the Amendatory Clause on September 2nd irregardless of their response (unless they simply reject the offer all together). 

With regard to the Real Estate Certification John, Jody, Shelly, Jay, Judy, and Bob all need to sign this section but the date is not critical.

What are the parties signing? In so many words the Amendatory Clause gives the homebuyer(s) permission to back out of the transaction and receive their earnest money back if the property does not appraise for the amount they are buying the house for. 

The Real Estate Certification states that the entirety of the sales agreement is disclosed in the earnest money agreement and accompanying addendums which are ALL provided to the lender.

Wondering if the First-Time Homebuyer credit applies to you?

Posted on by Evan in First-Time Homebuyer

I’ve recently been asked some very good questions regarding the government’s First-Time Homebuyer credit.  In both instances I’ve had to do some research on the IRS’s website in order to get reliable answers.

In one instance I was asked to figure out if a first-time homebuyer would still qualify for the credit if they were relying on co-signors to qualify for their mortgage who were not first-time homebuyers.  The answer? Yes, the first-time homebuyer still qualifies.

In the other instance I was asked to see if a household would qualify for the credit if they bought a home in 2009 when their household income was less than $150,000 in 2008 but was expected to be greater than $150,000 in 2009 ($150,000 is the income threshold for spouses filing jointly at which the credit phases out).  The answer? I am 95% sure they do qualify because the IRS will allow you to apply for the credit by amending your 2008 tax returns using the form 5405.

Do you have a question about whether or not you qualify for the credit?  Here is the link to the IRS’s website regarding the first-time homebuyer credit.

Please leave a comment below if you would like to explain your unique circumstance.

Expanded credit for first-time homebuyers

Posted on by Evan in First-Time Homebuyer, Taxes

On August 5th, 2008 I blogged about the first-time home-buyer tax “loan” which President Bush signed into law. I thought I would update this post to reflect the changes that President Obama enacted with the Recovery and Reinvestment Act of 2009:

*Who qualifies for this credit? Anyone who buys a home from April 9, 2008-June 30, 2009 January 1, 2009-November 30, 2009 who is buying their first home or who had not owned a new home in the previous 3 years from the date of purchase.

*What are the terms of the credit? The credit is actually an interest-free loan (under the new law there is no repayment obligation) worth up to $7,500 $8,000 for couples filing jointly or $3,750 $4,000 for those who file individually.  A tax credit is different from a tax deduction in that it actually reduces your tax liability dollar for dollar (whereas a tax deduction reduces your taxable income which means your tax liability is only reduced by the amount of the deduction times your marginal tax rate). As an example, if you were expecting a tax refund for $2,500 you’d actually get $10,000 ($7,500 more) with the tax credit.

However, you don’t get to keep this tax credit money for ever. The IRS will then collect $500 per year ($250 for individuals) for 15 years from your tax refund (or added to your tax bill) to repay the credit. Although this is kind of drag this is still a great deal.

*How much will this help? It’s difficult to say for sure how much of an impact this will have. However, if I were a first time home-buyer and didn’t have a down-payment saved up one possibility for me would be for me to borrow $7,500 from a family member or close friend to use towards a down payment (FHA loans only require 3% down so I could buy a $250,000 home and put 3% down with this tax credit) and then pay back the loan when my tax refund became available.

The tax credit does phase out for individuals earning $75,000+ & couples earning $150,000+.

Fannie Mae continues to tighten qualifying standards

Posted on by Evan in For Professionals, General Mortgage Info., Housing & Real Estate, Low Down-Payment, Mortgage Qualification

This morning Fannie Mae released updated guideline changes for conforming mortgages.  This is a sign that we can continue to expect tightening in the area of loan approval guidelines which will make it more difficult for borrowers to qualify for loans in the future. I don’t think these changes will drastically impact most real estate & mortgage professionals core business but for those who tend work with investors and borrwers with less than favorable credit this is not good news.

Here is a summary of the most important changes in my opinion:

-Loan-to-value restrictions for cash-out: Fannie Mae is limiting cash-out refinances on owner-occupied homes to 85% (currently is 90%, FHA still allows borrowers to go to 95%).

-Loan-to-value restrictions for purchase and refinance of investment property: Fannie Mae is restricting maximum financing for purchase of an investment property to 75% (currently 90%).

-Investment property interest rates to increase: Fannie Mae is increasing the margin on investment property loans compared to owner-occupied interest rates.  The margin gets increasingly larger with the loan-to-value but currently investment property purchases carry a rate that is approximately .375%-.625% higher and it looks like the new margins will be closer to .75%-1.50%.

-Maximum number of properties financed: Currently Fannie Mae will allow a borrower to own only 10 financed properties if they want to take out a new mortgage to buy a 2nd home or investment property.  Moving forward this will be restricted to 4.  If the borrower is buying a primary residence then this guideline doesn’t apply although many banks have overriding guidelines that supersede this change.

-Higher minimum credit scores: In the announcement Fannie Mae also said they would be raising the minimum credit scores required to qualify for various loan scenarios.  There are too many to go into detail here but the bottom line is borrowers will have to have better credit in order to qualify for higher loan-to-value loans, investment property loans, & 2nd home loans than before.

Click this link to review the entire announcement.  The timing in which these changes will take affect have yet to be determined but we know it will be no later than December 1, 2008 and probably even sooner depending on the lender.

FHA Loans- What Real Estate Professionals Needs to Know

Posted on by Evan in FHA, For Professionals, General Mortgage Info., Housing & Real Estate, Low Down-Payment, Mortgage Programs

History

In 1934, the Federal Housing Administration (FHA) was formed as a part of the National Housing Act.  The objective of the FHA was to increase home construction, reduce unemployment, and operate various loan insurance programs.  (It’s important to note here that the FHA DOES NOT directly lend money for FHA loans.  They only provide the insurance that protects lenders against losses from making FHA loans.  The FHA’s insurance makes the origination of FHA loans more attractive for lenders and reduces the rate of interest which is charged on these loans.)

 

Since its inception the rules and regulations that guide FHA loans have been modified several times however the main purpose has remained relatively consistent- to enable low to moderate income Americans to buy homes that they would unlikely qualify for under conventional loan programs.

 

FHA loans have become more prominently used in the recent few months because of the various underwriting flexibilities that conventional loans do not have.  Many of these flexibilities used to be found in ALT-A & subprime mortgage programs but because of the credit collapse these loans are no longer available.  

 

FHA Loan Limits- (As of August 7, 2008 for Portland/ Metro area)

 

1-unit: $418,750

2-unit: $536,050

3-unit: $648,000

4-unit: $805,300

5-unit+: not available

*Loan amounts above $362,790 will likely carry interest rates that are .25%-.50% higher than FHA loan amounts below this level.

*Click here to be taken to the HUD webpage to see other areas.

 

Down Payments

Traditionally FHA loans have required a minimum down payment of 3% on the part of a home-buyer.  Here are a few facts about the down payment you would want to be aware of:

 

→2008 Housing Bill: As a part of the 2008 housing bill that recently passed into law FHA minimum down payment requirements will increase from 3.00% to 3.50% (effective January 1, 2009). 

→Gifts: The home-buyer may receive a gift from a relative or non-profit organization to satisfy their down payment requirement (most conventional programs require at least 5% to come from the borrower’s own funds).

→Seller Financed Down Payment Assistance:  Up until October 1, 2008 home buyers were able to have the seller indirectly “gift” the minimum 3% down payment to the buyer using a loophole in the FHA underwriting guidelines which effectively created 0% down financing (the “non-profit” organizations behind this loophole were Ameri-dream, Nehemiah, etc.).  However, do to the poor performance of these loans the 2008 housing bill eliminated this loophole.  (At the current time a group of congressman are trying to reinstate seller financed “DPA”s through HR Bill 6694 but according to my sources passage of this bill is doubtfull.)

 

FHA Modernization

Over the last year significant improvements have been made to the “usability” of FHA loans.  Here are a few of the highlights that real estate professionals should be aware of:

→Inspections: It used to be that bank underwriters would require pest & dry rot reports, well-flow tests (when applicable), and septic reports (when applicable) for ALL FHA loans.  However, these are no long needed UNLESS the earnest money agreement specifically states that these inspections will be done during the inspection process.

→Appraisals:  FHA loans used to have their own appraisal format which was much more detailed and cumbersome than conventional appraisal requirements.  For example, under the old appraisal guidelines plants and shrubs had to be trimmed back from the dwelling by 6 inches or more.  However, bank underwriters now only require the standard appraisal (AKA “1004” or “form 70”) with a little bit more information. 

→“Junk Fees”: It used to be that there were certain standard closing costs that the FHA deemed “junk fees” and would not allow the home buyer to pay.  These requirements have been eliminated however the loan originator may not charge more than 1% origination fee.

 

Miscellaneous Benefits & Features of FHA loans

→Seller concessions: With FHA loans the seller may pay up to 6% of the sales price towards the home-buyers settlement charges (conventional programs where the buyer is putting <10% down only allow for 3%).  The additional contribution can be used to by down the home-buyer’s interest rate among other items.

→Minimum down payment on multi-family:  FHA is one of the only programs I am aware of that will allow for up to 97% financing on 2,3, and 4 unit properties so long as the home-buyer is going to occupy one of the units as their primary residence.  (Conventional loan programs typically require 25% down on owner-occupied 3 & 4-unit properties.)

→Non-occupying co-borrower: Even with the relatively flexible underwriting guidelines that FHA allows many borrowers will not qualify.  In this case a home-buyer may call upon a “co-signer” to apply for the loan so long as the person is a relative.

→No credit history: Even borrowers with no credit history MAY still qualify for FHA financing through the creation of a “non-traditional” credit report.

 

Paperwork

Even though the FHA loan program has improved significantly over the past few months there is still an overwhelming amount of time-sensitive disclosure paperwork which needs to signed by various parties in the transaction.  It’s important that you work with an experienced loan originator who has a handle on all the disclosures and when they need to be signed to avoid any pesky delays in the funding of the loan.

 

The real estate professional really needs only to be aware of one FHA disclosure.  This is the Amendatory Clause & Real Estate Certification which MUST be signed by the buyer(s), seller(s), listing agent, and selling agent ON THE SAME DATE as the earnest money agreement is signed. 

 

For a copy of a blank Amendatory Clause & Real Estate Certification form email myself or google the term and you will likely find one.

 

I hope you found this informattional useful.  I would invite you to post any comment you may have regarding this article below.  Furthermore, if you know of other profeesionals that would benefit from this posting please pass it along!

 

 

 

 

 

FHA condo link

Posted on by Evan in FHA, For Professionals, General Mortgage Info., Housing & Real Estate, Low Down-Payment, Mortgage Programs

In order to do a FHA loan on a condo the condo devlopment must be approved by HUD. In order to search if a specific condo is HUD approved (so that a buyer can obtain a FHA loan) visit this link.

ACCESS loan for 0% down financing.

Posted on by Evan in General Mortgage Info., Low Down-Payment, Mortgage Programs

0% down financing is getting harder and harder to find these days. The most common approach of creating 0% down financing is through the FHA loophole which allows for a seller to contribute the 3% required down payment via a down payment assistance program such as Nehemiah and Ameridream. However, the Federal Government will eliminate this flexibility with the passage of the latest housing bill.  As of October 1, 2008 these loans will no longer be available.

Once that is gone what will be next? I may have found the answer with the ACCESS program we offer in conjunction with National Homebuyer Fund. This program will provide a 2nd mortgage for a homebuyer who meets the qualifications up to 100% of the purchase price (the website states 105% but we can’t get mortgage insurance beyond 100%). Here are a few key points of the program:

*The ACCESS 2nd mortgage cannot exceed 8% of the purchase price & cannot exceed 100% combined loan to value. The structure which creates the lowest monthly payment is a 95% primary mortgage and 5% combination mortgage.

*The ACCESS 2nd mortgage is a 20 yr. mortgage with a fixed interest rate which will be 2.00% higher than the rate on the primary mortgage. It has principal and interest payments.

*The ACCESS 2nd mortgage can be used in combination with a variety of 1st mortgage products including 30 year fixed rates with interest-only payments.

*The ACCESS 2nd mortgage carries no prepayment penalty.

*In order to qualify for this program the applicant cannot have income which exceeds 140% of the median household income (In the Portland area the limit would be $86,800).

Give me a call today if you’d like to see is this program will work for you!

Your Guide to Understanding Mortgage Insurance

Posted on by Evan in General Mortgage Info., Low Down-Payment, Mortgage Insurance, Mortgage Programs

When a home buyer takes out a new mortgage and has less than 20% down often times they will be required to provide mortgage insurance to the lender (exceptions exist when we’re able to provide “combination loans” which are fairly uncommon these days).

Mortgage Insurance (also known as “mi” or “pmi‘) is insurance which covers the lender against a portion of their losses should the loan they make result in payment delinquency or foreclosure.

There are various forms of mortgage insurance which home buyers should be aware of. Here is a brief explanation of each:

Borrower-paid mortgage insurance (BPMI)– This is the most common form of mortgage insurance. The insurance premiums for this form are paid for by the borrower on a monthly basis and varies depending on the loan amount, loan-to-value, and credit score of the borrower. With this form of mortgage insurance the borrower can often request that the mortgage insurance payment be removed from their monthly payment once they have established a 24-month clean payment record and can demonstrate that they have 20% equity in the property.  However, it’s important to note that the only legal requirement the lender has to eliminate the mortgage insurance is under the Homebuyers Protection Act which states that the lender is not required to eliminate the mortgage insurance until the loan balance is scheduled to reach 80% of the original purchase price based on the original amortization schedule.

Lender-paid mortgage insurance (LPMI or “No mi”)– With this form of mortgage insurance the borrower accepts a modestly higher interest rate in exchange for not having to make a monthly mortgage insurance payment. Often times these plans create the lowest possible monthly payment and can be most tax efficient. The drawback of LPMI is that the increase a borrower accepts to their interest rate is permanent so even when they have achieved 20% equity in their home their rate will remained at the higher level.

One-time or “upfront” mortgage insurance– With this form of mortgage insurance the borrower makes a one-time mortgage insurance payment at the outset of taking the loan and then does not have to make any additional mortgage insurance payments for the duration of the loan. This option works best for a home buyer who is seeking to create the lowest possible monthly payment and has enough money to cover the additional settlement charges (but not enough to put 20% down).

Split mortgage insurance– Split mortgage insurance combines aspects of the BPMI & the one-time mortgage insurance forms. With a split mortgage insurance structure the borrower pays an upfront or “one-time” mortgage insurance payment at closing & accepts a monthly BPMI payment as well. The most common form of this is with the FHA program. With a FHA loan the buyer finances an upfront mortgage insurance premium into the loan amount and makes a monthly mortgage insurance payment. These two amounts are less than if the borrower did the BPMI or one-time mortgage insurance exclusively.

Pros & Cons of the Oregon Bond Program

Posted on by Evan in General Mortgage Info., Low Down-Payment, Mortgage Programs

As mortgage lenders continue to restrict their lending guidelines in response to the “subprime fallout”, it is no wonder that mortgage originators are increasing their reliance on FHA and state-sponsored first time home buyer programs to fill the void.

In Oregon we have the Oregon Bond Program. This particular program is offered through the Oregon Housing and Community Department and is funded through tax-exempt mortgage revenue bonds.

On the surface, the Oregon Bond Program appears to be the “end all, be all” program for ANY first time home buyer. However, it is my goal with this blog post to inform you of the positive and negative aspects of this loan option.

Positive Aspects of the Oregon Bond Program:

  • Low/No down payment requirement. The Oregon Bond program has two down payment options for first-time home buyers. The first option called the “Rate Advantage” has a lower interest rate and carries a minimum down payment requirement of 3%. The second option called the “Cash Advantage” requires 0% down on the part of the home buyer. However, at the time of this posting the Cash Advantage program was temporarily suspended.
  • Interest Rate. The Oregon Bond Program has a very attractive interest rate. At the time of this blog posting a borrower could lock in a 30-year fixed rate @ 5.75% for the Rate Advantage option. This is about .375% less than a comparable FHA option.
  • Flexible credit approval. Like the FHA loan program the Oregon Bond loan can be fairly flexible in terms of an applicant’s credit score. Unlike conventional loans, there are not adverse rate adjustments for applicants with lower credit scores.

Negative Aspects of the Oregon Bond Program:

  • Mortgage Insurance. The Oregon Bond loan program carries fairly expensive mortgage insurance requirements. Just like the FHA loan the mortgage insurance is structured with a 1.50% upfront mortgage insurance premium that gets financed into the loan plus a .50% monthly premium that is built into the monthly payment. For example, a $200,000 loan would get financed @ $203,000 to fund a $3,000 mortgage insurance policy at closing plus $83.33 per month.
  • Recapture Provision. This provision is often overlooked by borrowers and loan originators, but it can be a costly oversight. With an Oregon bond loan the home buyer may be subject to a recapture tax when the home is sold in the future. For a detailed explanation of this provision I would encourage you to research it at the Oregon Bond website. I will do my best to explain it here. The recapture tax is collected at a rate as high as 6.25% of the original loan amount if the home is sold within the first 9 years of the loan at a higher price than it was initially purchased for if the loan holder’s income exceeds a certain threshold (currently about $70,000) at the time of sale. For example, a home buyer takes a loan out for $200,000 today to buy a home for $225,000. In 5 years, they decide to sell their home. At that time they sell their home for $275,000. If their household income at that time exceeds the threshold (determined at that time) then they would owe $12,500 (6.25% of $200,000) in recapture tax, even if they had refinanced during the course of owning the home.
  • Inflexible guidelines. Although the Oregon Bond program is flexible in some degree (mostly credit and down payment), it is considered to be inflexible in other areas. For example, the program requires a 2-year work history in the same industry and school does not count. For many home buyers they have only been out of school for less than 2 years. These borrowers would not qualify for an Oregon Bond program but may qualify for FHA loans. Furthermore, there is a very limited set of Oregon Bond lenders to choose from. Therefore, an Oregon Bond application is subject to the underwriting tendencies of a few different lenders. This differs greatly from FHA where we can originate almost anywhere.
  • Income limits. Unlike the FHA loan program, the Oregon Bond loan program REQUIRES that an applicant be a first time home buyer (defined as not having owned in the previous 3 years) and may not have a household income that exceeds a certain level (depending on the county that the property is in). For the Portland-Metro area the income threshold is about $70,000 at the time of this post.
  • Processing. Oregon Bond programs have to be reviewed by the lender and the state of Oregon. Typically speaking the process for getting an Oregon Bond loan is much more cumbersome and time consuming than a traditional FHA loan. We like to ask for 45-60 days to get an Oregon bond loan done, whereas we can do FHA loans in a much shorter time frame.

FHA increases loan limits to help housing market

Posted on by Evan in FHA, General Mortgage Info., Housing & Real Estate, Low Down-Payment, Mortgage Programs

Last week the Federal Housing Administration (FHA) increased the loan limits for FHA loan products. It’s important to understand that this only applies to FHA loans and does not apply to conforming loan limits although the methodology for increasing FHA loan limits is the same. In either case the maximum loan limit is 125% of the area’s median home price.

To find out what the new FHA loan limits are in your area FHA has provided the following website:
http://www.fhaoutreach.com/

For the Portland-Metro area the new maximum FHA loan for a single family residence is now $418,750 which is up about $100,000 from the previous limits.

Here is a link to the announcement on HUD’s website:
http://portal.hud.gov/portal/page?_pageid=33,717234&_dad=portal&_schema=PORTAL