Cool Tools News Spool

Tag: FHA

  • Use your real estate commission as your down payment

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    Today’s news spool is going to cover a couple loan guideline changes that may help you in your business.

    As I reported several weeks ago, FHA is changing its treatment of deferred student loans to be consistent with other loan programs. If a student loan appears on a homebuyer’s credit report without a corresponding payment, we can use 1% of the loan balance as the effective payment for qualifying the buyer. Previously, we had to use 2% of the balance. FHA originally said the effective date for the change was 6/30, but it recently clarified to say that lenders MUST start using the lower percentage on 6/30. We can (and we will) start using the lower amount immediately.

    If you’re buying a home, and you’re representing yourself in the transaction, Fannie Mae and Freddie Mac will allow you to use your commission on the transaction for a conventional loan.

    Fannie is a bit more restrictive. While you can use the commission to cover closing costs, you have to demonstrate sufficient funds to close not counting the commission, and your commission counts towards the limit on interested-party contributions. This is the percentage (like 6%) we quote you when you ask, “How much can the seller contribute towards closing costs.”

    With Freddie, the commission can count towards your funds to close. Additionally, you can use your commission to cover closing costs and down payment, and it does not count towards the contribution limit. Thus, you can get the seller to contribute the max towards your closing costs and use your commission to cover the rest.

  • Take advantage of new loan limits

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    While Fannie Mae and Freddie Mac left the conforming loan limit for single-family homes at $417k in 2016, HUD raised the FHA loan limit in 4 TX metros. Remember that FHA sets an area’s loan limit based on 115% of the area’s median home price.

    Median home prices rose in Texas last year, so loan limits rose in Austin, Houston, Dallas/Ft. Worth, and Midland. Austin’s limit rose slightly to $333,500 for a single-family home. Houston’s limit also rose only a little to $330,050. The DFW limit took the prize for the largest increase, rising $24k to $334,650, now the highest in the state. Midland also had a sizable increase, rising to $285,200. The limit in San Antonio didn’t change, remaining at $316,250.

    Remember that these limits apply to the entire metro area including surrounding counties. The FHA loan limit remains at the minimum, $271,050, for the rest of the state.

  • Industry to FHA: We need spot condo approvals

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    FHA condo loans are way down, and this has caught the attention of Congress. Because of FHA’s rigid and burdensome certification process, barely 20% of previously eligible condo complexes remain certified for FHA loans.

    Faced with a Congressional spanking, FHA recently announced some changes to its process. However, the changes are pretty weak and seem unlikely to convince many condo associations to seek certification.

    The most significant change is that FHA will allow condo units that are second homes to count towards the 50% owner-occupancy requirement for certification. Congress had suggested relaxing the requirement to 35%.

    In addition, FHA slightly reduced the paperwork required to recertify a complex, but it still requires recertification every 2 years. Congress had suggested lengthening that to 3 or 4 years.

    The changes don’t address spot approvals, which allowed lenders to make FHA loans on single units in non-certified complexes with certain restrictions. FHA dropped spot approvals a few years back.

    The changes are temporary while FHA pursues formal rulemaking. We can hope that the formal process will include spot approvals again.

    HUD may be moving slowly because of concerns about fraud. The owner of a FL mortgage company was convicted recently of making FHA condo loans to unqualified borrowers. However, the crime occurred during the go-go days prior to the financial crisis. Rules have been tightened significantly since that time. Besides, the fraud didn’t concern the condo’s certification but rather the borrower’s qualification. It doesn’t make sense for FHA to equate the two.

  • FHA changes will disqualify some homebuyers

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    The new FHA handbook is now in effect, and I think you’re going to find the new loan guidelines reduce your pool of potential homebuyers.

    I discussed the changes in the treatment of student loans last time. This time, I’m going to detail other changes that may trip up some of your potential buyers.

    – An insufficient funds notice on a bank statement used to require a letter of explanation from the buyer. FHA wanted assurance the buyer didn’t make a habit of writing bad checks. An NSF now will force us to manually underwrite the loan. The main effect of this is a lower maximum debt ratio, meaning the buyer cannot afford as much home.

    – If your buyer was laid off in the last two years and had to take a lower-paying job, he’ll have difficulty qualifying for an FHA loan. FHA seemingly expects people’s income to rise every time they change jobs. Washington obviously didn’t experience the recession the way the rest of us did. I’m hopeful we can use letters to explain situations beyond your buyer’s control, but it remains to be seen how underwriters will apply this guideline.

    – If your buyer has income from a part-time job, we can use that income for qualifying only if the buyer has a two-year history of receiving the income.

    – This last change is going to drive parents nuts. Under the old handbook, if a parent gifted a child down payment money, we generally asked for a copy of the cancelled gift check and the child’s updated bank statement showing the available funds. Under the new handbook, we also need a bank statement from the parent showing the withdrawal of the gift funds. Now, the only one who’s going to see the parent’s bank statement is the lender, but I’ve run into many parents who were suspicious when we asked for a copy of the cancelled check.

    The new handbook offers many other changes, but I think these are the ones you’ll find cause the most heartburn.

  • FHA changes may hurt your first-time homebuyers

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    The new FHA handbook is now in effect, and I think you’re going to find the new loan guidelines reduce your pool of potential homebuyers.

    That said, probably the biggest change is a mostly positive one. The old handbook allowed for a lot of underwriter discretion. With FHA suing lenders to buy back defaulted loans, many lenders had instructed their underwriters to adopt conservative interpretations of the guidelines. In contrast, in the new handbook the guidelines are more black and white. Very little is left to underwriter discretion.

    Unfortunately, some of those black and white rules are even more conservative than what underwriters were applying before the new handbook and are likely to prevent some marginal homebuyers from qualifying.

    A change likely to impact many first-time homebuyers concerns student loans. With the previous rules, FHA would allow us to ignore student loans that were deferred greater than 12 months. The new rules eliminate this exemption. All student loans must be considered in a borrower’s debt ratio.

    Student loan servicers often don’t report a monthly payment for a deferred loan, and the new rules say we must use 2% of the loan balance if the servicer won’t report a payment. Fortunately, loan servicers typically will provide a payment based on the loan’s current balance if the borrower asks, and this payment typically is closer to 1%.

    The change makes FHA more consistent with conventional loan programs. However, Fannie Mae allows us to use 1% of the loan balance if the servicer won’t report a monthly payment.

    FHA still provides one advantage over conventional loans. It allows the use of the actual payment for income-based student loan repayment plans. These plans often have payments that are less than 1% of the loan balance.

    Next week we’ll look at several other significant changes.

  • House flipping just got harder

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    FHA has never been a big fan of house flipping due to fraudulent flips that saddled it with big losses in years past. As a result, it instituted a rule that in order for a buyer to use FHA financing, the seller must have owned the house for 90 days prior to signing a purchase contract.

    During the housing recession, FHA decided to waive this rule, allowing sellers to flip houses after owning the property for as little as 30 days. The waiver allowed real estate investors to make tidy profits selling thousands of rehabilitated homes to FHA buyers.

    The waiver expired on Dec 31st. For any purchase contract signed after that date, the old 90-day rule applies. FHA says the dangers of house flipping outweigh the benefits for first-time and minority homebuyers – those dangers being that flippers will sell poorly renovated homes at inflated prices to unsuspecting buyers. Of course, investors disagree and point out that the house flip rule only raises the cost of renovated homes. Flippers say they can rehabilitate a home in 45 days. Having to hold the home for an additional 45 days just increases the flippers’ holding costs, which get passed along to the buyer.

    If you’re working with investors, this change affects the pool of potential buyers. While they won’t be able to sell to FHA buyers for 90 days, they can sell to buyers using conventional financing as Fannie and Freddie only require a seller to own a home for 30 days.

  • FHA doing away with pre-payment penalty

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    For those with an FHA mortgage, an unpleasant surprise may await when they sell their homes. FHA charges interest one month at a time. That means even if the sale closes on the 15th of the month, FHA calculates the mortgage payoff through the end of the month. For a $200,000 loan balance, Uncle Sam is going to dip his hand into your seller’s pocket for another $400.

    FHA enacted this rule to protect investors who buy mortgage-backed securities, who currently have the right to demand full-month payments of interest even when a loan pays off at the beginning of a month.

    But this runs contrary to other government loan products and Fannie and Freddie mortgages. When the CFPB released its Qualified Mortgage rule, it labeled this practice a pre-payment penalty and instructed FHA to do away with it by Jan of next year for FHA loans to remain qualified mortgages.

    Well, not wanting to seem overeager, FHA will wait until the last minute to enact the change. Any FHA loan that closes after Jan 21, 2015 will prohibit this practice. When a borrower pays off the mortgage, the payoff will include only interest through the funding date.

    All I can say is finally. The industry has asking for this for years. The funny thing is that in its announcement concerning the change, HUD suggested it was only lender greed that caused these extra interest charges and that the change would “prohibit mortgagees from charging borrowers interest” after payoff. What a bunch of bull. You and I both know that this had nothing to do with lenders. It’s what FHA required. I wonder if our government ever will take responsibility for anything.

  • FHA says it won’t lower MI

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    A big issue of late for all real estate industry professionals has been the dearth of first-time homebuyers. Analysts have suggested a number of possible reasons for this from excess student loan debt to millennials’ unwillingness to make a commitment. Today, we’re going to discuss another possible reason: higher FHA mortgage insurance rates.

    In Apr, 2013, FHA raised its mortgage insurance rate for the 5th time since 2010. As we’ve discussed in the past, the changes have priced some homebuyers out of the market. NAR claims the higher rates prevented 125,000 and 375,000 renters from qualifying to purchase a home last year.

    The reason for the changes was simple. Due to lax loan standards during the last decade, the FHA Mutual Mortgage Insurance Fund was going broke. To shore it up, FHA figured it would raise prices. For homebuyers with good credit, the FHA MI rate is now more than double the rate offered by private MI companies. So, homebuyers who can cobble together a 5% down payment have moved over to conventional loans. Those who can’t are paying the higher FHA rate or sitting on the sidelines.

    Unfortunately, first-time homebuyers are those least likely to have down payment money, and recent analysis shows that the vast majority of FHA borrowers are first-time homebuyers. Thus, a logical conclusion would be that higher FHA MI rates are reducing the number of first-time homebuyers.

    FHA has indicated it has no intention of reducing its MI rates any time soon. The only relief we may see in the near term is a reduction for first-time homebuyers who receive homebuyer counseling. Longer term, industry pundits think FHA may finally reduce the rates once its insurance fund recovers to its Congressionally-mandated level. Watch for the FHA actuarial report later this year for FHA’s projection of when that will occur.

  • How can residual income help your homebuyer?

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

  • Minimum credit score drops for FHA loan

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.