Additional FHA Funds on the way

FHA recently launched short refinance opportunities for homeowners “underwater” in an effort to encourage principal write-downs for borrowers that are responsible.

This effort to aid homeowners that owe more on their home loan than the value of the property, the Department of Housing and Urban Development explained details on the adjustment for these homeowners to utilize the new refinance program that was released earlier in 2010 with options for homeowners that owe more than the property is actually worth.

Beginning on September 7, 2010 FHA will offer specific underwater for non-FHA borrowers that are up to date on their home loans and whose lending companies agree to write down at least ten percent of the principal balance left on their first mortgage, the chance to qualify for a new FHA insured loan.

The program known as “The FHA Short Refinance” option aims to help those that owe more on their mortgage than their property is worth, which is referred to as “underwater” due to local markets that recently saw declines in the values of homes. The new program was introduced in March and with these changes along with other financial programs that are in place with the aid of the Administration to meet the goal to stabilize the housing market via a second chance to up to three to four million homeowners that are struggling through December of 2012.

FHA Commissioner David H. Stevens stated, “We’re throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined,” and went on to say, “this is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product.”

Lenders can read over the mortgagee letter provided by the FHA to learn how to implement the new program. Participation in any of the programs is voluntary and does require all lien holders to agree to the conditions.

To be eligible for a new FHA loan, the homeowner must:
• be in a negative equity position- owe more than the property is worth
• be up to date on existing home loan
• live in the home as the primary residence
• qualify under the FHA underwriting requirements
• possess a FICO based credit score equal or higher than 500
• the current home loan cannot be a FHA insured loan
• the existing lending company must write down at least 10% of the principal
• the new FHA insured loan must have a loan to value ratio not greater than 97.75%
• all non extinguished subordinate loans must be re-subordinated and a new loan may not be great once combined to 115% loan to value ratio
• loans that get  refer risk classification from the total mortgage scorecard or are manually underwritten, the total mortgage payment which includes all mortgages first and subordinate cannot be higher than 31% of the gross income and total debt which does include all recurring debt which cannot be larger than 50% of the gross income received monthly
• FHA mortgagees cannot use premium pricing to pay off any existing debt in order to qualify the borrower for a new loan.
• FHA mortgagees cannot pay the mortgages payments for the borrower or bring the current loan up to date in order to qualify for the FHA loan
• The current loan that is to be refinanced cannot be made current by the first lien holder unless via an acceptable permanent loan modification loan.

To be eligible, servicer’s must perform a Servicer Participation Agreement through Fannie Mae on or before October 3, 2010.

Using Renovation Loans to the best Advantage

While you are showing a home that needs a bit of tender loving care, the best approach is to provide your clients with information on the FHA 203K renovations loans. The loans are great for those looking for a bargain that have their heart set on a fixer upper or even on a foreclosure that needs repairs prior to moving in or even for a homebuyer that wants to add on another room.

Renovation loans will provide homeowners with the money they need to buy a home as well as all the renovation necessary. This means there will only be one loan application, one group of fees including closing costs, and only one mortgage payment each month. While in closing, the money for the home will be used to pay for the home, while the rest of the money intended for renovation will be placed in a trustee account and provided as all repairs are finished. For this type of loan all kinds of improvements can be done that will add more value to the home including new carpet, landscaping, room addition, roof, plumbing, or an updated kitchen. Along with this all energy efficiency improvements can also be used for a renovation loan as well as qualifying for tax credits found in the new stimulus package.

One more advantage of a renovation loan is that the loan amount is based on the value of the property after all the renovations are finished. Other great reasons to look at this type of loan include the down payment, which can be only 3.5%. In many cases, the loan may even offer a lower interest rate than you could receive from a second mortgage and all improvement costs can be spread out over the life of the loan. If you cannot live in the home until renovations are complete, the loan can even provide financing up to six months until the home is livable.

Just understanding what your clients can receive with renovation loans will certainly help your clients when they fall in love with a fixer upper.

FHA Loan Changes and The Effect On Consumers

FHA is proposing cutting allowable seller compromises in half by capping them at 3% of the home price instead of the 6% it is at now.

The reason FHA is wishing to cut compromises is that the analyses the company performed showed a strong correlation between high seller concessions and high default rates probably due to compromises that can ultimately lead to home prices that are inflated. The concept is that a few sellers might make a few compromises but then add cost to the price of the house. 

What does this mean to the consumer? The perks that many buyers enjoy will not be as great. This new proposal will not stop compromises over 3%, but any compromises that do exceed 3% would result in a dollar to dollar reduction in the sale price of the home and will reduce the amount of allowed for the loan.

FHA will also be imposing a minimum credit scores requirement of 500. For anyone looking to purchase a home with a credit score of 580 or less will need at least a 10% instead of the normal 3.5% minimum.

The main reason the proposal is being implemented is that borrowers with a low credit score have a high rate of default on loans than those with a higher credit score. In January of 2010, more FHA borrowers with credit scores under 580 were delinquent three times higher than those with higher credit scores.

For consumers these tougher credit score requirements make it harder for borrowers with low scores to obtain loans. As a matter of fact, only 1% of FHA borrowers have a score lower than 580.

High-risk borrowers that were at one time flagged by the automated system may receive a very in-depth review by the underwriting staff of the lending company. FHA states this issue will help to reduce their exposure to risk by limiting lenders in the loans they approve.

Consumers can expect to have cash reserves that are equal to one month mortgage payment and for those with a score below 620, they would be reviewed even more so and overall debt could not exceed 43% of the borrowers income.

Short refinancing is a new program that will allow borrowers to refinance into a FHA loan if they are current on their mortgage and owe more on their loan than the home is actually worth.

What this means is that homeowners that have no equity will be able to refinance into a FHA loan. The loan will refinance the first mortgage only; however if a second mortgage is on the home, both loans together cannot exceed the value of the home more than 15% after the first loan has been refinanced.

The reason FHA is implementing this new loan is that home values have drastically decreases and many homeowners are unable to refinance or sell their homes, this new program is there to help.

What this means for consumers is that if you do refinance under this new program, you will more than likely hurt your credit and you will have a tough time qualifying for the program. The lending company that you have your mortgage through will have to agree to reduce the amount that you owe by around 10%. In addition, you must have around 31% or above of your pretax income on hand for the new monthly payment of the mortgages on the home.

Negotiating Your Purchase

Do you have dreams of the perfect home with all the amenities you desire but do not know what you can do to make it yours? When you are ready to start negotiating, there are a few tips that you should remember.

Be Self-Confident – Never trust what someone says and always have questions. If you do not agree with a statement, say something. Buying a home is a very important decision and a large financial responsibility. Always understand what you are getting and for how much.

Never act eager – Eagerness is a sign of weakness. If the Realtor and the lending company know you love the property so much you would do anything to own, you are in trouble. Always act nonchalant and ready to walk away from the deal if they do not listen to your desires.

Patience – Always have patience. Being impatient is just as bad as appearing too eager. If you want that dream home, you have been for quite awhile and you can wait just a bit longer to ensure you get what you want.

Listen – Too many times, emotions get in the way and Home-buyers do not listen. You should know all there is to know about a property before you considering buying. There could be second mortgage, the roof may need replaced, or a whole bunch of other surprises that you will learn about if you do not listen.

Be prepared for long negotiations that can be overwhelming at times. Just remember to take your time, think every action through before committing. In most cases, the seller is eager to sell so you can take your time to ensure you get what you want as long as it is reasonable. Another buyer may come in to purchase as long as the home is left on the market. Negotiations are your best bet but do not expect that every small thing will be handled as another buyer may take the home as is.

New Credit Card Legislation

With all the financial problems facing Americans, credit card companies are now seeing new laws put into effect. The truth is you should learn more about the new credit card legislation and how it will affect you in order to choose the best options.

No more over limit fees – Today, if you do not have the funds to purchase an item you cannot purchase at all, as the purchase will be denied. Overdraft coverage will now be an option the cardholder will have to ask for if they desire this service. This has been a loss of revenue for credit card companies and they of course want cardholders to opt for this service at a cost. In most cases, the fees are around $30 if you use the card with insufficient funds.

With this new law in affect, credit card companies are now reducing the limits of available credit to card holders in some cases as much as 50%. If you have an outstanding balance, this may lower your credit score if you happen to have a higher debt to credit ratio. The real truth is you should only be using around 30% of your available credit to be safe.

The new law makes all credit card payments due each month on the same day. This can aid in paying payments on time and steer clear of late payments.

As you read this, credit card companies are compiling and sending their cardholders their new terms. It would be wise to read their new terms, which might include higher interest rates, lower reward points, and annual fees. You will have the chance to opt out of the terms but your account will be closed. Even if you do opt out, under the new laws you will have up to five years to pay off the debt that is under the old terms.