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Presents FHA Introduction July 20, 2011. FHA Features 3.5% minimum down payment on purchase (96.5% LTV) Refinance rate and term max LTV is 97.75% Up to.

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Presentation on theme: "Presents FHA Introduction July 20, 2011. FHA Features 3.5% minimum down payment on purchase (96.5% LTV) Refinance rate and term max LTV is 97.75% Up to."— Presentation transcript:

1 Presents FHA Introduction July 20, 2011

2 FHA Features 3.5% minimum down payment on purchase (96.5% LTV) Refinance rate and term max LTV is 97.75% Up to 85% LTV for cash out refinance. No $$ max for cash out. ALL down payment/cost can be gifted by family Can refinance from conventional to FHA FHA High Balance: max loan amount $729,750 subject to county limits. FHA to FHA refi (Streamline): no appraisal nor income qualification. **6% seller credit includes recurring and non-recurring closing costs. More lenient on foreclosure (3 year) or BK history (2 yr on CH 7, Chapter 13 BK must be 1 yr from filing, can remain open).** No need to worry about qualifying for mortgage insurance separately Available for BOTH first time homebuyers and CURRENT homeowners Low credit score pricing adjustments more attractive than conventional

3 A Perfect FHA Loan Borrower has limited funds for a down payment Loan has a high LTV Borrower has less than perfect credit Loan requires MI but borrower’s fico is too low for MI When DTI is over 41% (when MI is required) Source of down payment is a gift or community 2nd and borrower has less than 5% of own funds Non-occupying co-borrower qualifications are less restrictive than conventional 85% cash out

4 FHA may not be right when… Your loan is a second home or non-owner occupied Your condo is not FHA approved The LTV is below 80% The buyer already has an FHA loan (Unless met exceptions indicated in HUD Handbook) There is a non-borrowing spouse with a lot of debts (FHA requires debts be included in DTI in community property states)

5 FHA vs. Conventional Lower minimum down-payment of 3.5%. No appraisal required for FHA to FHA streamline refinance FHA Loss Mitigation Options Student loan deferment

6 FHA vs. Conventional High DTI compared to conventional loan. Fannie Mae now requires max DTI of 45% (back end). FHA can insure up to 45%(front)/55%(back) depending on AUS. Max DTI doesn’t change even on High Balance loans (may go up to 45%/50% depending on AUS). Family member can gift everything, including 3.5% down-payment requirement and ALL closing costs. Down-Payment Assistant Programs (DAP)

7 FHA vs. Conventional Seller can credit up to 6%** of ALL closing cost (recurring and non-recurring). That means seller can pay hazard insurance and tax impounds. Non-occupying co-borrower transactions do not have separate LTV/DTI restrictions on the occupying borrowers. (Unless the borrower has no credit history)

8 Some Basic Credit Guidelines You May Want To Know

9 FHA Programs Fixed Rate/ARMs Purchase Refinance Rehabilitation  Standard 203(k)  Streamlined(k) HECM for Purchase (Reverse Mortgage) Energy Efficient Mortgage HUD Homes Good Neighbor Next Door (GNND)

10 STREAMLINED (k) AKA “Fix Up Loan”  Allows for finance of repairs after close of escrow  No minimum repair amount  Maximum repairs (up to $35,000) – items identified on appraisal must be repaired first  Can be used for purchase (including HUD REO properties) or refinancing with rehabilitation

11 Standard 203(k)  For more complicated, structural repairs/upgrades  Minimum of $5,000 in improvements  Health and safety issues first  Structural alterations  Modernize property  Handicap accessibility

12 Standard 203(k) – Cont.  Up to 6 months mortgage payments can be financed as part of the mortgage  Lender escrows funds and pays to homeowner/contractor in up to 5 draws  Requires 203(k) consultant  As repaired appraisal must support loan amount for repaired property

13 Social Security Number Requirements Borrower’s social security number will be verified & validated through FHAC - No T.I.N’s allowed. Verify social security number on paystubs / W-2’s / 1040’s match. Credit obtained must be under SSN that the Social Security Administration has on record for borrower

14 Employment  No time requirement for current job  2 year inclusive history required on 1003  Less than 2 years is acceptable if borrower can document recently graduated student  Acceptable explanations are required if sporadic job history and changes in profession - must make sense - decision based on verifying capacity to repay  Probability of continued employment is very important  Recently returned to work - requires current job for 6 mos + and document min 2 year work history prior to the gap of employment

15 DOWNPAYMENT SOURCES ▪ Savings ▪ Secured funds ▪ Gifts - from relative or significant other ▪ Cash - if borrower meets profile ▪ Sale of personal property ( must document value and sale) ▪ Sale proceeds ▪ 401K (use 60% of value)- must provide evidence the funds can be accessed. ▪ Investments ▪ Community Seconds

16 Bankruptcies  Chapter 7 Must document the BK was caused by extenuating circumstances beyond the borrowers control and must document financial responsibility for exception if underwriter recommends approval  Must be discharged for at least 2 years (AUS)  Chapter 13  Must be discharged for at least 2 years (AUS) For both - Provide full BK docs and discharge papers.

17 Foreclosure & Del. Federal Debts Foreclosure - must to be more than 3 years from end of foreclosure to date of application Delinquent Federal Debts  Delinquent student loans and unpaid federal tax liens will be verified through FHA Connection  Borrower not eligible unless account is current, paid or otherwise satisfied prior to close of escrow

18 Liabilities Recurring obligations Revolving Credit Installment Debt - include student loans unless deferred > 12 mos Check the paystubs! Check for Credit Union payments, other payments not reflected on credit. Note: 401K payments are not counted as debt. Child Support/Alimony payments “Buy and Bail” policy in effect, similar to Agency. To use rental income on departure property requires minimum 25% equity evidenced by a FNMA appraisal (2055 for SFR, Full appraisal 1073 for condos) In community property states, any debt of the non-borrowing spouse must be included in debt ratio!!

19 Citizenship and Immigration Status U.S. Citizenship not required Lawful Permanent Resident Aliens are acceptable - document with copy of entire valid Resident Alien Card Document evidence of permanent residency issued by Bureau of Citizenship and Immigration Services (BCIS)- part of Dept of Homeland Security Non-permanent Resident Aliens acceptable with the following stipulations: property being purchased is the borrower’s principal residence. Will require: * Valid Social Security number * Borrower must have Employment Authorization Document issued by the BCIS * Temporary residency status that expires within one year AND there is a history of residency status renewals- assume the continuation will be granted

20 Eligible Properties ▪ 1-4 Units ▪ Townhouses ▪ FHA approved Condos ▪ PUDs

21 Required Disclosures and Forms FHA Addendum & Real Estate Cert -(Amendatory Clause) signed at time of purchase contract by all borrower(s), seller(s), realtor(s) A- FHA Addendum to Loan Application- Borrower(s) to sign page 2 at application- then sign page 4 at closing Informed Consumer Choice - to be signed within 3 days of application For Your Protection Get a Home Inspection (form CN) Standard State and Federal required disclosures - signed & dated within compliance

22 FHA Refinance Options Streamline Refinance without an Appraisal - FHA to FHA refinance - No cash out No Cash Out Refinance - max cash to borrower $500 Cash Out Refinance - up to 85% LTV

23 STREAMLINE REFINANCE w/out appraisal FHA to FHA refinance Take Advantage of Lower Interest Rates Income not required to be listed on Employment info is required to be listed Payoff needs to reflect loan is current; a 12mos mortgage history is required. No Appraisal required Must show a Net Tangible Benefit to the borrower: Reduction in mortgage payment by 5%, or Fixed to ARM: reduction in rate by at least 2%, or ARM to Fixed: Increase in rate by no more than 2%

24 STREAMLINE REFINANCE w/out appraisal Continued Same borrowers must be on new FHA loan as were on previous FHA loan Must have made at least 6 pmts on previous loan 210 days from the closing date of previous loan New loan amount equals the outstanding principal balance minus the refund of UFMIP plus the new UFMIP on the refinance.

25 NO CASH OUT REFINANCE  Conventional to FHA refinance  Appraisal Required  Borrower must credit qualify and occupy the property as a primary residence  For lien consolidation, the liens must be one year old or used for improvements  May buy out ex-spouse’s Equity  Loan amount to 97.75% LTV’s  Maximum $500 cash out at closing

26 CASH OUT REFINANCE Borrow up to 85%of appraised value Home must be owned for at least one year Owner Occupied 1-2 units Only All borrowers must be on title 12 mos or inherited. Trust NOT allowed. 0 x 30 days late - 12 mos mortgage history Full Document Refinance Appraisal required Pull cash out of free and clear properties Debt Consolidation ok Repairs required if noted on appraisal or safety issue

27 Minimum Submission Requirements 92900A – FHA Addendum to 1003 executed by borrower on page 2 GFE/TIL Social Security card and drivers license for all borrowers Borrower Authorization LOANS IN COMMUNITY PROPERTY STATES: non-borrowing spouse: provide spouse’s individual credit report. CASE # evidence from FHA Connect - to include CAIVRS checked Purchase Contract if applicable and Amendatory Clause signed same date Credit report 2 Mos Complete Bank Statements to support assets needed to close If gift used to close, provide gift letter and proof of donor ability and gift transfer Paystub(s) including 30 days year to date income for each borrower (30 days consecutive) Income: Salaried: Min 2 yr W-2 Self-Employed, >25% commission or rental income: 2 yrs complete 1040’s + YTD P&L Mortgage statements for all properties owned. If impounds not shown, need tax bills and hazard insurance declaration pages Appraisal and/or Title if a purchase. Signed 4506T at time of application Signed disclosures

28 Mortgage Insurance All FHA loans have mortgage insurance FHA loan approval also approves the insurance. No separate approval required. Insurance is paid both up front (UFMIP) and monthly (MIP). Insurance is in effect until LTV reaches 78%

29 Upfront MIP and Annual MIP Current Upfront MIP Requirements Current Annual Premium Requirements Mortgage Type Upfront Premium Requirement Purchase Money Mortgages and Full-Credit Qualifying Refinances 100 BPS Streamline Refinances (all Types) 100 BPS LTV Annual Premiums for Loans = or < 15 years = or < 90 percent25 BPS > 90 percent50 BPS LTV Annual Premiums for Loans > 15 Years = or < 95 percent110 BPS > 95 percent115 BPS

30 Online Resources ■ HUD: ■ Limited Denial Participation Lists: ■ GSA (General Services Administration Lists: ■ HUD Lender page:

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