Compensating Factors and FHA

October 17, 2011 by Leave a Comment

I was at a seminar today that reminded me of one of my favorite things about FHA…

the 5th C of Credit!see  We’ve all heard about the other 4 C’s.

  • Cash:  How much can you put into the property, how much have you saved?
  • Credit:  Do you have a credit history?  If not, FHA will accept some non-traditional credit.  Do you have a spotless credit history?  If not, FHA might still be willing to insure your loan!
  • Collateral:  Do you have a property FHA wants to insure?
  • Character:  Have you moved 8 times in the last 3 years?  Do you have a history of employment in your chosen field?  Do you have a ton of collections?  These are all part of the “Character” an underwriter is looking at.

In some cases Conventional Loans will make “exceptions,” but in today’s environment – that’s a rare site.

With FHA though – there’s a 5th point of consideration.  COMPENSATING FACTORS.  Those factors could be what weighs the loan in your favor!  Some of our favorites include: [Read more...]

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One Borrower Has Income One Borrower Has Credit Score

August 18, 2010 by 1 Comment

When one borrower has most of the income… the other borrower has good credit scores… there ARE options for purchasing a home. Look at the question we had yesterday:

“We want to purchase a home, and I want to know if we can get it.  My husband currently has a mid credit score of 538,  and mine is 678.   He makes about 52,000 and I make 25,000.  I’m still in graduate school full time.  We saved  $4,000 for closing cost so far.  We want the house by the end of October 2010 Can we get a loan?”

Option 1:

Purchase a home using FHA, and have a non-owner occupied co-borrower on the loan with the borrower who has good credit scores. If you know that you can make the payments on your own, then having a parent, or other family member, on the loan will not be a burden to them.  After you’ve made 12 months of payments (and by all account mortgage interest rates will still be low a year from now) you can refinance the loan and take the family member(s) off. [Read more...]

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FHA Streamline Refinance Changes Effective 1/1/2010

September 25, 2009 by 2 Comments

With the release of several Mortgagee Letters (directions to lenders regarding coming changes) HUD announced detailed changes for Streamlined Refinances.

FHA Streamlined Refinances are loans that are FHA Loans that want to refinance to lower the monthly payment, change the terms (like go from an ARM to a Fixed Rate) or (in the past) go from a 30 year mortgage to a 15 year. 

Term reduction refinance transactions (going from 30 to 15yr mortgage) are no longer eligible for streamline documentation and must be underwritten and closed as no cash-out refinances.  Here are some of the changes announced that go into effect January 1, 2010:

  • At least six months seasoning on the existing FHA mortgage.
  • No 30 days late mortgage payments if less than 12 payments have been due. (loan is less than a year old)
  • No more than 1 X 30 days late in the last 12 months if the loan is more than 12 months, and NO 30 day late payments in the last 90 days. 
  • The new mortgage must provide a “net tangible” benefit for the borrower, meaning we must document that it is lowering the monthly payment, or you are refinancing to a 15 year from a 30 year which would reduce the overall cost of having the mortgage.
  • When refinancing from a fixed rate to a fixed rate or an ARM to an ARM, the PITI payment must be reduced by five percent or more. 
  • When refinancing from a fixed rate to an ARM, the new ARM rate must be at least two percent less than the current fixed rate. 
  • When refinancing from an ARM to a fixed rate, the new fixed rate may not be more than two percent above the current rate of the ARM. 

The maximum mortgage calculation has been revised for streamline refinances with and without an appraisal. (click here to see the rules for 2009) 

To Calculate the Maximum New Loan, Without an Appraisal:  Outstanding principal balance including 30 days interest from the first of the month – UFMIP refund + new UFMIP= Maximum new loan amount 

To Calculate the Maximum New Loan WITH an Appraisal:            The Maximum loan will be the Lower of the following calculations  

Calculation #1  Outstanding principal balance including 30 days interest from the first of the month – UFMIP refund+ closing costs and prepaid items for a new escrow account + new UFMIP= maximum new loan amount         (Discount points may not be included in the closing costs)           

OR  
 Calculation #2 97.75% of the appraised value + new UFMIP

 Lenders must certify in writing that the borrower is employed and has income at the time of the loan application.  (THIS IS NEW!!)  In addition, verification of any funds required to close are required. (ALSO NEW!!)   A copy of the payoff statement must be included in the case binder.  If credit scores are available, they must be entered into the FHA connection.  (ALSO VERY NEW and I’m afraid this is going to be bad news for some people)

The maximum CLTV with or without an appraisal is 125%. (For streamlines without an appraisal the CLTV is based on the original mortgage’s value.)   

For more details – click here.

If you are considering a refinance of your FHA loan in NC – please call us!  We know the details of getting the loan closed – and we have the BEST rates! 8o))  Steve and Eleanor Thorne, 919-649-5057

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FHA Qualifying with Rental Income

September 8, 2009 by Leave a Comment

First off, it’s important to remember that you can not use FHA financing to purchase Investment property.  FHA loans are for PRIMARY residents only… but time being what they are, we are finding folks who are renting their existing home, and moving to this area with some savings. 

If you relocate to a new area, and rent your existing home, you can use FHA (which requires a 3.5% downpayment) to purchase your new home… however, there were some changes made last year to the guidelines, and you will likely be required to qualify for your new home with your ENTIRE mortgage payment from your “old home” too! 

“If the borrower vacates one principle residence for another principle residence the mortgage payments will be included as a debt unless the LTV on the vacated property is less than 75%.  This is new as of September 2008 according to mortgagee letter 2008-25.  You can download the letter from this link: Mortgagee Letter 2008-25

Rent received for qualifying properties owned by the Borrower may be used subject to proper verification on tax returns and/or leases. For  properties owned by the Borrower, the most recent 2 years tax returns must be obtained and an average of the Schedule E income must be documented. (NOTE: If the most recent tax return shows a greater loss than the 2 year average, the lesser income is to be used.)

Depreciation may be added back into income and the positive income is to be added to Borrower’s wage income, but any negative income is to be treated as a recurring debt.

The application must list each property owned by Borrower and the tax returns must match the 1003 information. The Lender must verify the total number of properties that are currently owned by the Borrower and verify the total number of FHA LOANS (if any). If six (6) or more units (not properties) are owned by the Borrower in the same general 2 block area, a map disclosing the locations of the properties must be submitted to evidence the compliance with HUD’s limitation of 7 units rule.Any properties recently sold must be verified as sold by obtaining the HUD-1 closing statement from the Borrower. Properties recently purchased may not show on the tax return and current leases (of 1 year term or more) must be obtained from the Borrower to verify current income being received. The income from the lease must be reduced by a 25% vacancy factor before calculating final income to be used.

Rental income to be used on the purchase of a (new) Multi family (2-4) unit property will be determined by the FHA appraiser who will verify the current market rent applicable to the property. Lender is to use 85% of the appraiser’s rent forecast as the qualifying income.

If you are considering purchasing a home in NC, please call Steve and Eleanor Thorne, 919-649-5057… we have the LOWEST FHA RATES!

 

 

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