FHA Guidelines to Qualify “Rent to Own” in NC

May 5, 2011 by 1 Comment

Rent-to-own agreements and or sales that take place between a tenant and landlord have special FHA Guidelines. Often times, when someone moves to our area with a short sale, or previous forced foreclosure in their past – they will rent a home here until their “waiting period” is over.

If you are in this situation, and plan on buying a home under a rent to own scenario, there are different rules for different types of loans. All Government loans are popular, because of their low downpayment requirements.  VA has no “formal” guidelines for this scenario, and neither does USDA- however, most Underwriters follow the FHA Guidelines for all Government loans in a lease to own scenario.

The appraiser will determine the fair market rent for the property.  Any money paid ABOVE the fair market rent will be used as a credit towards a future downpayment. So, if the appraiser says the fair value rent for the home is $1000, and you pay $1500 a month – $500 for each month you paid that could be paid by the Seller as Downpayment for you at closing!

The rent to own agreement must be approved by the lender. There also is a loan to value restriction (85% LTV) if the parties are related and they haven’t rented for a long enough period of time-usually at least 6 months.  For NON related sales agreements, you can currently go up to 96.5% and not have to have a minimum rental period. Rules and underwriting are OF COURSE always subject to change at any time and any additional lender overlay.

If you are purchasing a home in NC, and want more information about FHA Guidelines and Rent to Own contracts – please call Steve and Eleanor Thorne, 919-649-5058 we are the NC FHA Experts!  We also have the LOWEST mortgage interest rates! :-)

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USDA Home Loans and Deferred Student Payments

March 13, 2011 by Leave a Comment

People are moving to Raleigh, and staying in the Triangle because we have jobs. Folks who are considering putting down roots here, and getting a North Carolina Home Loan need to learn more about how their Student Loans will be viewed by Underwriting Guidelines.

Whether it is a USDA Home Loan, an FHA Loan, or a VA Mortgage Loan – if you have have existing student loans, first off they need to be current. If you are past due – call TODAY and see what can be done to create a payment plan.   Once you’ve made 6 to 7 payments on the new plan – you will be closer to being able to buy a home in NC.

The USDA Loan Program is very popular among recent graduates, and a couple reasons are because there’s not a down payment requirement and it is the simplest home loan to get with credit scores of 620 being used to qualify.

Because you don’t need to fork out a ton of cash to get into the USDA Home Loan Program it has gotten VERY popular over the last few years… and it’s our understanding that Johnston County, NC is one of the HIGHEST Counties in the Country when it comes to people who buy a house using the USDA Rural Development Loan!

Student loans come in two classes: deferred and not deferred.  And one thing to keep in mind when looking at the USDA Loan Program is that it does treat student loans differently than the other loan programs available.  At first glance you would intuitively think that a deferred student loan would not be considered in qualifying for your new home loan.

The rule changed slightly with the publication of Administrative Notice 4543.  Now, any student loan whether it is in repayment or deferred must be included in the qualifying calculations.

So, Even though the payment may be deferred, USDA Home Loan Underwriters in NC will still consider this to be a long term debt. This means that if you have 6 payments or more left on a student loan – we will calculate that payment in qualifying you for a mortgage loan.

The maximum total debt payment ratio for USDA is 41%.  This means that your credit card payments, student loans, car payments (etc) plus your mortgage, taxes and insurance on the house should not represent more than 41% of your GROSS (before taxes) monthly income.  We have seen a few cases where this was bent by an underwriter… but not often.

If you do have student loans that are in deferred status and plan on getting a USDA Loan, be sure you know exactly how much the monthly payment will be once the loan is back in repayment status.  If you do not have that information, the USDA Underwriters will use 1% of the loan balance as the monthly payment.

See what part of your county qualifies for USDA Mortgage Loans!

To find out if you qualify for a USDA Home Loan in NC call Steve Thorne (919) 649-5058.  We work with hundreds of families using this program each year here in NC!

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FHA Guidelines About Using Rental Income in NC

December 8, 2010 by Leave a Comment

If you are moving to North Carolina, and you are going to rent your current home, there are a couple of things you should know about qualifying for an FHA Mortgage Loan for your new house. If you qualify for both payments – then it’s a pretty easy deal. If you need to count some of the income from your current residence it gets a little more tricky.

FHA Guidelines state that the rental income can not be counted, unless we can prove that you have at least a 25% equity stake in the home you are going to rent out. Too many people are buying a new home, and simply walking away from the one they couldn’t sell.

There is an EXCEPTION however:

If the borrower is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance…

AND a properly executed lease agreement (that is, a lease signed by the borrower and the lessee) of at least one year’s duration after the loan is closed, and we have a copy of a cancelled check for the security deposit, evidence of the first month’s rent

THEN we can count the rental income. ALL mortgage programs (not just FHA) only give you 75% of the rental income as credit… So, if you rent the property out for $1000 we will only be giving you $750 of income to use to qualify for your new home.

So let’s say that your “old” home has a TOTAL payment (taxes, ins, everything) of $1500. You are able to rent it for $1000. In this case, we would be counting $750 as a monthly debt for you.

If you are relocating, and getting a new job, please read these FHA Guidelines about documenting your income.  If you have questions about purchasing a home in NC using FHA financing, please call Steve and Eleanor Thorne Mortgage Banker in Cary , 919-649-5058.

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Profile of 2009 – 2010 First Time Home Buyer

November 9, 2010 by Leave a Comment

The National Association of Realtors released information about First Time Home Buyers last week that showed some interesting trends!

  • 93 percent of those surveyed in 2009 – 2010 reported that they purchased using one of the first-time buyer tax credits. (Who’s surprised??? Nope, we’re not surprised either!)
  • Ninety-five percent chose a fixed-rate mortgage.
  • The median age of first-time buyers was 30 and the median income was $59,900. (This part was a little surprising!) The typical first-time buyer purchased a 1,540 square foot home costing $152,000 (bet they were keeping their total payments under the $1000 mark)
  • First-time buyers who made a downpayment used a variety of sources: 74 percent used savings, 38 percent received a gift (or a loan) from a friend or relative, (READ:  their parents) Eight percent tapped into a 401(k) fund, and 6 percent sold stocks or bonds.
  • Women accounted for 1 in 5 purchases, and single Males made the largest leap in the survey ever – which was attributed to the tax [Read more...]

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FHA and VA Mortgage Loan Guidelines Waiting Periods

October 25, 2010 by 2 Comments

If you’re like millions of American’s the last couple of years have been tough.  People who have lost their jobs, or their houses, or their business didn’t just wake up one morning and say, “Oh, instead of making my payments, I think I’ll take a trip to Belize!” They never imagined they would be one of “those people” with bill collectors and “dings” on their credit.

Well, the good news is that your credit score is really just a snap shot of the last 24 months. Yes, missed payments will stay on your credit file for 7 years – but their IMPACT on your credit is greatly diminished after 24 months. (If one person on the loan has good credit, and one person has “poor” credit click here).

So if the bad credit, foreclosure, bankruptcy is behind you… how long do FHA and VA make you wait before you can purchase a home again? Below you will find a chart with the Waiting Period and/or guideline for each Program.  Note that there’s another column that says “With Extenuating Circumstances.” That could mean, you were in Florida, lost your job, had to Short Sale, and move to North Carolina to get a new job… you would need to PROVE that the reason you did a Short Sale in Florida was due to the job loss, and you would need to prove that the company that had the Short Sale is not going to come back after you for the deficiency balance (some banks do – some banks do not).

If the chart says “UW Discretion” that means that the UnderWriter needs to make the call… these days, it is our experience that UnderWriting is TOUGH. We MUST make a strong “case” to get any exceptions, we must DOCUMENT the file, and we MUST know what our UnderWriter is looking for.  

n these situations – you need a GREAT loan officer who will WORK FOR YOU!

DerogatoryEvent FHA VA
Waiting Period and/or Guideline Waiting Period and/or Guidelinew/extenuating circumstances Waiting Period and/or Guideline Waiting Period and/or Guidelinew/extenuating circumstances
Bankruptcy Ch 7 or 11 2 years 1 year 2 years 1 year
Bankruptcy Ch 13 1 year with 12 months satisfactory payments to trustee.  Must have court permission (not trustee) to incur new debt.   If not fully discharged for 2 years loan must be manual UW. Same 1 year with 12 months satisfactory payments to trustee and trustee permission to incur new debt. Same
Foreclosure Deed-in-Lieu 3 years UW discretion 2 years 1-year w/current satisfactory credit.
Short Sale Borrower current attime of short sale:

No wait if all mtg and installment debts pd on time for 12 months preceding short sale.

Borrower delinquent

at time of short sale:

3 years from date of sale.

If previous mortgage was FHA, 3 years from date CAIVRS claim was paid.

 Same No guidance.Typically treated as foreclosure but is at UW discretion. Same

If you have questions about FHA mortgages or VA mortgage loans, and how your particular situation will be viewed in North Carolina with our Underwriting Guidelines (because the State of North Carolina has it’s own set of Mortgage Underwriting Guidelines ON TOP of what FHA and VA set out) please call Steve and Eleanor Thorne, 919-649-5058.

We are truly FHA Home Loan and VA mortgage Loan Experts, and we will give you solid advice!  We offer the best interest rates and fees available.

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Raleigh One of the Smartest Cities in America!

October 4, 2010 by Leave a Comment

We keep getting good news about Raleigh / Cary! In the past month we’ve been named as the first place to most likely see appreciation in Real Estate, one of the best places to Retire, One of the best areas for Single Rich folks and now… one of the BRAINIEST Cities in America!

According to new Census Bureau data, the national average for cities with people 25 years or older who have bachelor’s, master’s, professional school or doctorate degrees is less than 25%… In Raleigh, that concentration is at 42.4% putting us at number 4 on the list!

“There’s a very high correlation between earnings and educational attainment,” said Todd Gabe, an economics professor at the University of Maine.

Cary currently trends at number 13 on the fastest area in the country for Job Growth!

According to CNN Money, Wake  County is one of the nation’s leader in a high-tech and biotech jobs.

Wake County is home to Research Triangle Park, the country’s largest industrial park, where IBM has extensive operations, employing 11,000, along with GlaxoSmithKline, Cisco Systems, and SAS Institute.

Even though there are more than 160 companies in RTP, the lion’s share of Wake County’s jobs come from the public sector. The lion’s share of local jobs are with the state government or the public school system. North Carolina State University and the county are also major players.

If you are considering a home purchase in Raleigh or Cary NC – call Steve and Eleanor Thorne, 919-649-5058.  Professional Mortgage Planners with over 20 years experience. We have the best FHA, VA and Conventional mortgage rates and the lowest fees available!

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FHA Adding Capital Fast Enough?

September 27, 2010 by Leave a Comment

David Stevens, the head of FHA answered questions last week about weather or not his agency would need a “Bailout” from taxpayers. FHA doesn”t make loans, but they insure them, and with so many people without jobs, and properties being foreclosed on… that insurance fund has been tapped into pretty hard.

That’s one of the reasons FHA requested a change in the way MIP is charged.  Those latest, changes go into effect next week.

“If the fund has not gone negative and continues to remain positive it will be thanks to the quick actions of this committee and Congress giving us more authority and actions of this administration,” Commissioner David Stevens said in response to a question at a hearing of the House of Representatives Financial Services Committee.

He went on to tell the Committee:

The FHA is “running on its own. It is financially sound. It is below the minimum capital requirement, so we need to increase that capital but it is not (now) requiring a bailout. We will know more when the actuarial study is complete,” later this fall.

If you are considering a FHA Mortgage Loan in NC, call Steve and Eleanor Thorne, NC FHA Experts 919-649-5058  These changes could definitely make a little less attractive for some folks considering a FHA Streamline Refinance

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FHA Home Loans for Single Parents

August 14, 2010 by 2 Comments

With the Economy in a “slump” statistics show more and more families have a single parent.  If you are in this situation, and want to purchase a home, there are some very specific details you should know:

  • FHA requires a 3.5% Investment into the Property, which is lower than the 5% charged on most Conventional Loans.
  • The down payment for a FHA loan can be a gift (for more info about FHA Down Payment requirements click here).
  • FHA loans, in today’s lending environment generally require 12 months of clean credit, and a credit score of at least 620.
  • FHA will consider part time jobs if you’ve only had that part time job for 18 months – most other underwriting requires you to have a 24 month history of working 2 jobs. (and let me just say, if you are a single parent working 2 jobs – God Bless you! WOW! Talked to a Dad today who is doing that!)

CHILD SUPPORT or Alimony

You have to have evidence that you have received child support, on time, for a year for it to count as income. One of the most common problems we see is when a mom will get a child support check, cash it, and deposit part of the check into their account.  In order to have EVIDENCE that you are receiving that income, we need to have bank statements that reflect the entire “check.”  We suggest that mom’s deposit the child support check into their account at the same time each month.  DITTO with Alimony.

We must have evidence that you will receive Child Support or Alimony for at least 3 full years after the date of closing.  Let’s say you receive $300 for each of your 2 children until they are 18.  So if you have a child who is 12 and a child who is 16 – we would only count the 12 year old’s portion of your support in qualifying you for the mortgage.

If you PAY Child Support or Alimony… we are only going to count that payment against you (like a car loan) if you have more than 9 months of payments left per your agreement.  If you are behind on Child Support or Alimony, and the court is garnishing wages for those payments, we would need 12 months history of that “work out” being made on time.  You will need a credit score of at least 620.

Non-Occupying Co-Borrower

You can purchase a home without being married to the other borrower. You could buy the home with your parents (for instance), and they would not have to live in the home. We would take all of their income, all of your qualifying income, all of their debts and all of your debts, and see what the ratios look like.  Having someone purchase the home with you helps from an Income Qualifying standpoint.  Having someone else purchase with you will not help a single parent with CREDIT issues.

Purchasing a home with someone who is NOT a family member would require that the other person live in the property with you. Again, you take all of their income, all of their debts and add it to yours… and their credit needs to be at least as good as no late payments in the last 12 months and at least a 620 credit score. (Don’t have a 620 score yet?  Click here for tips you can start doing today to improve your credit score! 8o))

RoomMates

We are seeing a ton of single parents who are living with OTHER single parents.  If you HAVE a roommate, or if you are GOING to have a roommate – it is very very difficult for us to count that income.  If the roommate is not going on the mortgage loan with you, 99% of the time we can not count that rental income.

Previous Mortgage

If you and your Ex owned a home, and the mortgage was NOT in your name – there’s nothing to worry about.

If you owned a home, and the mortgage was in BOTH names, and you Quick Claim Deeded the Property over to your Spouse… you are STILL responsible for the mortgage.

If the Seperation Agreement says that the SPOUSE is responsible for the mortgage payment -and you were ON the mortgage loan… you are STILL responsible for the mortgage. Unless you have been TAKEN OFF of the mortgage – let’s say the other person refinanced the mortgage and took your name off, or if you sold the home, you are still responsible for the mortgage.

If there was a Short Sale, or Foreclosure on that home, and you were on the mortgage, (even if you did not live there at the time and you the separation agreement said you were not responsible for the mortgage) click here for more details and time lines.

HERE’S THE GOOD NEWS!

Less income, in today’s real estate market – buys MORE home. With Interest rates in the 4% range, and home prices coming so far down – a parent who makes $38,000 with no more than $350 a month in debt can purchase a home in Raleigh with 4 bedrooms, a 2 car garage, in a NICE neighborhood for around $200,000.  The TOTAL payment, Taxes, Insurance, Mortgage Insurance, Homeowner dues and ALL on one we looked at for a mom yesterday was $1050 a MONTH!

So, if you make $35,000 – and receive $300 a month in child support… you could purchase a nice home, and you could GET a room mate to help you make your payments!  NOW really is a great time to purchase a home!

If you are a Single Parent, interested in buying a home, call Steve and Eleanor Thorne at 919-694-5058.  Each situation is different.  Let us help you with a plan that will mean you can purchase a home! We know the FHA guildelines in NC and we love helping people buy a home for their family!

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FHA PMI Changes 10/4/2010

August 13, 2010 by 2 Comments

For about the 5th time in the last 36 months FHA is changing the way it charges Mortgage Insurance.  While this is a pretty major shift in the Way Mortgage Insurance is calculated for FHA, it’s only about a net $20 per $100K borrowed difference.

HISTORY of FHA’s PMI (Mortgage Insurance)

First off, it’s not called PMI. FHA doesn’t MAKE mortgage loans, they insure them.  The mortgage insurance that they charge is referred to as MIP (cleaver I know, Mortgage Insurance Premium).  I refer to it in my blog posts as FHA’s PMI... well because from a Consumer’s standpoint it works just like PMI, and most people are familiar with that term.

MIP has been charged TWICE to borrowers for YEARS. FHA collects an UpFront Mortgage Insurance Premium that’s gone from 1.5 to 1.75 t 2.25 to 1% of the loan amount.  In years past they’ve refunded part of this UpFront Premium… so if you took out a loan in say 2002, and then you paid that loan off through a refinance in 2004… you received a substantial chunk of that premium back.

Then the Economy went south, and with the changes they made in 2008, they did completely away with the refund…

The other way FHA collects the premium, is in the MONTHLY MIP premium.  In year’s past, that MIP collected on a monthly basis for loans with less than a 5% downpayment was.55%.  For loans where the borrower made more than a 5% downpayment, the MIP was .50%.

How These Changes Compare to the new October 2010 MIP Rates

Okay, because I can pretty easily do the math in my head, let’s compare the “old” rates for FHA Mortgage Insurance to the “new” rates based upon a $100,000 sales price with a “fictitious” mortgage interest rate of 4.25%.

DownPayment Upfront MIP Monthly MIP Loan Amount
With Upfront MIP		 Total Payment
with MIP		 Difference
NEW Method of Calculating MIP
3.5% 1% $75.75 $97,465.00 $555.22 + $24.60
5% 1% $67.96 $95,950.00 $539.97 + $21.64
OLD Method of Calculating MIP
3.5% 2.25% $45.22 $98,671.00 530.62
5% 2.25% $40.47 $97,137.00 518.33

These numbers, at $100,000 Sales Price don’t look that dramatic…  Let’s take the same format, and change the Sales Price so that we can take advantage of the maximum Loan Amount for Wake County, NC $295,000.

So with a Sales Price of $305,000 the numbers look like this…

DownPayment Upfront MIP Monthly MIP Loan Amount
With Upfront MIP		 Total Payment
with MIP		 Difference
NEW Method of Calculating MIP
3.5% 1% $222.95 $297,268.00 $1685.33 + $66.93
5% 1% $210.56 $297,268.00 $1672.94 + $67.08
OLD Method of Calculating MIP
3.5% 2.25% $137.93 $300,947.00 $1618.40
5% 2.25% $125.39 $300,947.00 $1605.86

Well… what do you know?  It’s STILL not that dramatic a difference.  I know my peers are on Facebook, and sending around video saying that this is a “Tax” on home owners.  It’s not.  It’s a way for FHA to get the cash flow they need, while mortgage loans are defaulting.

HERE’s what I think is interesting! You can buy a house with 2723 square feet, in Raleigh, 4 bedrooms, with a 2 car garage built in 2009 for $219,000. With these new FHA calculations, and with today’s interest rates, your down payment is $7,665 (this can be a GIFT) and your TOTAL monthly payment, including Homeowner dues, and taxes and insurance and EVERYTHING is still less than $1050 a month!

If you have pretty good credit (scores above 620) and not more than $350 a month in debt – a family making only $38,000 a year qualifies for this house! Now THAT my friends, is something to get excited about!

If you are considering a FHA mortgage loan in NC, and you want more information about qualifying for a FHA mortgage loan in Cary or Raleigh NC  - please call Steve and Eleanor Thorne, Mortgage Banker in Cary 919-649-5057.  We know FHA Mortgage Programs, and we have the best Mortgage Rates available!

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Income Qualifications FHA Mortgage Loans in NC

July 29, 2010 by 1 Comment

FHA Mortgage Loans are generally easier to qualify for than a more Conventional Home Loan from Fannie Mae or Freddie Mac.  

Specific income qualifications we use to qualify borrowers for mortgage Loans:

  •  FHA allows us to “count” part time income if you have more than an 18 month history of working 2 jobs. 

We can also count tips, as long as you report them! 

Many people in North Carolina working in the IT field are working on long term contracts, they are not actually the employee of the company where their office is.  If you’ve been working on contract for over 18 months we can generally get the loan approved (takes some extra work!).

If you are laid off every year at the same time, we can still get your loan approved.  We just got a loan approved for a guy who works at a local University in their food services department.  Every year, right after graduation in May, he’s laid off.  In August, he is rehired.  He’s done this for 5 years.  Once he receives his August paycheck (in a few weeks) we will be able to close his loan!  We could count his unemployment AND his regular income from the University / State to qualify him!

Using Rental Income to qualify for a FHA mortgage Loan can be tricky – if this is the situation you are in, please click here for details.

One of the first questions we will ask when we speak with you… is how much of your total income you feel comfortable spending on housing. This ratio of Gross Income to Housing Expense helps the lender decide whether you can comfortably afford a home.

When you are qualifying for a loan, a we will use your gross income. That means all the money you earn before taxes, including overtime, commissions, dividends and any other sources. Again, we are looking for the income BEFORE insurance and any money goes out to 401K. If you receive Social Security or Pension income – we will gross that income UP for qualifying!

Your total monthly housing expense as a percentage of your monthly income is called the housing expense (a.k.a.: front-end) ratio. FHA wants a ratio of about 29% of your income to your house payment (including the mortgage, property taxes, mortgage insurance, hazard insurance and any Home Owner Association Dues).

Calculate what your new monthly mortgage payment should be by using the formula:

Gross Monthly Income multiplied by 29% = Maximum TOTAL Mortgage Payment.

Especially in situations when someone is just entering the job market the 29% of gross income just doesn’t “buy” the house of your dreams!  That’s one of the benefits of easier qualifying guidelines for FHA home loans! To qualify, you’re allowed to spend up to 34% of your income on your house payment, as long as everything else in your application shows that you can handle the “stretch.” (READ, as long as you don’t have a ton of other payments, like a $500 car payment!) 

Another thing the FHA Mortgage Underwriter will look at in considering your loan for approval is the difference in your housing expense now to the expense you’ll have if you buy a home. The smaller the increase, the stronger your application looks. So if you are paying $1000 now and your new payment will be $1400, that’s probably okay if your housing ratio is not too high.  If you are paying $1000 a month now, and your new payment is going to $1800… and you have a fairly high housing ratio… we are going to look and see that you have been SAVING money every month at $1000.  We can use that information as a reason to make the loan!

If you have questions about qualifying for a FHA Mortgage Loan in NC, and you are looking for the BEST Mortgage Rates – please call Steve and Elaenor Thorne, 919-649-5058.  We are Professional Mortgage Planners with over 20 years of experience closing FHA Home Loans in NC!

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