Focus On Financing

New FHA Rules Regarding Deferred Student Loans

June 16, 2015 by · Leave a Comment 

Sad GraduateFHA has recently announced that all deferred student loan payments must be included in the borrower’s debt-to-income (DTI) starting September 14, 2015. FHA was considered the last option available after Fannie Mae and Freddie Mac announced their change to no longer accept deferred student loan payments to be omitted. Student loans in forbearance are also required to be accounted for when qualifying for a home loan.

How does this affect you?

The more debt that is included in your debt-to-income (DTI) ratio will cause your buying power to be affected because the higher the debt the less they’ll qualify. This does not only affect basic qualifications, but also first-time homebuyer programs as well. 

Let’s look at this closer:

If the payments on that $40,000 were 2% of the balance which is conservative, the payment would be $800/mo. If that graduate once qualified for a $350,000 home (with a 3.5% down payment and excluding the deferred payments) this new rule would decrease that amount by approximately 30% or more.

What you need to know about your student loans when applying for a mortgage

In a nutshell, all payments from a student loan must be provided to ensure that they are being accounted for in your debt-to-income. It is imperative that you are able to get a statement or letter from the creditor showing what the terms will be once the payments have commenced; otherwise, a larger payment must be used to calculate your DTI ratio.

The following are excerpts from HUD’s Handbook 4000.1:

Lenders must obtain written documentation of the deferral of the liability from the creditor and evidence of the outstanding balance and terms of the deferred liability. The lender must obtain evidence of the anticipated monthly payment obligation, if available.

The lender must use the actual monthly payment to be paid on a deferred liability, whenever available.

If the actual monthly payment is not available for deferred installment debt, the lender must utilize the terms of the debt or 5 percent of the outstanding balance to establish the monthly payment.

For a student loan, if the actual monthly payment is zero, the lender must utilize 2 percent of the outstanding balance to establish the monthly payment.

What if my spouse has student loans, but they are not on the loan?

This is a very common question and a good one at that. In a community property state such as California, all government insured loans such as FHA, VA and USDA require all debts (including deferred student loans) from the borrower’s spouse to be included in their DTI. Which means your spouses’ student loans can possibly cause a loan denial.

If your spouse has student loan debt but you don’t, your other option is to qualify using a Conventional loan with a 3% down payment. All Conventional loans do not require the non-qualifying spouse’s credit to be provided, therefore; her/his debts will not be included in the borrower’s DTI ratio.

What now?

Now that FHA has implemented not only this change but the lowering of the loan limits, working with a knowledgable loan officer is more important now than it’s ever been. You need to know your options and strategies that will help you obtain homeownership.

The use of non-occupant co-signors such as mom and dad will be more popular going forward. The Mortgage Credit Certificate (MCC) is also another useful program that can help you get credit to be used as income to offset some of the student loan debt.

To explore your options and to begin your home financing journey in San Bernardino county and surrounding areas call me at (951) 662-3389 or/and you can start an application by clicking here.

MyCommunity® Mortgage, The FHA Alternative…

October 20, 2014 by · Leave a Comment 

Update: The down payment requirement has been reduced to 3%. With this option, at least one of the borrowers has to be a first time homebuyer (has not owned a home in the last 3 years). If a refinance, the mortgage being refinanced has to be owned by Fannie Mae. 

 

FHA has been and will always come to mind when thinking about home financing for first-time homebuyers. When HUD decided to change the MIP rules for FHA loans, the sought after program suddenly became less attractive. Soon after, Fannie Mae remerged with a competitive program designed to be used by first-time homebuyers to purchase a home and also for current homeowners to use to refinance. 

FannieMae-Logo

 

 

MyCommunity Mortgage Described

MyCommunityMortgage® (MCM®) is a conventional community lending mortgage that offers underwriting flexibilities to qualified borrowers who meet specific income criteria. Fannie Mae designed this program to provide lower rates due to lower risk-based price adjusments, and reduced mortgage insurance costs as explained below. 

Fannie Mae has made this program ideal for the home buyer who has a credit score of 700 or less, limited funds who will need to utilize a gift from a third party for their down payment, or if they want to use a form of an approved down payment assistance such as CalHFA’s CHDAP program.

Low Interest Rates Due to Low Risk-Based-Price -Adjustments

Interest rates remain low with this program due to minimal Loan-Level Price Adjustments (LLPA). LLPAs are the reason why an interest rate can differ from one borrower to another. For a standard conventional loan there can be price adjustments for certain risk factors such as credit scores and/or loan-to-value (LTV). MyCommunity® implemented a cap on these adjustments at .75% compared to 2% or even higher based on certain scenarios. 

Affordable Private Mortgage Insurance (PMI)

PMI is required for loans that have a LTV of 80.1% or higher (less than 20% down payment). When PMI is called on a loan the amount of coverage and the amount of the premium will be based on many factors, similar to the LLPAs explained above. MyCommunity® coverage requirements have been significantly reduced which will have a drastic effect on the cost of it. Reference below to the coverage amounts required by MyCommunity®.

MyCommunity® PMI Coverage Comparison

  • 90.01% – 95% LTV = 16% | Standard Coverage = 30%
  • 85.10% – 90% LTV = 12% | Standard Coverage = 25%
  • 80.01% – 85% LTV = 6%   | Standard Coverage = 12%

Loan comparison shown towards the bottom of the page.

Lower Down Payment Options

A common reason people don’t buy a home of their own is because they don’t have the money for the down payment. This program offers flexibility regarding where you can get the money from. You may get a gift for up to 100% of the down payment from a family member, employer or someone that you have a long term relationship with. MyCommunity® also offers the ability to combine an approved down payment assistance program such as CalHFA’s CHDAP program.

The following are the basic guidelines and notable features of this program:

  • 620 minimum FICO score (Mid score of all three or the lower if only two)
  • 45% Debt-to-income (DTI)
  • 100% of the down payment can come from a gift (family member, employer or Community 2nd)
  • Boarder income (income from roommates) can be used to qualify
  • The borrower’s income can not exceed 140% of the Average Median Income (AMI) in California (Surrounding Counties listed below)

Local County Income Limits:

  • San Bernardino – $84,980
  • Riverside – $84,980
  • Orange – $91,980
  • Los Angeles – $91,980
  • San Diego – $101,780

MCM Loan Comparison

 

 

 

 

 

 

Many banks do not offer this program and many Loan Officers don’t take the time to present and educate clients about all their options. If you want to work with a mortgage advisor who is always transparent and will not push you toward a couple of programs that they are familiar with or understand, contact me at (951) 662-3389.

Get a head start and fill out a loan application, click here to access my secured online application.

Changes to Short Sale Waiting Periods for Conventional Loans

August 21, 2014 by · Leave a Comment 

Picture1Fannie Mae announced that on Saturday August 16, 2014, the waiting period for short sales will be extended to 4 years. Before this change, people who sold two years ago and had the ability to invest at least 20% towards their down payment were able to buy. Read Fannie Mae’s Announcement SEL-2014-10.

What this means:

If you had a short sale and planned to buy with a 20% down payment you can now no longer qualify using a Conventional loan. The program that would help you become a homeowner the quickest would be through FHA, but there are some drawbacks to this program. First, FHA allows you to purchase a home after 3 years, but the program comes with a hefty mortgage insurance premium, which is paid upfront through your loan as well as with your monthly payment. Secondly, this mortgage insurance will be included for the life of the loan unless a you buy with 10% down payment or you get a loan term of 15 years. Although there are drawbacks to FHA, it is still a great program to get you in to a home so that you can begin receiving tax benefits and ultimately increasing your net worth. You also have the option to then refinance out of the program once you meet Conventional guidelines. On the upside, if you are at the 4 year mark or close to it, the minimum down payment you’ll need is only 5%. It’s also important to know that you can purchase a home after 2 years with a Conventional loan if you put down 10% and can document that the reason you short sold the home was due to extenuating circumstances.

Not close to the 4 year mark?

There are still ways to purchase a home. For FHA, there are a couple ways that will allow people to buy right away. If you were on time with your payments while your short sale was being processed (at least 12 months) you can purchase right away; as long as you’re not selling and buying just to take advantage of the current market. The second method is with the Back-to-Work program also offered through FHA. This program will allow you to buy after 12 months, but only if you can document extenuating circumstances that caused either a 20% decline in household income or loss of employment for at least 1 year.

What if I had a foreclosure? Are there any new changes?

If you had a foreclosure you will be required to wait 7 years to buy using a Conventional loan. People who had a Deed-In-Lieu of foreclosure (DIL), which are usually treated the same as a foreclosure, can now repurchase after 4 years.

My mortgage was included in a bankruptcy, what are the waiting periods for this?

There is good news relating  to this situation. Before, if a foreclosed mortgage was included in a bankruptcy the waiting periods would resort to the waiting period that extended out the most (foreclosure or bankruptcy). The new guidelines will allow a buyer to purchase a home based on the waiting periods of only the bankruptcy, which can be in as little as 2 years.

Recap… Old Guidelines and New Guidelines
  • 2 Years with 20% Down Payment ———— 4 Years with 5% Down Payment
  • 4 Years with 10% Down Payment ———— 4 Years with 5% Down Payment
  • 7 Years for a Deed-in-Lieu of Foreclosure — 4 Years with 5% Down Payment
  • 7 Years for a Foreclosure ———————- Remains the same

FHA “Back to Work” Program, Helping Recession Victims Purchase a Home!

August 30, 2013 by · Leave a Comment 

Patriotic hand House

FHA is recognizing the hardships faced by borrowers who were affected by an Economic Event during the Great Recession. These

homeowners can now purchase a home after a 12 month waiting period, considering they meet certain criteria. These new guidelines are in effect for case numbers ordered on or after August 13, 2013. As with any new FHA programs or announcements, lenders sometimes have a delay in applying them. Our lenders have already put these new FHA features in effect and are available for clients.

What Constitutes an Economic Event?

In HUD’s Mortgagee Letter 2013-26 an Economic Event are extenuating circumstances in which a borrower experienced a severe reduction in household income due to job loss and other similar situations beyond the homeowner’s control. These situations have caused the homeowner from fulfilling their monthly mortgage payments, which ultimately caused them to lose their homes. These circumstances have also caused credit impairments, which extends from bankruptcies, short sales, deed-in-lieu of foreclosures and actual foreclosures. Medical extenuating circumstances may also qualify depending on the severity and length of the situation.

In order for a homeowner to qualify for the “Back to Work” program, they must have:

  • Experienced an Economic Event
  • Has made a full recovery from the event with satisfactory credit
  • Partake in a housing counseling session provided by a HUD sponsored agency
  • Proof that the cause of the economic event was caused by document-able loss of household income due to the recession

Housing counseling enables borrowers to better understand their loan options and obligations, as well as assists borrowers in the creation and assessment of their household budget, accessing reliable information and resources, avoiding scams, and being better prepared for future financial shocks, among other benefits to the borrower.

Satisfactory Credit
A borrower is deemed to have satisfactory credit if:

  • Credit history is clear of late housing or installment debt payments, and major derogatory credit issues on revolving accounts;
  • Any open mortgage that is current and shows 12 months satisfactory payment history. Non-traditional credit history is acceptable per the guidelines of the aforementioned Mortgagee Letter.

**Other Important Guidelines**

Loss of Employment will have to be verified along with the previous income prior to the “Loss of Income”. These can be verified by obtaining verifications from the employer, previous years of tax returns and/or W2s.

Understanding the FHA Mortgage Insurance Premium (MIP)

March 28, 2010 by · Leave a Comment 

* Disclaimer – all information in this article is accurate as of the date this article was written *

The FHA Mortgage Insurance Premium is an important part of every FHA loan.

There are actually two types of Mortgage Insurance Premiums associated with FHA loans:

1.  Up Front Mortgage Insurance Premium (UFMIP) – financed into the total loan amount at the initial time of funding

2.  Monthly Mortgage Insurance Premium – paid monthly along with Principal, Interest, Taxes and Insurance

Conventional loans that are higher than 80% Loan-to-Value also require mortgage insurance, but at a relatively higher rate than FHA Mortgage Insurance Premiums.

Mortgage Insurance is a very important part of every FHA loan since a loan that only requires a 3.5% down payment is generally viewed by lenders as a risky proposition.

Without FHA around to insure the lender against a loss if a default occurs, high LTV loan programs such as FHA would not exist.

Calculating FHA Mortgage Insurance Premiums:

Up Front Mortgage Insurance Premium (UFMIP)

UFMIP varies based on the term of the loan and Loan-to-Value.

For most FHA loans, the UFMIP is equal to 2.25%  of the Base FHA Loan amount (effective April 5, 2010).

For Example:

>> If John purchases a home for $100,000 with 3.5% down, his base FHA loan amount would be $96,500

>> The UFMIP of 2.25% is multiplied by $96,500, equaling $2,171

>> This amount is added to the base loan, for a total FHA loan of $98,671

Monthly Mortgage Insurance (MMI):

  • Equal to .55% of the loan amount divided by 12 – when the Loan-to-Value is greater than 95% and the term is greater than 15 years
  • Equal to .50% of the loan amount divided by 12 – when the Loan-to-Value is less than or equal to 95%, and the term is greater than 15 years
  • Equal to .25% of the loan amount divided by 12 – when the Loan-to-Value is between 80% – 90%, and the term is greater than 15 years
  • No MMI when the loan to value is less than 90% on a 15 year term

The Monthly Mortgage Insurance Premium is not a permanent part of the loan, and it will drop off over time.

For mortgages with terms greater than 15 years, the MMI will be canceled when the Loan-to-Value reaches 78%, as long as the borrower has been making payments for at least 5 years.

For mortgages with terms 15 years or less and a Loan -to-Value loan to value ratios 90% or greater, the MMI will be canceled when the loan to value reaches 78%.  *There is not a 5 year requirement like there is for longer term loans.

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Why Do I Need To Pay A VA Funding Fee?

March 28, 2010 by · Leave a Comment 

The VA Funding Fee is an essential component of the VA home loan program, and is a requirement of any Veteran taking advantage of this zero down payment government loan program.

This fee ranges from 1.25% to 3.3% of the loan amount, depending upon the circumstances.

On a $150,000 loan that’s an additional $1,875 to almost $5,000 in cost just for the benefit of using the VA home loan.

The good news is that the VA allows borrowers to finance this cost into the home loan without having to include it as part of the closing costs.

For buyers using their VA loan guarantee for the first time on a zero down loan, the Funding Fee would be 2.15%.

For example, on a $150,000 loan amount, the VA Funding Fee could total $3,225, which would increase the monthly mortgage payment by $18 if it were financed into the new loan.

So basically, the incremental increase to a monthly payment is not very much if you choose to finance the Funding Fee.

Historical Trivia:

Under VA’s founding law in 1944 there was no Funding Fee; the guaranty VA offered lenders was limited to 50 percent of the loan, not to exceed $2,000; loans were limited to a maximum 20 years, and the interest rate was capped at 4 percent.

The VA loan was originally designed to be readjustment aid to returning veterans from WWII and they had 2 years from the war’s official end before their eligibility expired. The program was meant to help them catch up for the lost years they sacrificed.

However, the program has obviously evolved to a long term housing benefit for veterans.

The first Funding Fee was ½% and was enacted in 1966 for the sole purpose of building a reserve fund for defaults. This remained in place only until 1970. The Funding Fee of ½% was re-instituted in 1982 and has been in place ever since.

The Amount Of Funding Fee A Borrower Pays Depends On:

  • The type of transaction (refinance versus purchase)
  • Amount of equity
  • Whether this is the first use or subsequent use of the borrower’s VA loan benefit
  • Whether you are/were regular military or Reserve or National Guard

*Disabled veterans are exempt from paying a Funding Fee

The table of Funding Fees can be accessed via VA’s website – CLICK HERE

The main reason for a Veteran to select the VA home loan instead of another program is due to the zero down payment feature.

However, if the Veteran plans on making a 20% or more down payment, the VA loan might not be the best choice because a conventional loan would have a similar interest rate, but without the Funding Fee expense.

The best way to view the VA Funding Fee is that it is a small cost to pay for the benefit of not needing to part with thousands of dollars in down payment.

* Disclaimer – all information is accurate as of the time this article was written *

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