Changes to FHA Mortgage Insurance Premiums
HUD just released a new mortgagee letter with the specifics to the changes in the Upfront Mortgage Insurance Premium and the Monthly Mortgage Insurance Premium for FHA loans. Here is the link to read it in its entirety http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-28ml.pdf
The Upfront Mortgage Insurance premium decreased from 2.25% down to 1% and the Monthly Mortgage Insurance Premium increased from .55% to .90% on loan to values above 95% (less than 5% down) and from .50% to .85% on loan to values less than or equal to 90% (5% or more down) if you are getting a 30 year fixed loan.
This will make it more costly for the borrower so now is the time to buy to avoid these changes. You just have to be under contract prior to October 4, 2010 so that we can get an FHA Case Number for you.
Benefits of Owning a Home Which Have Nothing To Do With Investment Gains
Over the past 6 months I have been repeating Ric Edelman’s saying of owning a home shouldn’t be viewed as an investment but a lifestyle.
When you own a home you get to make it yours and change things that fit you and your family best. Just because housing isn’t a way to get rich quick anymore like it was during the boom years doesn’t make it a bad investment. I am sure those who bought in 1992 at the end of the recession were happy with their investment 10 years later. I don’t know where home prices will be in 30 years but what I do know is that if you pay rent for 30 years you don’t accumulate anything.
Buying a home isn’t for everyone, nor should it be. That is what got us in this mess in the first place. There is nothing wrong with renting especially since there are more expenses associated with owning a home.
Here are five of them:
· Be your own landlord. The bank can only kick you out if you don’t pay; a landlord can be much less dependable – deciding to sell the property or choosing to live there themselves.
· Paying the principal is forced savings. Yes, it’s possible that home prices will fall further. It is also possible that your 401(k) will lose value. But over the long haul, both are likely to enjoy modest gains in value.
· Fixed-rate mortgages never rise – and eventually you pay them off. With mortgage rates at record lows, people who buy now are locking in real bargains.
· Good schools. Family-sized rentals are harder to come by in areas with excellent public schools.
· Spacious properties in pleasant neighborhoods. Sizable homes in attractive communities are almost always owned – not rented.
The Pre-Qualification Process
Filed under: Conventional Loans, FHA Loans, Mortgage Education 101 |
Leave a Comment It is more important than ever to make sure that the pre-qualification/pre-approval process is done correctly. In order to do that it can’t be done in 10 minutes anymore and it should never be rushed. I get calls every single day about deals that did not close and it is because there was an error calculating income and it all could have been prevented at the point of pre-qualification.
It is so important for the loan officer to get copies of the borrowers past 2 years worth of tax returns (both personal and business, if applicable), 2 years of W-2s, most recent paystubs, and 2 months of bank/brokerage statements in order to correctly pre-qualify/pre-approve the borrower. To speed the process up it might not be a bad idea to mention to your clients to start compiling this documentation.
Just to comment on assets real quick, every institution needs all pages of the borrowers assets (even if blank) along with documenting and explain any and all deposits if it can’t be determined just by looking at the statement (i.e. a direct deposit or a transfer from one account). I always advise the borrowers of this during the pre-qualification process but like a lot of things it goes in one ear and out the other. To hear it from a couple different people never hurts.
In case you want to know what is involved in calculating income click on this link https://www.efanniemae.com/sf/formsdocs/forms/pdf/sellingtrans/1084.pdf. Although the worksheet seems self explanatory to come up with the final calculations it is no different than getting an automated approval in Fannie Mae’s DO/DU or Freddie Mac’s LP, it is only as accurate as the person inputting the information. As you can see there are a lot of things to consider. Most of the time for a W-2ed employee we are only subtracting out the 2106 Unreimbursed Expenses but I am blown away by the dollar amount claimed here and how some occupations shouldn’t have any but they do. I am not sure if it is an accountant not advising the client correctly or what but it can affect someone being able to get financing. I see a lot of police officers having a large dollar amount claimed here for uniforms.
I hope this helps and should you have any questions please do not hesitate to call or email me.
Should You Get a Fixed Rate or Adjustable Rate Mortgage?
Filed under: Conventional Loans, FHA Loans, Mortgage Education 101, Refinance |
Leave a Comment Just as with most questions regarding mortgages the answer would be it depends. There are no set rules with this or anything else pertaining to financing. Every borrower’s situation is different and that is why it is important to deal with someone who is going to guide in you the right direction, a Mortgage Consultant if you will.
My personal opinion right now for most would be to get a 30 year fixed rate mortgage. I say this because interest rates are so low. Yes, they are lower on adjustable rate mortgages but I feel this economy is too unpredictable that who knows if you will truly pay it off before the rate adjusts. Another point to add to that is why would you want to pay off a mortgage that you are financing in the 4 percents? Make sure to max out your retirement first, payoff high interest rate credit cards, have a rainy day fund, etc.
I have a client right now who is trying to decide between a 15 year fixed and a 30 year fixed. Interest rates are about .5% lower on 15 year fixed rates but if you take out a 30 year fixed rate you can amortize it over 15 years and make a 30 year payment should you need to. If you take out a 15 year fixed you have to make that payment whether you want to or not. I had a client who refinanced into a 15 year fixed rate 2 years ago, called me a year ago to refinance into a 30 year because he was worried about his job, and just as we started the refinance process he lost his job. Now he is stuck with a 15 year fixed payment without a job. It is sad and scary.
This is just another reason as to why everything isn’t all about interest rates. I don’t mean to beat a deadhorse but you can’t what you pay for in life and if you are getting financing from the cheapest person that is probably the type of advice you are going to get.
Loan Modification Help Coming To South Florida
If you know of anyone in need of a loan modification I would recommend for them to attend this event.
The nonprofit Neighborhood Assistance Corporation of America — hero to the struggling homeowner, bully to big banks — said it will conduct its third South Florida mortgage counseling extravaganza Aug. 27-31 in West Palm Beach.
The Boston-based group touts an 80 percent success rate, crediting much of the achievement to hundreds of bank representatives who attend its programs and meet face-to-face with homeowners.
There was an article back in December about this and 80% that were expected to receive workouts within weeks according to CNNMoney.
“Wynn was able to get his modification at a “Save the Dream” event offered by the Neighborhood Assistance Corporation of America (NACA) in New York City last Friday. Lenders from nearly all the major banks and servicers were in attendance and promising to restructure loans based on what borrowers could afford. As a result, many homeowners walked in with their mortgage problems and walked out with solutions. In fact, according to Bruce Marks, NACA’s founder, 40% of attendees left with decisions the same day. About 80% are expected to receive workouts within weeks. His organization has already hosted about 400,000 borrowers at more than a dozen of these events.”
How Many Days Does It Take To Close A Loan?
It is best to always give 30 to 45 days in this current lending environment and to not change the closing date. The amount of work and time it takes to close a loan today is 50 times longer than 2 years ago.
What most don’t understand, nor should they know, is how the loan process works. When a Mortgage Professional receives a contract they take the contract and enter all of the information into their loan software which includes loan commitment and closing dates. Reports are continually generated to prioritize loans and make sure closing dates are met. If these dates change it causes a dominio effect. Imagine what would happen if everyone tried to move up their closing dates. It would be chaos.
Once that info is inputted the appraisal and title are ordered along with the due diligence measures which some of them I don’t even know about. Examples are ordering tax transricpts (4506T), fraud guard (MERs), Sunbiz, 411.com, Verification of Employment (VOE), Verification of Deposits (VOD), automated valuation models (AVM) for value, and the list goes on. There are other items done prior to closing similar to what is done at the start. If you would like to learn more about what those items are and want to fall asleep go to the link below and read up on Fannie Mae’s Loan Quality Initiative (LQI) https://www.efanniemae.com/sf/lqi/.
Then the loan officer gathers the documentation from the borrower, finds things that are missing, requests those conditions, they aren’t right or don’t meet the guidelines, the loan officer requests more information, they receive it, the loan goes to the processor, the processor finds more items that are needed, requests them, receives them, there still are more because it’s not what was requested or doesn’t mean our guidelines, we receive those conditions, the loan gets submitted to underwriting, the underwriter conditions the file, we request them from the borrower, the borrower sends them in, they aren’t right or don’t meet the guidelines, we receive them again, it goes back to the underwriter, the underwriter finds something else wrong, I can keep going but I hope you get the idea.
Once the loan is cleared to close it goes to the closing department. The closing department doesn’t automatically pick up that file and begin working on it. It goes to the bottom of the pile should there be a pile. Once the closer gets to the file they will review it and make sure we are meeting all of the closing conditions. And guess what, most of the time there things that need to be fixed.
There is so much involved in the loan process even if everything goes smoothly which most of the time there are issues i.e. appraised value, repairs, large deposits, cash deposits, etc. You would be amazed. Underwriters are going to miss items and add them later because they are human. When an underwriter gets a file it is a story that they have to figure out because they didn’t take the loan application from day one and know every little detail like the loan officer. Guess why underwriters also miss things? It’s because everyone is rushing them and they have to get through so many files since someone changed a closing date, etc.
FHA Refinance of Borrowers in Negative Equity Positions
HUD came out with 2 new mortgagee letters on August 6, 2010 pertaining to the FHA refinance for borrowers with negative equity. There is no telling when the banks will implement this or how many they will actually help since we saw a similar program about a year a half ago that was called the Hope for Homeowners. This was to be a refinance based on 90% of the current appraised value with equity sharing. The last statistic I saw showed it helped 357 borrowers.
“On March 26, 2010, the Department of Housing and Urban Development (HUD) and the Department of the Treasury (Treasury) announced enhancements to the existing Making Home Affordable Program (MHA) and Federal Housing Administration (FHA) refinance program that will give a greater number of responsible borrowers an opportunity to remain in their homes. These enhancements are designed to maintain homeownership by providing borrowers, who owe more on their mortgage than the value of their home, opportunities to refinance into an affordable FHA loan. This opportunity allows borrowers who are current on their mortgage to qualify for an FHA refinance loan provided that the lender or investor writes off the unpaid principal balance of the original first lien mortgage by at least 10 percent.”
Here is the link to access the eligibility requirements http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-23ml.pdf
Here is the link for the combined loan to values pertaining to secondary financing http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-24ml.pdf
FHA’s Mortgage Insurance Increase Heads To Obama’s Desk
“As I have previously stated in my testimony before Congress, FHA will lower its upfront premium simultaneously with the increase to the annual premium¹. It is our intention that effective on September 7, 2010, FHA’s upfront mortgage insurance premium will be adjusted down to 100 basis points on all amortization terms and the annual mortgage insurance premium will increase to 85-90 basis points on amortization terms greater than 15 years². A Mortgagee Letter will be forthcoming once President Obama signs the bill into law, but with today’s passage of H.R. 5981 and our expedited implementation schedule, I wanted to immediately inform the industry of our plans so the lending community can begin preparing for the operational and system changes required to implement FHA’s new mortgage insurance premium structure on all new case numbers by September 7, 2010” http://portal.hud.gov/portal/page/portal/ver-1/HUD/federal_housing_administration/docs/August_Special_Edition_2_FromtheDeskOf.pdf
So what does this mean in English? It means they are reducing the Upfront Mortgage Insurance Premium from 2.25% to 1% and increasing the annual mortgage insurance premium from .55% to .85-.90%. That see what this means in dollars. If someone is taking out a loan for $150,000 the Upfront Mortgage Insurance Premium will be $1500 instead of $3375 but the monthly mortgage insurance will be $106.25-$112.50 per month vs. $68.75 per month where it is today. The difference that Upfront Premium that they reduced gets rolled into the loan amount so a borrower doesn’t feel the effects of it as much but with the higher monthly premiums it may make it harder for some to qualify. This isn’t a huge change but I think you are going to see a slow push towards Conventional loans.
5 Reasons To Buy A Home
Every now and then I make sure to reflect on what I am advising to the people I come in contact with every day because I want to make sure my advice is up to date. The other day I said to myself, do I think now is still a good time to buy a home? The reason I asked myself this is because this economy scares me with unemployment still high, shadow inventory with foreclosures, lending is tight with small businesses, and the list goes on.
We all know rates are unbelievably low and I truly cannot believe how low they are. Home affordability is at an all time high but South Florida was one of the hardest hit areas in the country for real estate. And then this article was emailed to me from a newsletter I subscribe to from http://www.keepingcurrentmatters.com/. The article is called 5 Reasons To Buy A Home and here is the link http://kcmblog.com/2010/07/27/5-reasons-why-you-should-buy-a-home-today/.
The 5 reasons it gives is because #1 Real estate is a long term investment, #2 A home is a better place to raise a family, #3 A home creates a sense of community, #4 It’s cheaper to own than to rent in many parts of the country, and #5 The people who do buy a home don’t regret it. I highly recommend clicking on the link and reading the whole article.
Broward County Property Tax Bills Will Start Going Out August 13th
TRIM Notices of proposed 2010 property taxes start going out on August 13th. This week taxing authorities will tell the property appraisers office of their proposed 2010 rates. These are proposed tax rates, not the final ones. However they normally are right on.
If you are purchasing a home right now you will still have to go off of the 2009 tax rates until the 1st week in November. So if the current tax rate is lower we will use that one and visa versa.
When you are buying a property that will be your primary residence your Homestead Exemption won’t kick in until the end of the following year, the end of 2011, because you pay taxes in arrears. At that time your property will be assessed off of your purchase. Notice I say your purchase and not your purchase price. Here is the disclaimer from Broward County Property Appraiser’s site:
Note: If your purchase price was from a FORECLOSURE not sold on the open market through the MLS listings, your actual purchase price is not considered a “qualified sale” and does not reflect the just (market) value used for determining your assessment. If this applies, you should enter the reasonable market price of a sale of a similar home in a similar area sold on the open market to more accurately use this calculator. And, for all users, remember this is only an estimate based upon the millage rates of the current tax year. As the Property Appraiser does NOT set the tax rates, we cannot give any guidance as to whether the property tax rates in your area will go up or down in the next tax year.
If you would like to estimate what your taxes will be you can go to http://bcpa.net/TaxCalc.asp. For information on filing your Homestead and to file your Homestead to go http://bcpa.net/homestead.asp.
