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First-Time Homebuyers Discounts through FHA

People in the market for their first home can take advantage of a new offer from FHA. This new initiative aims to provide more information to buyers though classroom education and will reward them with a reduction in the premiums paid towards mortgage insurance.

HAWK to the Rescue

The name of the new initiative is called Homeowners Armed with Knowledge (HAWK). The borrowers are asked to complete a series of classes prior to buying the home as well as a few courses scheduled after the home has been purchased. At the time of this writing the classes are broken down in the following ways

* 1st class to be completed before the buyer completes a purchase contract

* 2nd class will be completed after a contract is signed and before the loan is finalized

* 3rd class will be completed within 12 months after the loan is finalized

Goals of the Program

Simply put, the HAWK initiative is hoping that people buying their first home will have a better understanding of the overall process thanks to the counseling and will be in a better position to make wise financial decisions in the future not only in regards to their housing but also to their other needs.

Monetary Benefit

Once the customer has completed the necessary classes their upfront mortgage insurance premium will be reduced along with the monthly premium that is paid as part of the mortgage payments. In addition, if the customer has no delinquent mortgage payments within the first 2 years of the loan the monthly premium will be reduced again.

Some Limits and Expiration Dates

Since this is a new program with no history to review the FHA is rolling this out with limits. The program is currently scheduled to only last for 4 years. In addition, not all FHA loans are going to be accepted under this program. At this time there is no news about how many loans will be allowed to use HAWK but FHA has stated that there will be a maximum number each year.

Class Time Requirement

For the class completed before the contract signing the prospective buyers will need to finish at least 6 hours of counseling and education.

The class that is conducted after the contract signing is a one hour class as well as the class that comes after the loan is closed.

Each class will issue a certificate to the students indicating that the course has been successfully completed. These certificates will be necessary in order to get the reduction in mortgage insurance premium.

In general, this is a great program that FHA is offering. It provides critical information to potential home buyers in order to better prepare them for a prosperous future and it rewards them by reducing the amount paid on their mortgage.

Take a look at --> Madison, WI Homes for Sale or browse through --> Janesville, WI Real Estate Listings!

Exciting News! FHA Is Allowing People that Suffered through Recent Economic Hardships to Apply for a Home Loan with the FHA Back to Work Program.

In the not so distant past people had to wait 3 years or more after suffering through a financial hardship. Bankruptcy, foreclosures and other major financial disasters would sideline people for a number of years before they could buy a house again. However, all that has changed with the FHA Back to Work Program.

Previous Guidelines

For years the FHA program has helped people finance the purchase of a home with a modest 3.25% down payment. In general, the FHA rules for credit and employment history were more forgiving than conventional loan guidelines. However, there were strict rules about waiting a significant length of time after filing bankruptcy, losing a home to foreclosure, getting a loan modification or a deed-in-lieu.

New Guidelines

The Back to Work program waives waiting periods based on certain hardship situations. People that have suffered through the following types of problems are no longer forced to wait multiple years to apply for an FHA loan

* Bankruptcy (either Chapter 7 or Chapter 13)

* Short sale of previous home

* Foreclosure

* Modification of previous mortgage

* Sale of a home due to pre-foreclosure status

* Deed-in-lieu

Due to the recession of the past few years the government has given FHA the ability to relax their rules in order to help people qualify for home loans. Now people will only have to wait 12 months.

Meeting the New Qualifications

For borrowers that have faced a hardship like the ones described above they will need to meet a few qualifications.

First the borrower will need to prove that their current financial condition is recovered from the impact of the financial hardship.

Second, the borrower will need to provide proof that their income declined by a minimum of 20% for 6 months or longer. This can usually be shown by presenting federal tax returns and the supporting W-2 forms.

Finally the borrower will have to agree to complete a counseling session aimed at educating home buyers.

In addition to these items the borrower must re-establish their credit. This does not mean that the scores must be 700+. However, once the hardship has ended the borrower will need to have good payment history on all credit accounts in order to prove that they are able and willing to make their monthly obligations.

Types of Borrowers

The Back to Work program can be used for people buying their first home as well as people buying their second, third, fourth, etc. home. It can also be used with the FHA 203(k) program for people that wish to renovate or modernize a home. Even people that are currently in a Chapter 13 plan could be approved for the FHA back to work program. The court will have to grant permission for the loan and the borrower will have to meet the other requirements.

The recent recession has hit a lot of people and left a lasting impact on them. The Back to Work program is aimed to help these people put the past behind them and return to the stability of owning a home.

Additional Mortgage Information: Mortgage Home Loans Financing

Assuming an Existing FHA Loan

Most mortgages have a requirement that the loan must be paid in full when the property is sold. However, FHA offers a different option to the seller and buyer. It is possible for the buyer to take over the existing FHA mortgage from the current property owner. This is a very enticing offer for someone that has a mortgage with a great interest rate. Here are the guidelines for an assumable FHA mortgage.

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Review Existing Loan

The first thing you should do as a potential buyer is review the existing loan documents. Any loan that originated prior to December 1 in 1986 is allowed to go through a “simple assumption” procedure. This means the buyer does not have to qualify for the FHA mortgage. For loans that were originated on after the December date, the buyer will have to qualify for the loan just like any new borrower.

Negotiate a Price with the Seller

Most sellers would like to receive a large part of the equity they paid in to the mortgage over the years since they originated the loan. The price you can negotiate is really dependent on your ability to deal and the seller’s motivation for getting rid of the home. One thing that must be clear; the buyout amount given from buyer to seller cannot be financed in to the existing FHA mortgage. This is money that needs to be paid either in cash or with a loan separate from the mortgage.

It may be possible to convince the seller to finance the buyout amount. This would mean that you have two loans to repay in order to purchase the home.

Talk to a Mortgage Lender

Since you will likely have to qualify for an FHA mortgage loan, it is advisable to talk to a lender experienced with FHA loans. The lender can review your credit file, determine your monthly income per FHA guidelines and find out if you qualify for the loan.

Determine Current Loan Status

You need to find out if the current property owner is up to date on their mortgage payments. If there are any late payments, those payments are transferred to the new buyer. This can be rectified by either paying the amount necessary to get current or requesting a modification of the loan.

Inquire About Down Payment

Since FHA asks for a down payment equal to 3.5% of the price, this rule will apply to someone assuming the loan. In this case, the 3.5% is based on the existing loan balance.

If you are approved for the loan, you may proceed with the closing process. You should ask the lender to contact a local title agency to research the title to ensure there are no liens on the property other than the FHA mortgage. Additional liens will have to be paid in order to transfer the deed in to your name as owner.

Differences Between FHA and Conventional Mortgages

Across the land the vast majority of home buyers use either a FHA or a conventional mortgage to purchase a property. While these loans are similar in a few ways, there are some pronounced differences. Each one has benefits that cater to a particular group of buyers. Understanding how they are different and which one is best suited to different circumstances will help buyers feel more informed about their financial situation.

FHA Loan

FHA stands for Federal Housing Authority. This agency does not make the loan itself. Instead, they insure FHA loans that are offered by approved mortgage lenders. The lender is protected in the event the borrower does not repay the loan.

FHA is committed to providing basic, conservative loans. A large number of their deals are fixed rate loans even though FHA does allow for adjustable rate mortgages.

Conventional loan

A loan that is not insured by FHA is most likely a conventional mortgage. Mortgage brokers, banks, and credit unions offer a wide variety of conventional loans. Conventional loans have more unique offerings such as interest only type of deal or a combination of a first and second mortgage used for a purchase.

Down Payments

One of the major differences among the two types of loans is the requirement for a down payment. FHA will allow buyers to pay 3.5% of the home's price as a down payment. The money used for the down payment may come from cash on hand, savings, retirement accounts or even a gift from a relative.

For conventional loans, the normal down payment is 20% of the home's value. However, there are quite a few loans that will allow a 10% or 5% down payment. The money used for the down payment must come from the borrowers own funds such as savings, investments or retirement accounts.

Private Mortgage Insurance

Both the FHA loan and conventional loan requires private mortgage insurance (PMI) if the buyer makes a down payment that is less than 20% of the purchase price. This insurance is designed to protect the lender if the loan is not repaid in full.

With a conventional loan, the PMI will be in place until the loan balance is paid down to 80% of the home's value. Typically, the PMI amounts for a conventional loan are higher than a FHA loan.

For an FHA loan, there is a fee charged at the time of the loan closing as well as a monthly amount paid with the loan payments. The monthly amount is enforced until the loan amount reaches 78% of the home's value.

Credit Score Requirements

Conventional loans have usually been reserved for customers with the highest credit scores. Due to the problems faced by the mortgage industry over the past several years, this fact is even more true today. Conventional loans rely heavily on standard credit reports offered by the major credit bureaus. Most conventional mortgages are approved by a computer system and reviewed by underwriters.

On the other hand, FHA loans will allow a slightly lower credit score. In addition, FHA will allow underwriters to go beyond the computer system and make approvals based on a borrower's complete file. Items like residence history, rental history and stable job history can persuade some FHA lenders to approve a loan for people who have scores that are slightly less than perfect.

Understanding Specific Requirements of Appraisal for FHA Loans in Wisconsin

The all-time low mortgage rates combined with affordable home prices have generated a huge growth in business for FHA mortgages. People considering their first home need to understand the specific appraisal requirements for FHA loans in Wisconsin.

Basics of FHA Appraisal

In a nutshell, an FHA appraisal is a conventional appraisal with additional requirements. The goal is to identify any potential repairs that would need to be completed within the next 24 months and have those items addressed before the loan is closed.

It is important to note that an appraiser does not review a home to the depth of a home inspector. A home inspection is still a good idea for a home, especially if it is 5+ years old.

FHA Appraisal Caveats

Only appraisers listed on the FHA approved roster are allowed to inspect homes and complete the evaluation. Before an appraiser is assigned to review a home a FHA case number will be assigned to the loan. The appraisal is valid for the next 90 days. The lender or borrower may change during that time period without the need for a new appraisal.

Any home that has undergone a conventional appraisal within the last 90 days will still need a FHA case number. In addition, the home must be re-inspected to verify FHA specific items. Here is a list of the items:

• Confirm no existence of drainage or water damage
• Ensure water pressure is adequate for the home without any leaks
• Any exterior and interior lead-based paint must be inspected to identify peeling, chipping or cracking
• Identify exterior access for each bedroom
• Insure the minimum 18” egress and ingress from the lot line to the building
• Test the heater to ensure proper working condition as well as air conditioner
• Ensure electrical outlets are in every room and in working order
• Test the fan/hood over the oven for proper working condition
• Ensure screens are present on roof vents and no more than three layers of roof material
• Determine that the electric box has at least 60 amp
• Properly note existing wiring that is exposed as well as cover plates missing from electrical boxes
• Do a brief inspection of crawl space and attic

Any issue found on the interior portion of the home needs to be either repaired or replaced. On the exterior part of the home any issue needs to be repaired or removed.

Specific Areas of Importance

Of the items mentioned above three seem to get the most attention; water problems or drainage issues, lead-based paint and the ingress/egress points. Concerning the ingress/egress points, common problems occur with homes that have a garage touching the lot line. This prevents the homeowner from accessing the exterior wall of the garage in order to paint. If this is the case the neighbor may be asked for an easement in order to grant the homeowner access.

Consultant Required for 203(k) mortgage

Buyers that are approved for a FHA 203(k) mortgage need to understand that the appraiser will be working with a consultant. The consultant must be approved by FHA. This individual will inspect the home and determine the necessary repairs and improvements and formulate an estimated cost. The appraiser will inspect the home and ensure that the consultant has properly identified all necessary repairs in order to conform to the FHA guidelines.

Homebuyers Can Use a FHA Loan to Purchase Property from an Investor

FHA has been the most popular mortgage used by Wisconsin residents looking to purchase their first home. The relaxed credit standards lower down payment requirement and higher debt ratios has allowed many people to purchase a home through this type of loan. However, investors who were in the business of buying a home to simply turn around and sell it for a profit, called flipping, always steered clear of FHA borrowers. FHA had a rule stating a home could not be sold a second time within 90 days of its last purchase. But that has all changed.

Original Intent

The primary reason for this “anti-flipping” rule was discourage fraud on mortgages. However, as time marched on it became apparent that deserving FHA buyers were being denied a home. Many homes have been bought after foreclosure by investors and repaired to make them ready for resell. The FHA ruling prevented the investors from selling and the market has struggled.

Some Rules to Keep in Mind

Although the FHA administration has decided to lift this rule, there are still other guidelines that must be followed when dealing with one of these investment homes.

• The seller of the home and buyer cannot have any type of pre-existing relationship. This could be as simple as a relative selling to a family member or as complex as a business owner selling to a partner or employee.
• In the event that the new sales price is 20% or more than the price paid at acquisition by the investor the loan may be inspected more closely to ensure the value of the property was not artificially raised.

Keep in mind that the original rule was put in place to prevent fraud. In addition, the original rule only came in to effect when a home was bought by an investor and then resold within 90 days. If the investor waits beyond the 90 day window to sell the home most of these issues will not be present.

Protection against Future Fraud

Most lenders are well aware of the abuse that has taken place in the mortgage industry over the past few years and have stepped up their lending standards to catch fraud and illegal practices. Because of the heightened scrutiny, many high ranking managers among the top lenders do not feel that this change in FHA rules will lead to a sudden burst of bad loans. The tighter appraisal restrictions, along with the general awareness of potential problems, should allow banks and mortgage companies to move forward with new FHA loans without falling victim to a scam artist.

Original Post - Using an FHA Loan to purchase from an Investor

Using FHA 203K Loan to Purchase a Fixer-Upper

Across Wisconsin there are a large number of short sale homes available to buyers.  A short sale is a home being sold for an amount less than the existing mortgage balance.  These homes often have a few cosmetic repairs that need to be made in order to make the home more presentable, if not safe.  For years the issue of repairing a home prior to purchase was a catch 22.  The bank or seller was not willing to spend extra money on a home that they are selling.  The buyer could not make the repairs because they did not legally own the home.  The FHA 203k loan solves that problem with ease.

Two Kinds of Loans

The Federal Housing Authority (FHA) offers a loan called the 203k mortgage, named after the code section where the loan is found in the FHA guidelines.  This loan is offered as a Streamline version and the regular version.  The streamline was designed to offer lower amounts designated for repairs and slightly less paperwork.  Both loans are ideal for Wisconsin homebuyers who wish to purchase a home in need of some repairs.

How the Loan Works

The loan program allows buyers to purchase a home based on the sales price.  In addition, the buyers can borrow extra money to make the necessary repairs. Once the loan is approved and closed, the extra money is placed in an escrow account.  The contractor that is doing the work will receive payment once the work is completed. This protects the borrower and the lender against problems with the repair process.

The amount needed for repairs is added to the loan for the purchase and the homebuyer makes one payment, at one interest rate, on the entire loan.  Since mortgage rates are so cheap right now it is a wonderful way to buy a home that may be priced below market value due to some simple fix-ups.

Loan Amounts

The Streamline 203k loan will allow Wisconsin homebuyers to borrow a minimum of $5,000 and a maximum of $35,000 to be used towards the repairs.  The regular 203k loan allows much more as a percentage of the sales price and the estimated appraised value after the proposed repairs have been made.  The regular 203k loan will need the involvement of an appraiser, home contractor and loan officer from the very beginning to make sure the loan and repairs meet the guidelines of the program

What Can be Done with 203k?

Wisconsin homebuyers often ask about the types of repairs that can be done with the Streamline 203k program.  The following list shows some of the more popular tasks accomplished using this type of loan

• New gutters and a new roof
• New Heating and air conditioning system or repairs to the existing system
• Plumbing updates and repairs
• Electrical updates and repairs
• Bath and kitchen remodels, to a lesser extent
• New flooring of any type; wood, carpet, tile
• Painting for both exterior and the interior
• New windows and doors
• Energy efficient appliances

The 203K loan allows many types of repairs and improvements that can greatly enhance the value of a home and give buyers a chance to purchase a place at a savings. This loan is ideal for Wisconsin short sales or foreclosures.

Original Post - Using a FHA 203K Mortgage for Rehab

This communication is provided to you for informational purposes only and should not be relied upon by you. Rock Realty is not a mortgage lender and so you should contact a FHA lender directly to learn more about its mortgage products and your eligibility for such products.

This is an excerpt from a book I am writing called "Buyers Guide to Foreclosures"  (generic title but to the point).

Financing can be a major hurdle for some buyers wanting to purchase a foreclosure because of the condition of the home, which may keep it from qualifying for conventional or traditional FHA loans. The 203k is a great option. I encourage all agents to familiarize themselves with this loan program.

Wisconsin Short Sales
Madison Wisconsin Short Sale Realtor®
Janesville Wisconsin Short Sale Realtor®
Beloit Wisconsin Short Sale Realtor®

Although it is hard these days to still find a true no money down mortgage loan, there are a few programs that come pretty darn close. Take the HUD|FHA $100 sales incentive program as an example. The loan officers over at Inlanta Mortgage have brought this newer mortgage program to my attention. I have included some excerpts from their HUD FHA $100 Down Mortgage Program blog post below.




 

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Just like every bank out there, HUD has also seen a rash of foreclosures over the last few years. When someone defaults on a FHA mortgage, HUD may end up owning that property since they insured the borrower against default. HUD is not in the business of owning or renting properties so they came up with a unique sales incentive in order to sell these homes.

HUD has offered a program to allow for a qualifying borrower to purchase a single family home with only a $100 down payment requirement. The borrower can finance the cost of the home + the 1% UFMIP as long as the value is supported by an appraisal. The home buyer may increase the offer and ask for a seller credit to cover closing costs and then would only be required to bring $100 to close. This is a great deal if you can find a property that is eligible. We have a link we’ll post below to get you to HUD’s website where these eligible homes can be found in your area.http://hudhomestore.com/HudHome/Index.aspx

The requirements for this program:
Home must be an approved HUD home
Single Family Residence
Owner Occupied
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I'd be happy to help you find the perfect HUD home for you! Don't forget about our home buyer discounts available. Call me at 608-921-8536.

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