Joe Knows Mortgages

Currently, there are very few ways to get 100% financing to purchase a home in Brevard County.  If you are a veteran with VA eligibility or you are purchasing a home in a USDA declared “rural” area, you may be eligible to purchase a home with 0% down.   However, for everyone else, mortgages require a down payment.

What do you do if you do not have the money necessary for a down payment, but you are an otherwise excellent candidate?  There are some other options out there;

• FHA loans require a 3.5% down payment, and the whole amount can come as a gift from an eligible source.

• On a conventional loan, you can get a gift from an eligible source too; however, if the gift is not for 20%, the buyer must have 5% of their own funds for closing costs.

• Brevard County has a first time homebuyer program through Brevard County’s
  First Time Home Buyer Program that will give qualified applicants money for down payment and closing costs.

Whether you are planning on getting gift funds, taking advantage of community or governmental funds, or selling your antique GI Joe collection, make sure to speak with your mortgage professional to assure that you are properly documenting the funds for the underwriter.  There are many rules and regulations surrounding gift funds and cash to close and improper use could spell disaster.  Please contact me anytime for further information.

While it is not official yet, it looks like the FHA is about to make several major changes that will affect borrowers in Brevard County, Florida and the rest of the country.  The talked about changes will affect the cost of mortgage insurance, the down payment, the amount of seller paid closing costs, and also some steps towards being able to better oversee and regulate lenders originating FHA loans.

The FHA does not actually lend money; the FHA insures loans made by lenders that meet the guidelines set forth by the FHA.  In order to insure these loans, all FHA loans have an up-front mortgage insurance premium that is meant to cover the costs of defaults.  Because there are so many defaulting loans, the FHA has to increase the loans up-front cost. It looks like the cost will be raised from 1.75% to 2.25%.  The up-front mortgage insurance premium is a cost that is actually financed into the loan, so it is not something that the borrower has to bring to closing.

Currently the FHA has a minimum down payment of 3.5% for all qualified borrowers; it seems as though the FHA will increase the down payment to 10% for those borrowers with a credit score below 580.  This is kind of a moot change.  The reality is the majority of lenders have a credit score floor of 620; some lenders have even raised their minimum credit score to 640 and higher.  Unless lenders plan to lower their minimum credit scores, this should really not be a factor.

The FHA allows the seller to pay up to 6% of the purchase price towards the buyers closing costs and pre-paids.  The new rule will only allow the seller to pay up to 3% of the sales price towards those items.  As the many of the closing costs are fixed costs, this rule will really impact those lower priced buyers who have enough for a down payment, but who do not have enough funds to cover all of the closing costs.

Lastly, the FHA is looking to better oversee and regulate the current lenders that originate FHA loans.  Recently, Taylor Bean and Whitaker, a Florida based operation, was shut down due to originating loans that the FHA said did not comply with the rules.  It is likely that we will see more of this in the future. 

All in all these changes will most likely continue to make the FHA loan as a viable source for people with challenged credit, less money to close, and many others.  These changes only seek to strengthen the FHA, and make sure that it continues to have the ability to ensure loans for years to come.

Many Thousands of Americans have had to sell their house through a short sale in the past few years.  Who would have guessed a few years back that prices would plummet like they did?  Here in Brevard County, home prices in some areas have been more than cut in half. 

If you had to sell your house short, more than likely the credit report will show a mortgage settled for less than owed.  If you go to apply for a mortgage, there are new rules surrounding this type of derogatory credit.  The new rules  for Fannie Mae says that it must be 2 years from the completion of the short sale, with no exceptions.  This is fairly straightforward.  If you had a short sale in the last two years, you are ineligible for a loan which is bought by Fannie Mae (that is all conforming loans, or anything that is not government). 

US Department of Housing and Urban Development  (HUD), who determines the rules for FHA loans, has not made a ruling on short sales as of when this article was written.  While this may sound promising, the majority of the lenders are treating short sales on an FHA mortgage like they do on a conventional mortgage.  However, there are a few lenders out there that will entertain a short sale if there are extreme extenuating circumstances prior to two years.  Otherwise, like on a conventional loan, you must wait two years.

So here is the long and short of it:  if you have recently experienced a short sale, you will be ineligible for  a conventional loan for at least 2 years; you may be eligible for FHA financing, however, you will have to prove that there were extenuating circumstances.  These extenuating circumstances could include loss of job, death of a wage earner, hospitalization, or some of these sorts.  Additionally, you cannot have had any mortgage lates in the last year.  For a loan to be considered prior to 2 years, it must be strong.

There is life after short sales, however, it seems as though for loan qualification purposes, it starts after 2 years for most.  This is really not that long of a time, and there are probably some people who went through a short sale a few years back that are ready to buy again.  For more information, contact Joe Harris.

The FHA insured loan is a great loan option for many borrowers as it gives home owners a very low down payment option, allows features that conventional loans do not (a conventional loan is any loan that is not a government loan), and has historically very low interest rates.  Currently the FHA will allow a loan amount up to $291,250 for a single family residence in Brevard County, Fl.  Right now this limit is good through the calendar year 2009, however, there is talks of extending the limits into 2010.

Just to recap, here is a list of some features of the FHA loan:

Source of Down Payment Flexibility  - Your required down payment can come as a gift from many different sources, as well as approved community assistance programs.

Great Rates and Low Monthly Mortgage Insurance  - While the rates change on a regular basis, they are currently very low, and do not much differ from conventional financing.  Depending on credit score, FHA rates could actually be lower than conventional financing.

Low Down payment option – Minimum of 3.5% down payment

Seller Paid Closing costs - seller can pay up to 6% of the purchase price towards closing costs and prepaids to help you purchase the home with very little out of pocket expenses.

No penalty for lower credit scores - you are not penalized in the rate for having a lower qualifying score, however, your credit score must be over 620 as most lenders have set that as the minimum allowable score.

Rehabilitation loan option - there is even an FHA loan that will allow you to finance repair or updating into the loan.

The FHA insured loan remains a great option for so many different situations, however,it may not be right for every borrower.  This is why it is imperative to contact a mortgage professional to help you find the product that best fits your situation.  Please feel free to contact me anytime with questions.