FHA Mortgage Expert - Tri-State Area - New Jersey/PA/Delaware

 

In today's market, you always need an edge, possibly that upper hand on information that others don't know about. John MacArthur wrote this blog the other day, Overlooking the Obvious? , which gave you a good idea when helping a seller market their home. And it was based on the simple knowledge that if you as the seller, currently have an FHA loan. Why can this be important to those buying your home? Two reasons :

1. If you are underwater on your home, that is upside on your home, it could be a good way to walk away from you home while having someone assume your mortgage. Even if you had little equity and had to bring about $8,000 to the table to cover expenses such as the realtors commissions and or sellers state tax monies, it can still be cheaper than selling it on the open market or possibly going into foreclosure.

 

2. The other reason, such as John mentions, is that rates could go much higher in the near future. In this case, you have a very marketable home.  Example :  You could have a 5.00% rate now and in just 12 to 24 months, rates could be as high as 7% to 8%. This could be a huge selling feature.

 

 

Here is the kicker.... since I am the type of person that likes to look at something from both sides of the fence, both the positives & the negatives, I wanted to add a few things that the seller needs to be careful about. John and I briefly talked about this yesterday, that he wanted people not to lose focus on the message that he was delivering in his blog, which was a good message. Hence why he just kept it lite and just about the rate. But after reading many of the comments, I feared something. What I feared was that it's not as easy as it sounds. Just because the seller has a low rate that is assumable, doesn't mean that it's a done deal. Let's take a look at the issues that concern me.

 

• Even if you have someone assume your FHA mortgage, you as the seller, you are still responsible for that mortgage also. Meaning, if the new buyer who assumed your mortgage defaults, it will also show up on your credit. Now, there is a way around this though. Many lenders don't mention this up front, but you can sign a release of liability, which is HUD form 92210-1. If the lender doesn't mention this to you, then you are suppose to ask for this form. Again, the kicker... if you don't know about it, how do you ask for it?

• The buyer still needs to be approved for assuming that seller's mortgage. And this is done only by the lender that holds that note. And they are approved on that current note rate. Keep in mind, even though HUD/FHA has their own guidelines to this, lenders can have specific overlays to the guidelines. Meaning that they can increase the difficulty of obtaining that mortgage.

• Lastly, another concern of mine. Your equity position....   let's say you owe $150,000 on the mortgage, but you wanted to sell the home for $200,000.  The buyer can only assume what you owe, which is $150,000. You will now need to find other methods to give the remaining monies to that seller. In today's market, getting a 2nd mortgage or a home equity loan is not easy. John mentioned a wrap around mortgage. These can be defined in different ways and who knows what the mortgage market will be like in 3 to 5 years. My fear?  In my opinion, if there is equity in the property that the seller wants, I don't see how a buyer assuming that mortgage will work, especially in today's market. Sure, a seller can hold a second mortgage, but that still doesn't give them their money right away. Just food for thought.

 

 

Overall, John did bring up something that not many people talk about. I have been telling buyers since 1994 that FHA loans can be assumable, but that you need to be aware of the liability also. Each buyer actually signs a form in the FHA loan application that is called Notice to Homebuyer - Assumption of HUD/FHA loans.

 

 

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger

 

UPDATE : 4/16/09 @ 12:59 pm - I just wanted to add this because of a few comments about the term "Expert".  In my opinion, an Expert doesn't know everything... I would find that almost impossible, about any expert in any industry. But to me, it would be someone that knows more than 85% to 90% of that industry or that topic. One that is on top of their game, on top of the industry changes, can explain things well, and... a biggie here... if they don't know something, they don't give a questionable answer until they have the correct answer. This goes back to researching and actually knowing where and how to find the correct answers, from reliable sources. I just want to add my definition to this before you read this. Here is Expert defined by Wikipedia.  EXPERT

 

 

I am a FHA Specialist – FHA Expert

I am a Real Estate Expert

 

A question to the general public out there.  When searching for an expert in a specific field in the papers, online, or on tv....  do you look for the word Expert or Specialist?  Does this comfort you? This can be very dangerous and I will explain why.

 

Even though I have been doing this for over 16 years, it seems that this problem is worse this year than ever before. What problem is that?  Those calling themselves Experts and or Specialists in their respected fields, yet they give tons of misinformation or broken promises. A true Expert is very knowledgeable and if they don't know the answer, they will try and get the correct answer before assuming their answer is correct. But our society doesn't dictate this kind of thought process in many cases. As a sales person, it's obvious that the average consumer will see that you call yourself an expert and as long as your answers are followed by such phrases as, "I guarantee", "I promise", "don't worry", "no problem", "I don't lie", etc, etc....  that the consumers comfort level rises. Let me share a few quick examples with you.

 

 

Example 1 : A few months ago a borrower contacted me from the internet and wanted to deal with an FHA Expert. He felt very comfortable with me because of the information that I supplied online. After speaking to him, I realized that he wasn't an easy case, because he was self-employed with a few tradelines on his credit. I needed to see his tax returns, which took him 5 days. A day after giving me his returns, he asked if I had an answer. I said give me until tomorrow morning.  That next morning I sent him an e-mail with what I could do. His response was that he found another FHA Expert the day before who was able to approve him in 2 hours, that I took too long. His approval was based on no income with 25% down and a very low rate. I told him I didn't believe this could happen with 25% down, especially with a rate in the low 5's. The best I had was 30% down and the rates in the 7's. I decided to follow up with him a month later. Imagine this, he stopped the process later on because the other "expert" ended up giving him a 30% down loan with a much higher rate, so he backed out of the deal.

 

Example 2 :  Just yesterday, a borrower called me from California trying to buy a new home with an FHA mortgage. But the kicker is that she has an FHA loan already and can't sell her home. It can be done, but there are some rules by HUD. She spoke with 5 other lenders in California, in which 4 of them told her that it's not a problem, as long as she rents out the other property. This is partially true, but there are some major obstacles. The long and short of it is that it couldn't be done. If she didn't find someone that knew the full guidelines, she would have wasted time and money.

 

 

Let me explain something. I am not god, I don't know everything, nor am I perfect. But I do take lots of pride in what I do and I do consider myself very knowledgeable. And as mentioned, if I am not sure of an answer, I will find out first from reliable sources such as my underwriters. But here is the underlining question..... How do you choose that so-called Expert?  Who do you seek and how do you seek them.

That question is a tough one. My advice is to seek a referral from a friend or family member. But I have seen that get people in trouble also. You can research that specific person and the company by Googling their names and by other searches online.  You can search key words or phrases online and if they write blogs, this is a great place to start.  Just don't always believe what you read if it sounds good. Read other like minded blogs. It doesn't hurt to ask a few others in that same industry to see if their information is correct. The only problem is that you could possibly get 3 or 4 people that would give your the wrong information. And this does happen. Please read : Two Wrongs don't make a right.

 

 

 

Conclusion :  In my opinion, it's a bad epidemic, those that are now claiming to be experts and or specialists, just to make you think that you are dealing with an expert. Sometimes you have to go with your gut feeling,and in many cases, maybe research that topic with more than one source. Just because it sounds good in a blog or online, doesn't mean it's always correct or spot on.

Just recently, I have come across a few loan officers on Active Rain that call themselves FHA Specialists. It scares me, because they claim you need 5% down or 2% down on FHA loans. It's written in stone that the downpayment is 3.5%.  I have even come across a few loan officers that are popular on AR, who claim to be FHA Specialists or FHA Experts who haven't written one post about FHA loans, but just the basics of mortgages. This scares me also, because if you are a Specialist or Expert in that field or industry, you should be able to write about what you specialize in.

 

Overall, I am not trying to be harsh or throw some under the bus. But let's be realistic. Many of us swarm to the internet for information. Many of us have a lot of faith in those that post blogs on AR, just because they are well written.  Anyone can write something that sounds good or make promises. Sometimes you won't know until the end if it will happen or not.  Sometimes the proof is after the fact. and sometimes you have to be patient for a day. But my whole point to this is that you just can't believe everything that you read, especially online. Do your research !!!!

 

 

For more insight on professionals & experts, please read : As professionals, we need to raise the bar and educate consumers

 

 

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger

For many that don’t know, FHA was created by the National Housing Act of 1934. What people need to understand is that FHA doesn’t make the loans, but that they insure the mortgages for the lenders sake.  The investors/lenders are the entities that make loans to borrowers. HUD, which stands for U.S. Department of Housing and Urban Development, is a government agency that was started in 1965 to help homeowners achieve that American Dream. They help borrowers with HUD approved programs, approves lenders to be FHA approved, and helps borrowers utilize the programs and guidelines set forth for FHA loans. Again, FHA is does not lend money. I only mention this because I get so many calls telling me that FHA will do this or do that, because it states it on the HUD website. The average consumer needs to understand that they set the guidelines for investors to follow, but it’s the investors that have specific overlays, meaning that they can add to the guidelines to make the loan more sell-able on Wall Street. A great example is that FHA has no specific credit scores, but most lenders won’t go below a 600 credit score. That is the investors choice, which can super-cede anything set by HUD for FHA loans. 

 

 

The Assistant Secretary of Housing, Brian Montgomery, put out a new mortgagee letter just recently. FHA always puts out new mortgagee letters when there are changes in guidelines, but in this case, HUD wanted to make others aware of the seriousness of this issue. This mortgagee letter, ML 2009-12, is about Mortgagee Monitoring.  The letter talks about FHA reactivating its Special Work Assessment Teams, which is called SWAT. SWAT is to conduct on-site reviews of the lenders whose loans are exhibiting signs of distress. In my opinion, this is a great sign that HUD is holding mortgagees accountable for their lending practices which will protect the FHA insurance fund which has been in trouble as of lately because of the many defaults and foreclosures.

Here is a great example of how much the usage of FHA loans has grown over the last 1 1/2 years because of the higher standards of conventional loans and because of the demise of the subprime loans. Just in New Jersey alone, in 2008, there were about an additional 500 new approved FHA underwriters. This number went from around 300 to 800. Just in the last year, there have been more 1st payment defaults, foreclosures, and certain detections of fraud. It’s been shown that many of these new underwriters are missing specific issues or are being more lienent on their approvals. Hence why HUD came out with this new mortgagee letter, letting lenders and underwriters know that they are reviewing certain practices. So here is a list of what HUD expects each lender to review and to insure a good loan : (this list has come directly from mortgagee letter 2009-12)

• implements and maintains a comprehensive quality control plan,

• reviews all loans with early payment defaults;

• does not engage in false or misrepresentative advertising;  (I love this one and this should have taken place decades ago)

• fully documents the stability and amount of borrower(s) income; and,

• does not charge excessive and unallowable fees to the borrower.

 

 

Conclusion :  Overall, the Department of HUD would expect each mortgagee to originate a mortgage with the same care and underwriting the FHA loanjust as it would for a loan in which the lender would be entirely dependent on the property as security to protect it’s investment. In basic terms, that the lender would care for the loan as if it were it’s own child for the next 20 years. And if a mortgagee, the lender that approves the mortgage, fails to comply with HUD’s policies, then HUD would take appropriate action. Such actions would be to suspend the lender from originating FHA loans or to actually terminate that lender’s DE license. (delegated underwriting license)

In regards to my 16 years in the mortgage industry, I think it’s about time that we crack down on those that fail the integrity of lending and the lending quidelines. It’s one thing to try and to make a loan work, but another to ignore specific guidelines and or to commit fraud.

 

 

 

 

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger

 

Important Point to remember -

Never assume that conventional mortgages are cheaper than FHA mortgages if you are putting 20% down, just because you have no mortgage insurance.

I just received a referral from Katerina Gasset the other day who wants all buyers to be approved on her bank owned properties by someone that she trusts, even if that borrower is going to use their choice of lender. The borrower must have told me that she wanted the best rate 3 times. This was up most on her mind and I don't think she heard anything else that I stated. Well, I received an e-mail today from Katerina, from the realtor that has the buyers, telling us that they went with her first choice. This is someone that the borrower trusts and who is friends with on a certain level apparently. Her credit scores are above 700, yet her husbands credit scores are around 634 and 637. Here is the sad pathetic part when speaking to the borrower. I asked her if the loan officer had her husband's credit scores and she said no, she only told him hers. OUCH - rut row !!!!  First off, no loan officer shouldn't be quoting interest rates without at least knowing the borrowers credit scores, all borrowers involved.

 

 

FHA loans have been the main source of financing in the last 6 months. What I hate hearing is that they have taken the spot of the subprime loans. This is not true by any part of the imagination. This statement is from those that are inexperienced in both the mortgage and the real estate industries. The realization has been that 30% of the subprime mortgages in the last 5 years previous to the last 2 years should have been FHA mortgages, not subprime. And that is a hard core fact.

 

To compound this, so many said just because you had a conventional loan, you had the better loan. This was not always true when putting 3.5 percent down. In most cases, you were told this, because that particular lender was not FHA approved. Now?  Even with 10% down and credit scores less than 680, FHA loans in many cases, will be the best mortgage for you. But here is the kicker, in this scenario that I am about to share with you, even with 20% down, the FHA loan is cheaper for you, even in the short term. And because of today's rates and market conditions, paying points might be better than ever before.

 

 

So you could argue the fact that this is just my opinion, that FHA mortgages in many cases would be better for you. True, even though I have over 16 years of experience as a loan officer in the mortgage industry. But numbers don't lie. Let me show you.....

The example below is based on a $460,000 purchase price with 20% down. One reason why conventional rates are a little higher and cost more pooints in this scenario as in FHA rates is because Fannie Mae and Freddie Mac have added penalties per se. If you are putting down less than 30% and your credit score is less than 720, certain fee penalties would apply to you, which would increase your rate.  The FICO (credit score) that I am going to use is 637 and I will still show in this example that FHA loans are cheaper, even with 20% down.  

 

***And keep in mind, some lenders have penalties on FHA mortgages with credit scores under 620. And many lenders can't do FHA loans under 620. I can still do them down to 600.***

 

Type of Mortgage	Conventional Loan	FHA Loan
Purchase Price	$460,000	$460,000
Mortgage Amount w/ 20% down	$368,000	$374,440 w/MIP
Interest Rate with points	5.50% & 3.625 points	4.50% & 1.794 points
Principal & Interest Payments	$2,089.46	$1,897.23
Mortgage Insurance	N/A – Zero $	$153.33
Total Mortgage Payment w/ P&I and mortgage insurance	$2,089.46	$2,050.56
Monthly Savings		$38.44

Disclaimer :  These rates are examples, but the spread shown in the example is real. To compare this scenario apples to apples, it couldn't be done because of the large pricing hit on the credit scores for conventional loans. In this scenario, there are no lender fees, just points. The conventional rate and points also includes the penalty for the 637 credit score, which is 3 points.

 

Some of you might be saying that you will be adding $6,440.00 onto your principal balance if you did the FHA mortgage because of the FHA one-time mortgage insurance premium. This is correct and I don't want to confuse you with more numbers and charts. But here is a quick breakdown. Here is a break down of the costs for the both scenarios.

 

Costs of the mortgage	Conventional Loan	FHA Loan
Mortgage Amount w/ 20% down	$368,000	$374,440 w/MIP
Points for the rate & penalty	0.625 + 3.0 = 3.625 points	1.794 points
Cost in dollars for the points	$13,340.00	$6,653.00
Difference in costs	$6,687.00 more than FHA
Upfront MIP added to loan	N/A	$6,440.00
Monthly Savings on Mtg payment		$38.44
New Mtg payment – MIP paid in cash	$2,089.46	$2,017.93
Monthly savings with No MIP financed		$71.53

 

As you can see, there are a few different ways to look at this. To compare apples to apples on the upfront mortgage insurance, let's pay it off in cash, using the same monies that you were using to buy the conventional rate. As you can see you still save $237 out of pocket on the FHA loan and now $71.53 a month, even with mortgage insurance.

My advice?  Don't pay the UPMIP, because you will still have a lower mortgage payment and keep in mind, you also have a tax write off on the higher loan amount. One more important fact that even many loan officers don't know. The monthly mortgage insurance on the FHA loan will fall off in 5 years. When this happens, your savings is now increased to $191.77 a month.

 

Lastly, here is one more comparison to show what happens to your principal on the FHA loan scenario compared to the conventional scenario.

 

Principal Balance	Conventional Loan	FHA Loan
Mortgage Amount w/ 20% down	$368,000	$374,440 w/MIP
Remaining Principal after 3 years	$252,273.59	$255,473.11
Remaining Principal after 5 years	$340,255.24	$341,336.83
Remaining Principal after 7 years	$326,842.79	$325,861.41

As you can see here, it would take about 6 1/2 years to recoup the upfront mortgage insurance if you included it on the new mortgage. But don't forget that you put $6,687.00 in your pocket because the FHA loan was cheaper in points.

 

If you ever have any questions about FHA loans and comparisons, please don't hesitate to call me or e-mail me.  jbelonger@ihmci.com

 

 

 

 

 

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!

Copyright © 2009 by Jeff Belonger