We have been in a doom and gloom housing market for the last 6 months to a year. Largely due to the part of the media and uneducated loan officers and realtors. Let me tell you something, there is still plenty of mortgage money to lend.
The problem is that you have some lenders that don't know anything other than conventional mortgages. Or they aren't FHA approved to do FHA Loans. And not to knock realtors, but there are many realtors that have been in this business for 20 years or so, that keep relating to FHA mortgages of the past. Yes, they were sometimes harder on appraisal repairs, but that was prior to 2001. Since then, HUD did away with the VC sheet. Only those items harmful to the borrower, must be repaired only if noted by the appraiser. The reason I bring this up is because I just spoke to a loan officer in Maryland that told me that he met 2 realtors that have been in real estate for 25 years, who told him that they don't like FHA mortgages. The funny thing is that they haven't had a buyer or seller do a FHA loan in 10 years. Hence why I want to give a quick education on FHA loans right now.
FHA loans & FHA mortgages - The basic principals and myths...
- FHA mortgages have a one-time mortgage insurance premium, known as upfront mortgage insurance, that makes the loan more expensive. MYTH And some realtors still think it's 3.00 percent. Again, that was the 90's. As of 10/1/08, it's 1.75% of the base loan amount. And no, it's not that expensive. Example : On a $250,000 loan amount, it's about $30 a month added to the payment. And keep in mind, that is with 2.25% down. If you put 3% down on a conventional loan, just the payment alone would be $65 or more higher based on that same loan amount. And that is not including any pricing hits on the rate for credit scores under 720.
- The monthly mortgage insurance on a FHA loan is very expensive. MYTH This is called annual mortgage insurance or MMI (monthly mortgage insurance. No matter how much you put down, it's either .55 percent or .50 percent of your base loan amount. Comparing this to a conventional mortgage, you need to put down at least 10% in order to get to .52 percent. And again, you will still have to worry about credit scores being an issue.
- FHA loans overall are just hard to qualify for. MYTH Conventional loans are much harder to qualify for now, even with 10% down in some cases. If a conventional loan is not approved in the system, through DO/LP/ or DO, then it's a dead deal. I can still do manual underwrite loans down to a credit score of 500. Most lenders can't go below a 580. It all comes down to a loan officer that truly understands on how credit works and how to qualify on income.
- As of now, 3% out of pocket and 6% from the seller as seller concession. As of 1/01/09, the new down payment change will be effective.
- FHA Cash out loans to 95% of the appraised value. FHA jumbo cash outs to 85% LTV.
- Non occupant co borrowers on both purchases or refinances are allowed. A non occupying co borrower has to be a relative though. And you can't use the better credit score or the credit of the co-borrower. Their credit is still a factor though. The primary concept here is to use their income to help you qualify.
- Bankruptcies - A Chapter 13 needs to be 1 year old and a Chapter 7 needs to be 2 years old. On conventional loans, it's 4 years old.
Overall, these are just some of the basics. In many cases, FHA loans are the way to go, no matter what the nay sayer says. Yes, mortgage money is still out there. Lenders are still making loans and lending money. Those that are usually having trouble after they told you yes, theycould do the loab, are those that really don't know what they are doing. They were just trying to get a deal in the doors and in many cases, hoping that it sticks on the wall. The real professional doesn't have time to hope, but a real professional loan officer knows it will work, because of their expertise and knowledge.
- FHA Loans - Conventional Loans - VA Loans -
Experience & Knowledge at its BEST !!!
____________________________________________________________________________________
For more information on FHA loans, please go to this link. The FHA Expert
For more information on how you can obtain your dream home, please click here : Mortgage Financing Options
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!!
Copyright © 2008 by Jeff Belonger
Jeff - AMEN! However, as true as everything you said is, there will still be those, stupid, ignorant, uneducated and overall snooty Realtors that will refuse to accept offers from FHA borrowers regardless of how we lenders try to inform and educate them on the worthiness and credibilty of our FHA clients.
Hopeful, in time, those individuals will become the minority and/or become replaced by the smart, informed and educated Realtor that knows an FHA borrower is just as worthy and valuable as any other prospective buyer.
I couldn't have said it any better Jeff. FHA loans are one of the simplest ways to get someone into a home when they have had credit difficulty.
Well said again Jeff! FHA has been and I think will always be the basis by which all other affordable housing/low down payment programs are measured. The new down payment requirements coming into effect in January will actually simplify the process and promote more equity by applying more $ to down payment. FHA standards for the condition of a property are extremely forgiving and for those properties that need repair you have the FHA 203K!
A host of solutions to help put deserving families into a home. The best loan programs have always been there and will continue on.
Gerry Suarez, Jr.
Your FHA Loan Pro!
FHA are great loans...too bad there isn't much help for all of my self-employed clients who take lots of deductions. If you ever come across any new developments please pass them on!
Hi Jeff. I must admit that even with a finance background, I have absolutely no clue about FHA loans. So you can get a loan even with a Chapter 7? After two years? I am sure it varies, but can you throw out a guess as to the rate??
Thanks for writing. I have so much to learn my head hurts!
Ken
Great post as usual. You remain the FHA king.
DONNE..... I have come to grips with people in general, that refuse to accept change, even if it is for the best. I had a manager back in the mid 90's that just didn't like computers. We got our lap tops and it was on the cutting edge of technology.... he kept with his paperwork by hand. I know another very qualified loan officer up until 2004, who still did his mortgage application by hand.
Overall, as you mentioned, hopefully those people fall off and new innovated people come into the industry. Those that can accept change, good or bad.. but most importantly, those that want to learn, to better their client and not just their pockets.
FRED...... thank you for the compliment. So many fear FHA loans, even loan officers. Part of it is because you really need to evaluate the credit and make sure that it fits the guidelines, which are very flexible... sad, but so true. I closed 10 deals just this year that the buyer had gone to another lender at first. Out of those 10, 5 of them were just credit challenged. Each and every loan, all 10, I closed in 5 days to 3 weeks. And I didn't do anything illegal.... imagine that...
GERRY..... what's funny is that FHA can be used for borrowers that aren't first time homebuyers or those with bad credit or less than perfect credit. And yes, the new 3.5% down rule has some good points... it will be easier, because it will be a flat 3.5% in each and every state now...
CREE..... well, not sure how long it will take stated loans to come back to where they were even in 2000 or so.... the market has a lot of cleaning out to do first. I saw a lot of stated loans go into foreclosure also.. these can be a dangerous loan in many ways... just my .02...
KEN...... There is no penalty for anyone with a BK....And yes, you can get a FHA loan with a Ch. 7 that is 2 yrs or older from the date of discharge. I have heard some loan officers sell FHA as two parts... FHA loans and FHA b minus loans.... or FHA with two different tiers. Those are loan officers or lenders trying to make more money on the less than perfect credit borrower. Hey, we all have to make money.... but if I tell the consumer upfront and how I work, some will pay a premium, a realistic fee, knowing that what I gave them in the beginning will be the same at the end with no changes.
So, just to give an example... BK or not... on a $250,000 purchase with a 600 score, I could give a rate of 6.5% fixed for 30 years with 1 pt and no other lender fees.
On a conventional deal with that same scenario.. first off, the BK has to be 4 yrs old... but the rate with a 620 credit score with 3 % down? You would be looking at a rate of 6.875% with 4 points.
So, to compare apples to apples, the actual 1 pt charge, your conventional rate would be about 7.5%...
Jeff I totally like reading anything by you and Jason Sardi. Honestly the two of you and a couple of locals are the only lenders that don't just bore the living daylights out of me and anyone else in earshot...I guess what I am trying to say is thank you for making pertinent lender information not only palatable but interesting!
I love FHA mnortgages. I have done many of them and down payment assistance programs with 1st time buyers. A great mortgage broker always helps, and I have one!
Hi Jeff . . . Well, I'm a long way from you but current market conditions are prevalent everywhere, right? What is the behavior of Buyers (assuming you have some) in your current market? Thanks for your post. Keep up the good work.
Aloha
James G. Pycha (R)
REMAX Kauai
Jeff,
FHA is the best game in town right now. Great post.
Jeff, I have to be frank here. I am amazed that this post is even necessary. FHA has been around for years and clearly withstood the test of time. It is a program, particularly in times like these, that people need to know more about. Great post,
Bo
I know I have closed some FHA loans and have not had any problems. Thanks for the information.
FHA is the best for the most right now. Maybe when Fannie and Freddie get settled the need to go FHA will diminish some. Most buyers are having to go that way now since the GSE's have tighten up. My only problem is that politicans are messing with a pretty good thing and I hope that FHA doesn't go the way of Fannie and Freddie. I told anyone who would listen, that you expect the GSE's to survive making bad loans.
I was doing FHA before it was even cool. Hey that sounds like a potential song. Anyway I have always thought highly of FHA and VA. I guess I'm just old school.
Mr Jeff, STANDUP AND YELL OUT LOUD!!!! WE HAVE MONEY TO LEND..... and add USDA Rural on top and we can help people beome homeowners...... If only the profession and media would become even half arse educated
Great post Jeff! I just posted about fha loans the other day also, because so many people were asking me - are there any loans available anymore? I think largely due to what they hear on the news.
Thanks for the great info.
Keep fighting the good fight Jeff :-)
Thanks for a great post Jeff!
Amen,
Thanks for saying it. You do not need a 720 credit score to buy a home.
Excellent post. Most people don't know about FHA loans or believe that there are no loans out there for less than a 20% down payment. My understanding is that the fHA and other conforming loan limits are going to increase to $626,500 on January 1, 2009, with lenders probably starting to offer these higher loan limits in late November, with the loan to close after the first of the year.
See my update on mortgage financing at Market Reports
Good post Jeff! I have been a fan of FHA for over 10 years and try to direct my buyers that way when the loan fits. Another great advantage that FHA offers is the ability to streamline later when rates come down - and not having to worry about the appraisal if the payment history is solid.
Jeff, Thank you for your post. As one being new to real estate, I hear about the FHA loans not really knowing what it means. Your post gave me some insight, but I think there is still more to learn about FHA loans.
Another well-written, educational post, Jeff. And good to know that there is money to lend! I may link to this post, from my web site. Thanks!
Thank you, thank you, thank you! First and foremost for spreading the word that banks still have money to lend to qualified buyers. Secondly, for the overview on the new FHA loan. My first mortgage (before I was a realtor) was an FHA loan and I remember that everyone thought it was a pain in the neck, so those three letters have always left a bad taste in my month.
Jeff, very good info. I currently have an FHA First Time Homebuyer that I've been trying to find a home for. She qualifies for $160K but it seems the homes in that price range and below have quite a few issues that FHA would not go for, nor would she for that matter. Hopefully, when I show her 8 more homes on Sunday, we will find one that will qualify.
One of the major hang-ups that I'm having is that she needs 3% back for Closing costs and the banks have been unwilling at this point.
Have any solutions for me?
Jeff,
Thanks for the post. I can remember when I started in this business, FHA was the scourge. My have times changed, it just may be the saving grace.
Jeff, I appreciate you spelling that out for everyone. I have sold MANY homes FHA. They were cake walks, as far as I was concerned. As for the VC sheet, I never worried about that either. I made sure on the front end that I wasn't selling my buyer a shack. IF I did see a potential problem, (chipped and peeling paint, no handrail, etc.) I would warn them up front so they wouldn't be surprised. I would also inform the listing agent if I thought there were potential problems, so the agent could prepare the seller to make all necessary repairs.
My experience with FHA has always been positive. I think this will be the best loan for many buyers now. Conventional is getting tougher each day, as you said.
You can do credit scores of 500? WOW! That would be a pretty thick file in the end, wouldn't it? Lol. Lots of explanation letters in that file:)
Great information on the FHA Loans. With the way guide lines are changing almost daily. it is good to get updates
This is a great post. Thanks. I never had any clients who used FHA until the last year. Home prices were too high in our area, southern California, but now that home prices have dropped a lot and the FHA limits have gone up, they are good loans. Many of my clients are using them nowadays.
how do you find the time my friend?? very nice
chris the implementer
Jeff, the glass will be 1/2 empty with some people.... and there isn't anything we can do about them. All we can do is educate!!
Great article
FHA loans are a staple in my business, and always have been. 'Guess that's why I was drawn to the title of this post because they certainly are NOT a bad mortgage!
The majority of my transactions are FHA. Last year in my first year of real estate I think I had 4 FHA's and this year I would say 15 are FHA. I have no problem with them, I just think some agents and some lenders don't like them and don't want to work them.
Jeff: Thank you. it's always good to let people know there is money to lend. Especially since the public perception is there isn't. I agree with you. FHA can be a great way to go. Good luck to you my friend. We'll talk soon!
Paul
JANET.... well, thank you for those kind words....
RUSSELL..... my pleasure... and I am glad that this mortgage information doesn't bore you, because it bores the crap out of me. But I find myself talking about it often. I guess it's that passion that myself, Sardi, and a few others have and love helping people. again, thanks
CORINNE...... I have loved FHA mortgages since the 2nd year that I got into this business, which was 1992. And yes, many of the FHA loans that I did back then were your true first time homebuyers. Now? FHA is being used by so many because of the high cost of the conventional mortgages.
JAMES..... the behavior of buyers in my area? Considering that I do loans in many states, people are still buying. But, it has dropped off by like 70% in the last 4 weeks, a lot of it has to do with consumer confidence. And the media hasn't helped that part of things at all.
FRAN G. ..... for many, yes it is....and we need to keep spreading this message, especially to those realtors that think they understand FHA as a bad thing.... they need to know that they should be excepting offers with FHA financing.
BO........ since 1934 and yes, this post is necessary. I still hear more than often that offers with FHA financing are rejected. Damn, if I was the seller and new this or was told differently, I would not only fire the realtor, but complain to their office.
PAT....... the problems that would happen are from those loan officers/lenders that don't know what they are doing... thanks
DALE aka Home Reality....... . why would FHA diminish, even if Fannie and Freddie came back some. Even 2 years, FHA was the better deal when you compared the 97% financing. The only reason some loan officers fought me on this issue was because they weren't FHA approved. And they still argued with me that in most cases, going conventional was better. NO, the rate and mortgage insurance was a little higher.
In regards to FHA going away as Fannie and Freddie fell apart? I don't see it happening because Fannie and Freddie was a business. HUD just makes the guidelines up... it's the lenders that make the loans. You just can't compare FHA to conventional. Plus, that is one reason why they have the upfront mortgage insurance. Sure, FHA says they are hurting, because they are dipping into their insurance pool. But it should hold ....
CHARLES...... . old school is what we need more of in today's market. My first FHA deal was in March of 1993. I started doing them reguarly since 1994.
JOE..... . I'll be writing a USDA post later. But yes, we need to put it out there more than ever, that there is still plenty of money to lend. thanks
MIKE...... . my pleasure and thanks for the compliment. And yes, we need to keep getting this news out to the general public. The media won't do that or help.
BOB S. ...... wait, is this Bob Stewart of Active Rain? wow, so cool. Seriously, thanks...
THOMAS....... . my pleasure and thanks for the polite compliment.
GARY...... . isn't that the truth. We need to express to so many that you can still get a mortgage with less than perfect credit... and the rate is still very good. In most cases, better than conventional.
Jeff,
Great information. Keep posting so that more people understand the programs and guidelines.
Scott
Good information for buyers. I've helped many buyers that had FHA financing. Right now we just need deals to close.
MAUREEN...... . in regards to your comment about raising the loan limits. They are actually higher in some counties now.... $729,750. When they say that they are raising the limits, that is going to be the new ceiling. Please read #4 on this post.
FHA Loans & FHA Mortgages -- Legislation Update -- August of 2008
I hope this helps some.... because you said higher loan amounts and I think there are a few loan officers or people out there reading incorrectly into what is going to take place the 1st of next year. Even when they came out with the stimulus package, they said things would change and be reduced. and thanks for the compliment.
VICKI..... . just curious, how would you know if the loan fits? I truly think that you should leave that up to a mortgage professional. I say that for many reasons, and not trying to sound rude about it. But there are many questions that should go into asking a borrower to determine what would be best for them. Besides, one reason I make this statement to you is because in regards to your comment about FHA streamlines, you have already been misled when it comes to that.
FHA Streamlines... please read this.. :
FHA Streamlines - FHA Loans make it an easy process to refinance
Please read to about 70% of that post. There are 2 different types of streamlines. If you don't use an appraisal, you can only go up to the previous original loan amount.
In regards to a good payment history. This is up to the lenders discretion. But FHA says that you don't need to review the borrowers payment history. All we need to know is if they are current at the time of application, that they aren't behind on their mortgage. We don't want to know about any lates. I can't tell you how many lenders that I have talked to that think the same way that you do. Again, this is where you need to find that true mortgage professional that is on top of their game... that know these rules and guidelines and not think they do. thanks and thanks for the polite compliment..
EMILY...... . my pleasure... and yes, there is plenty to learn about them out there. I have done several different series of blogs giving information about FHA mortgages. You can find many of them at www.fhaloansfhamortgages.com thanks
LISA H. ..... . thank you and please do. We need to get this out to the general public very much so. And more than just a few times...
KERRY...... . those 3 letters? FHA? I am curious to which 3 letters left a bad taste in your mouth. But yes, we still need to get the word out there, that there is still plenty money to lend out there. thanks
GENA...... . the banks are unwilling to allow 3% from the seller? I am slightly confused about this. When you say banks, are you talking about making offers in foreclosed properties or are you talking about the lenders out in Cali, that are trying to do these loans. Any questions about your current client, please don't hesitate to call me or to e-mail me. jbelonger@ihmci.com thanks
WILLIAM....... . it should have never been like that in the past or now, in regards to FHA mortgages. We need to get the word out more than ever. thanks
Jeff, sorry for the confusion. It's 3% toward Buyer's recurring/non-recurring closing costs that I was referring to and the fact that the banks on the REO homes appear not to be willing to pay. Hope that explains it better.
At higher LTVs, FHA may be the only option for the credit challanged.
GENA.... I suppose that is you with the comment above. Let me pose this question... if the borrower needs 3%, why not back it into the price of the home. If they bank is willing to accept $150,000, why not offer $154,700. The bank should then give 3% back. And do you know that you can get up to 6% from the seller. So if this person can qualify for $160,000 and the bank will accept $150,00, offer them $158,000 and get $8,000 back. Use some of that money to buy the rate down. It's a win win for the buyer. This is as long as the house will appraise for $158,000. Hope this helps some...
ELIZABETH...... . wow, you seem like a very informed realtor, in which we could use more of. Even in my area.... I am impressed..
In regards to the credit scores down to 500 and the thickness of the file? Not always... keep in mind, on credit with FHA loans, you want to look at the last 12 months worth of credit. Sometimes when scores are that low, it could be because of a past judgment and a few collection accounts that were paid but still show unpaid. This could create low credit scores also.
ROLAND....... . thanks and yes, the way programs and guidelines are changing, we certainly need the updates. thanks
VICKI...... . I know that was a large reson to why FHA wasn't used in California much. But another reason was that and still is that many lenders in Cali. weren't FHA approved. I can't tell you how many calls that I get from loan officers out your way, because they aren't FHA approved. And even those that had FHA, used convnetional because it was easy.
CHRIS..... . just make the time... and thanks
TOM....... . yes, the glass will always be 1/2 empty. I have so many stories from the past to why some didn't use FHA, even though they could do them. That's sad, but it's also reality. And thanks for the compliment.
MARGARET...... . bingo..... and I hope to one day help you with one of those FHA loans...
LANITA...... . you hit the nail on the head, that some realtors and even loan officers just don't want to do them. From a loan officer's point of view, they can be more work than a conventional or subprime loan. But it's really not that much more. You just need to know how to read credit and what you need to do to explain things.. and what to collect for the bad credit.
One sad thing to why we are seeing more is because many lenders jumped on the bandwagon, to go get FHA approved, because if not, they would have hardly any business. I have always said from 2001 to 2005, 30% of all subprime business should have been FHA. That's sad and very scary... and a good part of the reason to why we are in this current mess. At least that is one of the 3 to 5 reasons, in my opinion.
OK. I followed through on my comment. This post is officially linked to the home page on my web site. Thanks for the great info! =)
Good post. I'm beginning to see more Loan Officer's promoting FHA in Hawaii. Some are promoting it as the new subprime. I really hope they know what they are doing. By the way, FHA loans are great in that they can be assumable loans. Another added benefit.
Jeff, after all these years writing FHA offers that one I have done pat...just wish there was a NEW secret....:)
PAUL...... . I was just watching 60 minutes last night and they are making it look like with this gov't bailout, that it is allowing money into the system to be lent... when in reality, there was still money to lend previously. Damn, we are in a sad state of confusion... and thanks for the polite comments..
SCOTT..... . thanks... yes, we need to keep getting this information out there. thanks
LIZETTE..... . well, I have always needed deals to close... ;o) But yes, we need to put this kind of information out there. We need to educate the masses. Because the media certainly isn't helping.
RANDALL..... . well, you still have VA and the USDA program.... but they are specific and not everyone can use them under the guidelines. thanks
LISA..... . I'll check it out.... which web site of yours? And thanks for the polite mention.
LINDA...... . AAAAARRRRRGGGGGHHHHH.... if I was in charge and could levy fines... I would fine all of those that are advertising FHA as the new subprime. Those in my opinion are the same ones that hurt us from 2000 to 2005, by offering subprime over FHA.
Hey Linda.... you should ask these same loan officers why they think it's the new subprime, when FHA has been around since 1934?
In regards to FHA loans are great because they are assumable? Well, not really... it's a selling feature that is hardly used. Why is that? 2 reasons.... the current lender holding the note has to qualify the new borrower... AND... the current borrower with that FHA mortgage will still be partially responsible even though someone is assuming the mortgage. Why would anyone want to do that? And.... rates are low enough to where people would want to get rid of the mortgage. Assuming was usually good if you had a very low rate in a high interest rate market. That is not the case now.
On another hand, you might be under on your house with your mortgage, which would be a good reason to have someone assume your mortgage. But wait... there are rules and guidelines to having two FHA mortgages. So if you need to buy still and buy FHA, it won't happen. One of the properties has to have 25% equity in it, so if one is under water and you don't have 25% for the new purchase, it's irrelevant that your FHA mortgage can be assumable... thanks
GENA...... . well, I tried.... a new secret? Not that I know of... I guess I would need to know a little more of what is on the table. But getting back to the banks not excepting the 3%??? If you know about the raising of the offer, how come that hasn't worked then? Someone is not either explaining it correctly or someone doesn't understand the other side of things... in my opinion, that is a no brainer.... I have talked to the current lien holder one time to explain an offer and got it to work. I could do the same for you... because again, something doesn't make sense. thanks
Jeff, what I am finding is that the banks on REO's and Short Sales so far are not willing to pay 3% toward the home buyers recurring/non-recurring closing costs. Even with a higher offer, we manage to not get accepted. Many are going into multiple offers and so far...no luck. Wrote 3 more offers yesterday so keep you fingers crossed.
Gena - I've been having the same problem, maybe it's a Cali thing. I don't think it's so much a request for closing costs but rather an FHA thing. I've had a few conventional clients ask for costs and get them but when my FHA clients ask they are continually rejected, that is if they are even allowed to make an offer because so many REO and short sale listings won't accept FHA offers.
I'm curious if the rest of the country is having the same issues that we're having. If they are, I would really like someone share some tips and suggestions on how they're getting their FHA transactions closed. I'm not saying that all my FHA transaction are this difficult to get accepted and closed but it's becoming far too common these days, especially this year.