Posts Tagged ‘FHA’

Too Much of a Good Thing?

March 18, 2010

Last month we posted an article on RD (Rural Development) home loans.  We outlined the basics and how this is a great option to consider when purchasing a home, especially when so many areas and buyers may qualify.  Unfortunately, this program may come to a sudden halt – at least for the rest of this fiscal year.

Early last week a memo from the US Department of Agriculture Rural Development alerted lenders that they anticipated funding for this year’s program to be exhausted by the end of April, 2010.  This news itself is nothing earth shattering, but the timing most certainly is.  Normally funds start to become depleted in the fall near the end of USDA’s fiscal year which ends September 30th. 

The other challenge is that there will not be any Conditional Commitments.  Typically as funds are depleted, loans are conditionally approved pending more fund allocation.  Once the department has the new fiscal year’s budget approved with new government funding those loans are fully approved and business continues as usual.  Not this year.  Since there is such a huge gap between now and the start of the next fiscal year, Conditional Commitments are just not appropriate.

So what caused this problem?  Why did the funding end so quickly?  The easiest explanation is the growing popularity of the program.  Kevin Smith, Area Director for Rural Development says, “Record demand, not only in Michigan but nationally, for the Guaranteed Rural Housing loan program will led to the full utilization of Congressionally appropriated funding at an early time frame this fiscal year.”

We too have seen a steady increase in RD loans; and our company continues to underwrite more RD loans than any other lender in the state of Michigan.  As more borrowers learn about the program with low income requirements, 100% financing options, and the vast amount of area classified as rural; demand will continue to increase. 

The next obvious question is what can be done to ease this challenge in the future?  Should more money be allocated to the program?  Should the upfront funding fee be increased like the FHA program has done?  Should this be a top subject for Congress to focus on?  Smith could not comment on policy issues of the federal government, but one thing is sure.  If you want to take advantage of this program yet this fiscal year, you need to have a signed purchase agreement as soon as possible.  There are only 6 weeks left before committed funds are anticipated to be exhausted.  Miss this window, and you may need to wait until October to get in on this program again.

Things could always change based on how the federal government reacts.  Time will tell.  In the meantime, we’ll keep watching and will let you know how this program progresses.

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The Rules are Changing

January 25, 2010

Over the past couple of years requirements for obtaining a mortgage loan have become tougher to say the least.  For example, no longer can you simply just tell your lender what you earn – you need to prove it.  Your credit scores also need to be very good or excellent to be approved.  Just having a pulse no longer works either.

The plus side of tighter regulations is that consumers are more prepared to purchase a home.  They have worked to maintain a strong credit score; they have money to not only use as a down payment, but also funds available in reserve for after the sale.  Lenders themselves are also doing their homework.  They are paying much more attention to what is in the best interest of the borrower, and not just the bottom line.   Lenders that have not are no longer in business.

So what changes are being proposed this time?  The most significant changes are an increase in the minimum credit score, an increase in the upfront mortgage insurance premium, and a decrease in the amount a seller can contribute to a buyer’s costs. 

For most borrowers, the increase in the minimum credit score has already happened in effect because of what individual lenders will allow.  According to FHA policies, borrowers are required to have a minimum FICO credit score of 580 to qualify for the minimum down payment requirement of 3.5%.  Most lenders however, have a much higher requirement, most at a 620 score or better in order to qualify for a loan.  If you find a lender that will still accept the lower minimum score, be prepared to pay higher fees or accept a higher interest rate.

The increase in the upfront mortgage insurance premium is a significant change.  Until now, when a borrower has less than 20% invested into the home, mortgage insurance is required.  This insurance is to protect the lender in the event of a foreclosure.  FHA is a self-funded government agency that has been able to support itself from the monies raised from these premiums.  However, with the recent increase in foreclosures, the agency has had its reserves fall below the minimum level set by Congress.  FHA hopes that increasing the premium from 1.75% to 2.25% of the total loan amount will resolve this problem.  Unfortunately this means that the borrower of a $100,000 house will have the upfront premium increase from $1,750 to $2,250, or $500 more.  This change will become effective sometime this spring and for now only affects the upfront premium, not the monthly mortgage insurance premium.

The final change is a decrease in what a seller can contribute toward the buyer in a purchase transaction.  Until now, a seller could pay for up to 6% of the buyers closing costs.  This will now decrease to a 3% maximum.  This too will affect the amount of money a buyer will need to invest into a purchase transaction.  This change is expected to be effective in the early summer.

All this means that if you have been thinking about purchasing a home, ‘now’ is becoming a better and better time to do so.  Especially when you consider the extended home buyers credit that offers up to $8,000 for first-time buyers and up to $6,500 for other buyers who meet the qualifications.  If you need to wait though, don’t panic.  Simply be prepared to be more prepared when buying that home you have your eye on.

New Rules Mean Fair Play

January 5, 2010

Starting January 1, 2010 HUD implemented a new RESPA rule to standardize the GFE and HUD-1 issued to borrowers for the purpose of a home loan.  Now unless you have been researching this information, are in the process of securing a home loan or work in the industry, that last sentence was most likely read like a law student’s text book and made absolutely no sense.  So, let’s break this down.

HUD stands for the department of Housing and Urban Development, and is the government agency that oversees the Federal Housing Administration (FHA).  The FHA is the specific department that insures home loans made by private lenders.  HUD passed some new regulations regarding how borrowers are informed of the details of mortgage loans back in November of 2008 and some of these changes are now being fully implemented.  (Some things take time.)  These rules are part of RESPA.  RESPA stands for Real Estate Settlement Procedures Act, and is a federal law that helps protect consumers from unfair practices during the home-buying and loan process. (We are not the only ones looking out for you.)

As part of this new regulation some significant changes have been implemented to two documents that are used within the mortgage process – specifically the Good Faith Estimate (GFE) and the Settlement Statement (HUD-1).  The GFE is a form that is issued at the start of the loan process.  It discloses to the borrower their estimated costs for fees related to obtaining the mortgage for their home that will be paid prior to or at the time of closing.  The HUD-1 is a final listing of the closing costs for the mortgage transaction.  It lists the sales price, loan amount, individual charges and total settlement costs related to the transaction for both the buyer and seller (or for just the single party in the case of a refinance).

There were two goals with this change: 

  1. To standardize these two forms across all lenders to provide borrowers with an easier way of comparing loan offers.
  2. To help borrowers determine that the loan they are getting at close is the same loan they were offered in the GFE. 

Every lender will now use the exact same form, with the exact same terminology and show, at close where and why any changes were made between the start of the loan process and the end.  This is a very good thing! 

A borrower can now compare a loan program from any number of lenders and intelligently compare fees, interest rates and programs in order to make an informed decision on what loan will be best for them.  At Awareness Home Funding, our goal has always been to educate our clients and to treat them fairly.  Now you have a way to prove to yourself that what we have been saying all along is true!  Check us out and compare our fees to anyone else.  We think you’ll be glad you did.