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FHA Price Increase coming April 18, 2011 March 7, 2011

Another FHA cost increase is going into effect; for all loans locked after April 18, 2011, the monthly mortgage insurance premium will increase by .25%.
You may remember FHA loans have mortgage insurance in two parts – an upfront mortgage insurance premium (UFMIP) that is rolled into the loan amount and a monthly mortgage insurance premium.    

Currently the monthly MI premium is 90 basis points (bps) on loans with less than a 5% down payment and 85bps on loans with a down payment of 5% or greater.  After April 18th this premium will change to 115bps and 110bps respectively.  Also effective with this change, there will now be MI on all FHA 15 year loans regardless of down payment.
 
What does this mean for your buyers?
Example of Annual MI Premium Increase – 30 Year Term
 
March 2011 – 90bps
April 2011 – 115bps
Average Loan
$170,000
$170,000
Minimum Down Payment (3.5%)
$5950
$5950
Loan amount without UFMIP
$164,050
$164,050
FHA Annual MIP (monthly)
$123
$157
Change in Payment
N/A
$34
 
With no change to the loan amount, rate or terms this MI increase raises a buyer’s monthly payment by $34.  Using an interest rate of 5%, this essentially reduces your client’s buying power by about $6200.  Buyers who are under contract have submitted a loan application can avoid the MI increase by having their case number ordered prior to April 18th.
 
Why is HUD making this change now?
HUD’s  reasoning for the increase is: “Given the legislative mandate in section 202 of the National Housing Act for ensuring that FHA’s Mutual Mortgage Insurance Fund (MMIF) remains financially sound, it is imperative that the MMIF is further strengthened to ensure that FHA will continue its historic role of providing a home financing vehicle during periods of economic volatility and its mission of helping underserved borrowers.” 

Make no mistake, the FHA portfolio is performing quite well and it has a high credit quality.  Since the MMIF isn’t in any current danger, one popular opinion is that these changes are an effort to wean the housing market off government insured mortgages and back to private mortgage insurance companies. 

Please share this change and effective date with your FHA clients.  This coupled with rising rates is an excellent reason to get under contract and make loan application now.
 
In line with the new government restrictions on rate quotes** we will be providing a link to

http://www.mortgagenewsdaily.com/mortgage_rates/
 
 
 
 
 
 
 
**Please note the rates quoted are at the absolute best loan amount, the highest credit score and lowest LTVs allowed with a 1% origination fee and indicate the absolute lowest rate possible. You should use this list as a guideline and trend indicator and get a specific quote for your project (often it may be slightly higher). 
 
The Valeo-Croy Team -  (704) 488-1421
Todd Croy - NMLO license #91428
Deanna Valeo - NMLO license #91421
Accessible | Program Expertise | On-Time Closings                              
 
Facebook link: http://www.facebook.com/valeocroyteam?v=app_4949752878


The Valeo-Croy Team and New American Mortgage Bankers are Equal Housing Lenders.This information is for illustration only. It does not constitute an application for a loan or an offer or commitment for New American Mortgage to make a loan on these terms. Interest rates are subject to change until an application is completed and you lock in your interest rate. The figures noted are estimates and may vary depending on discount points, taxes and insurance. Programs, terms and conditions are subject to change without notice. Mortgage loans are subject to credit qualifications. Normal credit standards apply.   Date: 3/7/2011

 


What you need to know before buying a condo March 15, 2011

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"They can because they think they can" ~ Virgil

Recently we have been getting questions about condo qualifications and I thought it is a good time to review the requirements.  For FHA the condo must be on the approved condo list published by HUD - you can search this link:  https://entp.hud.gov/idapp/html/condlook.cfm - be careful with your search you may have to look outside of zip codes and the names may not match exactly.  I have had to pull the entire list in the past to find an approved condo project.
 
For conventional loans typically the condo project must be an existing project and the client must have 10% down payment (20% down if the project does not qualify for mortgage insurance - see below).  Fannie Mae has a stream line approval process available - we will still need a condo questionnaire. 
 
Condo Hi-lights
 
What You Should Consider Buying a Condo
 
1.     Is the condo an existing project or new project? – If Less than 90% of the units in a complex have sold once – the project is considered new; there are significant restrictions for financing new condo developments (see a professional lenders advice) – FYI for FHA this restriction is 100%.
 
2.     Has the condo board been turned over to the owners? If not this is an issue
 
3.     Are more than 30% of the total units in the condo development being rented? If more than 30% then no MI Company will write a policy on the property. FHA will allow up to 50% rentals. Fannie Mae will allow up to 50% rentals as well, you will need 20% down payment.
 
4.     Are more than 15% of the HOA dues behind 30-days or more? If so this is an issue and will preclude financing – this includes Fannie May Limited Review.
 
5.     Does Any Single Entity own more than 10% of the units? If so this will disqualify the project.
 
6.     Does the project have adequate reserves for maintenance?

Includes allocations/line items to ensure sufficient funds are available to maintain and preserve all amenities and features unique to the condominium project provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10% of the budget; and Provides adequate funding for insurance coverage and deductibles.
 
7.     Is liability insurance in place providing at least $l Million of coverage for bodily injury and property damage per-occurrence? This is required
 
8.     Is hazard insurance in place to cover 100% of the insurable replacement cost of the project improvements, including the individual units? (The deductible amount must not exceed 5% of the policy's face amount). Required
 
9.     Projects with 20 or more units; is fidelity bond insurance in place covering the maximum amount of funds that will be in the custody of the owners association or Management Company at any time? This is required for all FHA loans.
 
In line with the new government restrictions on rate quotes** we will be providing a link to

http://www.mortgagenewsdaily.com/mortgage_rates/
|
**Please note the rates quoted are at the absolute best loan amount, the highest credit score and lowest LTVs allowed with a 1% origination fee and indicate the absolute lowest rate possible. You should use this list as a guideline and trend indicator and get a specific quote for your project (often it may be slightly higher) than their rate guide.

 
Have a Fantastic Week

Sincerely,


The Valeo-Croy Team -  (704) 488-1421
Todd Croy - NMLO license #91428
Deanna Valeo - NMLO license #91421
Accessible | Program Expertise | On-Time Closings                              
 
Facebook link: http://www.facebook.com/valeocroyteam?v=app_4949752878


The Valeo-Croy Team and New American Mortgage Bankers are Equal Housing Lenders.This information is for illustration only. It does not constitute an application for a loan or an offer or commitment for New American Mortgage to make a loan on these terms. Interest rates are subject to change until an application is completed and you lock in your interest rate. The figures noted are estimates and may vary depending on discount points, taxes and insurance. Programs, terms and conditions are subject to change without notice. Mortgage loans are subject to credit qualifications. Normal credit standards apply.   Date: 3/15/2011
 
 


Getting an FHA Loan When You Change Jobs; What Are The Rules? March 21, 2011

"Don't let what you can't do keep you from doing what you can do" ~ John Wooden

This past week we had two instances of people changing jobs and wanting to buy and close on the purchase of their new home based upon "offer letters" effective at a later date.  By rule: FHA requires receipt of a pay-stub prior to funding a loan for a new purchase.  So bottom line:  you must have started your new job and you must have received a pay-stub before you can close. BTW: Conventional Loans also require the new pay-stubs. 

In another example we had a client who is currently employed on a job that requires travel and therefore can be located in any city and still perform their job.  The client informed us that they want to buy a house before they begin a new job which will begin in June.  The issue is that we are 2.5 months away from the start of the new job, by rule: we must have a pay-stub from the new job to close our new loan.   We cannot simply ignore the new job because by rule we must expect the current job to continue for at least 3-years or we cannot use the income.  

This particular case has caused significant stress.  Since we are aware of the upcoming change in the employment of our client we must use this in our underwriting decision.

Below is an outline on FHA rules you may want to consider for clients relocating to Charlotte.

  
Qualifying for FHA If You Change Your Job?

There are several indicators FHA underwriters look at when determining a borrower's eligibility and creditworthiness. One of these is income. Income relates to the borrower's ability to repay the loan and is one of the factors in measuring whether the borrower is carrying too much debt.

Time Frame
o    FHA loan guidelines focus on income based on the previous two years of employment. The borrower must expect the income from their current employment to continue for the first three years of the mortgage. Underwriters like to see a stable employment history for that time period so that they have a reasonable base to use when calculating qualifying income.
Significance
o    While FHA guidelines prefer the borrower hold the same job with the same employer for the full two years prior to loan application, the guidelines make exceptions under certain circumstances. If a borrower has changed jobs but remained in the same field, then a job change is acceptable. The FHA looks favorably on frequent job changes within the same field that come with increases in benefits or income. In addition, if a borrower has recently graduated from school or training program and changed his job to one that reflected his field of study, this is also acceptable.
Commission-based Employment
o    Commission income must be consistent over the full two-year period in order to count as income. FHA guidelines specifically prohibit using commission income if it has a history of less than one year. Even if it is within the same field and the amount earned is higher, the income from a commission-based job is not eligible after a move from a salaried one in this circumstance. The FHA makes an exception to this rule for those who remained in a similar job with the same employer, but whose compensation changed from salary to commission.
Self-employment
o    FHA guidelines require self-employed income to be consistent for a two-year period in order to be eligible. Since many businesses do not make money or fail during the first few years, underwriters want to be sure the income is stable and will continue, hence the two-year time frame. The only exception to this is if the borrower has two years of employment and income history in the same or related field prior to self-employment, and has been self-employed for over a year. Under no circumstances will an FHA underwriter count self-employment income with a history of less than one year.
Part-time Employment
o   Part-time income qualifies only if it has been with the same employer, or continual and stable for the previous two years. Sporadic part-time employment income is not eligible for inclusion as monthly income. A recent change of part-time jobs or frequent job changes may render that income ineligible.
 
There is one exception to this rule:  If a borrower has a true non-revokable employment contract good for a minimum of 1-year the borrower can close up to 60-days prior to the first payment being made.  The key is the employment contract; these are very rare and often apply for pilots, doctors and teachers. 


Reference: 
http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.4.D 
 
Remember We Are Here For You.

Sincerely,


The Valeo-Croy Team - Call today:  (704) 488-1421

Todd Croy - NMLO license #91428
Deanna Valeo - NMLO license #91421

Accessible | Program Expertise | On-Time Closings   
 

In line with the new government restrictions on rate quotes** we will be providing a link tohttp://www.mortgagenewsdaily.com/mortgage_rates/ and their rate guide.

**Please note the rates quoted are at the absolute best loan amount, the highest credit score and lowest LTVs allowed with a 1% origination fee and indicate the absolute lowest rate possible. You should use this list as a guideline and trend indicator and get a specific quote for your project (often it may be slightly higher).
  
                         
 
Facebook link: http://www.facebook.com/valeocroyteam?v=app_4949752878


The Valeo-Croy Team and New American Mortgage Bankers are Equal Housing Lenders.This information is for illustration only. It does not constitute an application for a loan or an offer or commitment for New American Mortgage to make a loan on these terms. Interest rates are subject to change until an application is completed and you lock in your interest rate. The figures noted are estimates and may vary depending on discount points, taxes and insurance. Programs, terms and conditions are subject to change without notice. Mortgage loans are subject to credit qualifications. Normal credit standards apply.   Date: 3/20/2011


What is better to close at the beginning of the Month or the end of the Month? March 28, 2011

 

"A wise man will make more opportunities that he finds" ~ Francis Bacon

Recently I was asked, "when in the month should I close my loan?"  I would have to say closing at the beginning of the month is the best if at all possible with the following exceptions:  
  • - You currently do not pay a monthly housing payment (rent or mortgage payment)
  • - You are refinancing or selling a home with a FHA mortgage
  • - You have very little in liquid reserves – your lender will guide you in this case
To fully understand this let’s look at an example living in your home for the first three months:

You are getting a new home with a $200,000 loan at 4.875% 30-yr fixed mortgage and the monthly taxes and insurance are $500 a month. Also you are currently renting an apartment for $1000/month. If I close at the beginning of the month (let say a 30 day month - April) I will have 30 days of prepaid interest and no rent due. This is calculated at $200,000 * 4.875% / 360 * 30 = $812.50 in pre-paid interest (a closing cost). 

BTW: the banking world used 360 vs. 365 days for the year – I am not sure why however since it makes the daily interest charge higher – I feel it is a self fulfilling explanation.

In our example your new monthly mortgage payment with principle, interest, taxes and insurance (PITI) is $1,558.42 per month. Based upon closing at the beginning of the month my first new house payment will be in two full months June 1st. So for $812.50 I can live in my home for two full months. On June 1st I would pay $1,558.42 for a total of $2,370.92.

If I close at the end of the month April, 30th (or take interest credit) my closing costs are lower, in our example the prepaid interest is only $27.08 (1-day); however, my first payment is still due June 1st.  I would still have to pay for my rent for the full month of April $1000, and then make my first payment June 1st: $1000 + 27.08 + $1,558.42 = $2,585.50 during the three month period.

In our example we saved $214.58 over a three month period in cash flow; by closing at the beginning of the month.

Why not FHA?

FHA rules are that you must pay the entire months of interest when you pay off a FHA loan. So if you are purchasing with a FHA loan the example still works (usually better to close at the beginning of the month). If on the other hand you are refinancing a FHA loan or buying a new home and paying off a FHA loan then you may be better served waiting until the end of the month. Your mortgage professional can calculate the best course of action for you if you ask.
 
Summary
  • - If your rent is higher than one month’s interest only payment on your new loan: close at the beginning of the month.
     
  • - If you are refinancing or selling a home that currently has a FHA loan; close at the end of the month. 
Follow these rules and you could save yourself some cash.

 
Have a Fantastic Week and Remember We Are Here For You.

Sincerely,


The Valeo-Croy Team - Call today:  (704) 488-1421
Todd Croy - NMLO license #91428
Deanna Valeo - NMLO license #91421
Accessible | Program Expertise | On-Time Closings   
 

In line with the new government restrictions on rate quotes** we will be providing a link to http://www.mortgagenewsdaily.com/mortgage_rates/ and their rate guide.

**Please note the rates quoted are at the absolute best loan amount, the highest credit score and lowest LTVs allowed with a 1% origination fee and indicate the absolute lowest rate possible. You should use this list as a guideline and trend indicator and get a specific quote for your project (often it may be slightly higher).