As previously mentioned, the new economic stimulus package has allowed HUD to raise its maximum loan amounts for FHA loans depending upon the county of the property. For those in the
So who can take advantage of this? You could spend days googling FHA loans to get all kinds of information about the FHA insured loan so I won’t waste you time covering everything. What I will do now is touch on the opportunities that I think will make the most amount of practical use for the clients that I see on a daily basis.
1) First time homebuyers: With the end of the conventional 100% financing (see previous post) now more than ever this will be the product of choice for first time homebuyers who have little or no money down. FHA requires a 3% down payment; however those funds can be gifted to the borrower from a relative. The gift does not have to come all from the same relative either. You can get part from one parent, part from another parent or their siblings such as an aunt or uncle and then you can get more from another relative. Thus on the $289,950 purchase price that the borrower needs $8,750 for a down payment, they can get that from various relatives or at least the part that they have not saved up on their own. They can also borrow the money for a down payment, as long as the loan is secured and has a repayment period of at least 5 years. That payment counts against their debt to income ratio, but makes borrowing against a car, a boat, a certificate of deposit or a 401K an option for coming up with all or some of the down payment.
2) Refinance to get out of an 80/20 loan. The second mortgages on these loans were priced higher than the rate on the first. Many people regretted getting them, but because of the change in Conventional guidelines, they were not able to refinance the loans since they owed over 95% of the appraised value. On an FHA loan, we can refinance them at 97% loan to value if we are paying off liens on the property. A great way to get those people out of 2 mortgage payments and into one at a FIXED rate.
3) Refinance for cash out. Both Fannie and Freddie have made it darn near impossible to get approved for conventional cash out loan over 80% loan to value. First your FICO score has to be over 720 and then good luck getting mortgage insurance on the loan. With FHA we can go to 95% loan to value and thus help get people out of the credit card debt or other challenges that are overwhelming them. It will also allow people to borrow money to improve their property, which in the near future will be a key to helping people hold their property values.
These are just a few of the ways the FHA loan can be used. For comments or questions, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.224.9824.
3 comments:
Thanks for the informative post. I have a question maybe you can answer. As a first time homebuyer in late 2005 (near the peak of the housing market prices unfortunately), I had to take out a 0 down mortgage on my townhome, which was financed with two 5-year ARM loans. The combined purchase price was $411k (relatively cheap for Hawaii, where I live). About a year later I refinanced the second mortgage into a fixed 30-year mortgage (at 8.25%), but the first mortgage is still an ARM with a current rate of 6.75% and a reset date 2.5 years from now. I've been calling my lender (GMAC) to ask about refinancing lately, but they won't return my calls. I think it's because my property value has fallen from $411k to around $380. This means my loan-to-value is about 108%. I really need to refinance at least the first mortgage (86% LTV) within 2 years, but I'd prefer to combine both into one lower interest mortgage to have a lower monthly payment. What are my options? Do the feds have any programs going on now that could help?
Brian:
Thanks for your question. If your value has dropped, as you know, the challenge you face of getting both mortgages wrapped into one fixed rate loan will be difficult. The FHA Secure mortgage would allow you to refinance the first and exceed 100% cltv with the second as long as the lender on the second will subordinate. If that lender is GMAC, I have had success with them taking a subordinate position as long as the payment on the first was decreasing and or going into a fixed rate loan. Most conventional financing will not allow a cltv greater than 100%, however I will do some research for you and reply via e-mail regarding that.
Chris
Thanks for your advice. GMAC says they won't subordinate if the CLTV is greater than 80%, even if both mortgages are with GMAC! I talked with a FHA lender and was told they could refinance the first mortgage just as you suggested, as long as I can convince GMAC to subordinate the second.
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