Great News for FHA Borrowers

FHA Loans Just Became More Affordable

In a statement today, the Department of Housing and Urban Development announced that the annual mortgage insurance premium on FHA loans will drop by 25 basis points which is equal to .25% savings to any FHA borrower.  This will help ease the effect of the rising interest rates and give a little more buying power or more room in the monthly housing expense.  (The cut applies to new mortgages with a closing or disbursement date on or after Jan. 27, 2017).


“Dropping mortgage insurance premiums today will mean a whole lot more responsible borrowers are suddenly eligible to purchase a home through FHA,” William Brown, president of the National Association of Realtors, said in a statement.

The FHA said that it projects that its new premium rates will save new FHA-insured homeowners an average of $500 in 2017 alone.

So what is an FHA Loan anyways?

An FHA loan is a mortgage insured by the Federal Housing Administration. Borrowers with FHA loans pay for mortgage insurance through a Mortgage Insurance Premium (MIP), a self-sufficient insurance fund that protects the lender from a loss if the borrower defaults on the loan.  FHA loans are attractive to buyers because they require a low down payment, lower rates and more flexible guidelines.  

Please reach out to me for more information on current FHA Home Loan Rates or to find a loan program that is right for you.

Sincerely,

Chris

Tips That Could Make or Break Buying or Selling A Condo

There is more to successfully selling a condo than updates, perfect pricing & taking good pictures.
In fact, it starts long before you put it on the market.  If you didn't research your condominiums home owner association before you purchased, and/or weren't actively involved during your ownership, you could have a very difficult time selling.  I have seen it happen too many times; a seller has a willing & qualified buyer, they have agreed to a price, and are ready to move forward with the sale.  Then, to the dismay of both parties, they find out that the home owners' association doesn't "qualify" for the loan.  So what does that mean?  Most loan programs have strict standards to meet when it comes to the purchase of a condominium.  (Especially the popular loan programs through Fannie Mae, Freddie Mac & FHA loans).

Potential reasons why a loan might be denied due to the HOA:

• The home owners' association doesn't have enough reserves (money set aside from HOA dues to cover maintenance or repair costs) 
• Too many investors in the complex.  The lender must consider the fact that renters may not take care of the property properly because they have no ownership interest.  Also, there is the potential for low reserve funds.  While homeowners don't necessarily want to see HOA fees go up, investors especially don't.  To an investor, $50/month on 10 properties = an extra $500/month.  The problem?  If there are not enough fees collected, the reserves could be depleted pretty quickly.

To avoid potential problems when selling, there are 2 major things to consider:

1. Use a realtor to help you research the HOA before you buy.  Your real estate agent can get information from the condo association.  Red flags: 
• If fees are low or aren't going up with inflation.  This could mean there may not be enough in reserves.  (Even if you never intend to sell, if a maintenance project comes up that the reserves can't cover, you may be expected to pay a special assessment.  This could be thousands of dollars). 
• Too much debt, and a lot of delinquent home owners 
• Inadequate insurance
• Pending lawsuits
• Special assessments
2.  Become active in your association from day 1
• Become either a board member or an active member who attends meetings, and/or volunteer for a committee
• The HOA can set limits on those who invest, conduct reserve studies, decide on HOA fees, etc
• Be informed of upcoming projects and/or make suggestions
• Get to know your board members and other owners

Cornerstone Mortgage does offer loans for warrantable (eligible for Fannie Mae, Freddie Mac or FHA) & non-warrantable condos.  But remember, if you purchase a non-warrantable condo, it may be difficult to sell in the long run.

Your realtor and lender are valuable resources, so use us!  Feel free to contact me at any time with questions.

Sincerely,

Chris Scheer

Your Residential Lending Team

Appraisals: Five Common Questions Answered

WHAT IS AN APPRAISAL?

A real estate appraisal is required on a property whenever it’s financed, whether you are buying or refinancing a home. (With a few exceptions, contact me for more information). It is done after an offer is made on a home, or during a refinance.  An appraisal costs several hundred dollars, and generally the borrower pays this fee.

Maybe the mortgage insurance companies have finally figured it out!

This just in; one of the leading mortgage insurance companies has announced plans to insure conventional loans up to 95% LTV with a minimum fico of 660.

In addition they have increased the maximum debt to income ratio they will accept for borrowers with fico’s over 740.

What does this mean? It means that since tightening their lending guidelines they have lost all of their insurance business to FHA. In the meantime they have continued to lose money paying out claims on all the bad loans that they have insured. You don’t have to be an economics major to understand that if your revenue goes down and your expenses go up you will lose money. In an effort to try to get more revenue they have made these moves. Will they work? Only time will tell, but for now it could be the beginning of loosening of credit that will help stimulate the mortgage market after the tax credit ends on June 30, 2010.

We are on the cusp!

Undeniably the stock market has become a Bear market. That means that the Dow industrial average is down more than 20%. Sooner or later, those investors are going to start to move to safer investments. What are safer investments you ask? Well I am going to suggest that Mortgage Backed Securities are safer investments. For the last 12 months, this investment has been out of favor with everyone from institutional investors to foreign investors. As housing prices have fallen drastically on both coasts the middle of the country has done a good job of holding value. The Countrywide Mortgage debacle has turned a corner and is now Bank of America’s problem. The Fed has not had to rescue any more mortgage companies for the last 30 days. Second quarter earnings are being reported this week and by now all the major companies have figured out that they cannot hide the losses from the mortgage mess, so those will be dealt with in these reports.

That leaves us with mortgage backed securities in position to be an attractive investment again; especially the Ginnie Mae government loans. With over 70% of all loan applications that I am taking right now being for FHA or VA loans, I am confident that most other successful originators are doing the same. This will create a huge supply for these investments and the hawkers of these securities will have the product to sell and most of these properties will not be those that are going into foreclosure but being bought out of foreclosure by people who have the means and desire to make their mortgage payments. Sooner or later, Wall Street is going to start moving these securities and then the laws of economics will take over. As demand goes up so does price. On a bond, for those of you that don’t remember, when the price goes up the yield (see interest rate) goes down. Thus, even though there is discussion of the Fed raising short term interest rates, what they really are hoping for is that the lowering of short term rates that they did months ago will finally take hold on the long rates and we will see the 30 year fixed rate get below 6% again.

Now I realize that this is optimistic thinking on my part, but if you listen to the doom and gloom prognosticators out there saying that the economy and the stock market are still in for tougher times, someone has to be willing to bet on the bond market. Today I am that person!!!

FHA is the King!

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 St. Louis, Missouri area, that means we now can do an FHA loan for up to $281,250. The previous amount was $213,750, so that is a huge jump, almost a 33% increase.

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.

The End of 100%

In the ever changing landscape of lending, we had the latest and most significant change take place this past Monday. All of the Private Mortgage Insurance Companies announced that they would no longer issue mortgage insurance on any loan with a loan to value greater than 97%. On a side note I can remember when we could only do a 97% loan and then just one of the mortgage insurance companies said they would insure up to 100% and it was months before the others joined in when the LTV was going up, but now that the maximum LTV is going down, they are all are the same page and quick to make the move. Kind of like rats jumping off a sinking ship! But I digress! Now there are few instances that one of the companies will honor the 100% commitment but it is in such a limited scope that you have a better chance of winning tonight’s Powerball drawing than getting a 100% loan.

So why are they doing this? First of all they are all taking a bath financially in mortgage insurance claims on loans that are in default and foreclosure due to the current mortgage crisis. Some would argue that they have been making money hand over fist for years as their losses have been limited as the housing prices grew and mortgage rates were declining or low, but keep in mind that during that time that they had to fight to keep market share and revenues as the banks created the second mortgages that would go to 100% and in the industry it was common practice to do a first mortgage for 80% and the second for the remaining amount to avoid mortgage insurance. So let’s not rush to judgment on the profits of the mortgage insurance companies over the last 7 years. Secondly and more importantly, we are seeing house values in some areas decline. So if they did insure a loan that was a 100% loan in one of those areas and the house price has declined, they are now insuring for over 100% of the value of the house. How smart is that?

What does this leave us? Thanks to the stimulus package that was passed we know have higher FHA loan limits and in most cases the cost of the monthly mortgage insurance will be less on an FHA loan. Also, in the old days, before 100% financing, we did most loans using gifts, tax returns, SAVINGS, as a way to come up with the initial 3% for a down payment. Imagine that, you have to save some money to buy a house?

I will write more on the increase in the FHA loan limits and the opportunities that are presented by this later this week. For questions or comments on this please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.