FHA Features
3.5% minimum down payment on purchase (96.5% LTV) Refinance rate and term max LTV is 97.75% Up to 85% LTV for cash out refinance. No $$ max for cash out. ALL down payment/cost can be gifted by family Can refinance from conventional to FHA FHA High Balance: max loan amount $729,750 subject to county
limits. FHA to FHA refi (Streamline): no appraisal nor income qualification. **6% seller credit includes recurring and non-recurring closing costs. More lenient on foreclosure (3 year) or BK history (2 yr on CH 7,
Chapter 13 BK must be 1 yr from filing, can remain open).** No need to worry about qualifying for mortgage insurance separately Available for BOTH first time homebuyers and CURRENT
homeowners Low credit score pricing adjustments more attractive than
conventional
A Perfect FHA Loan
Borrower has limited funds for a down paymentLoan has a high LTVBorrower has less than perfect creditLoan requires MI but borrower’s fico is too low
for MIWhen DTI is over 41% (when MI is required)Source of down payment is a gift or community
2nd and borrower has less than 5% of own funds
Non-occupying co-borrower qualifications are less restrictive than conventional
85% cash out
FHA may not be right when…
Your loan is a second home or non-owner occupied
Your condo is not FHA approved The LTV is below 80% The buyer already has an FHA loan (Unless met
exceptions indicated in HUD Handbook)There is a non-borrowing spouse with a lot of
debts (FHA requires debts be included in DTI in community property states)
FHA vs. Conventional
Lower minimum down-payment of 3.5%.No appraisal required for FHA to FHA
streamline refinanceFHA Loss Mitigation OptionsStudent loan deferment
FHA vs. Conventional
High DTI compared to conventional loan. Fannie Mae now requires max DTI of 45% (back end). FHA can insure up to 45%(front)/55%(back) depending on AUS .
Max DTI doesn’t change even on High Balance loans (may go up to 45%/50% depending on AUS).
Family member can gift everything, including 3.5% down-payment requirement and ALL closing costs.
Down-Payment Assistant Programs (DAP)
FHA vs. Conventional
Seller can credit up to 6%** of ALL closing cost (recurring and non-recurring). That means seller can pay hazard insurance and tax impounds.
Non-occupying co-borrower transactions do not have separate LTV/DTI restrictions on the occupying borrowers. (Unless the borrower has no credit history)
FHA Programs
• Fixed Rate/ARMs• Purchase• Refinance• Rehabilitation
Standard 203(k) Streamlined(k)
HECM for Purchase (Reverse Mortgage)Energy Efficient MortgageHUD Homes
Good Neighbor Next Door (GNND)
STREAMLINED (k)
AKA “Fix Up Loan”AKA “Fix Up Loan” Allows for finance of repairs after close
of escrow No minimum repair amount Maximum repairs (up to $35,000) –
items identified on appraisal must be repaired first
Can be used for purchase (including HUD REO properties) or refinancing with rehabilitation
Standard 203(k)
For more complicated, structural repairs/upgradesMinimum of $5,000 in
improvementsHealth and safety issues firstStructural alterationsModernize propertyHandicap accessibility
Standard 203(k) – Cont.Standard 203(k) – Cont.
Up to 6 months mortgage payments can be financed as part of the mortgage
Lender escrows funds and pays to homeowner/contractor in up to 5 draws
Requires 203(k) consultant As repaired appraisal must support loan
amount for repaired property
Social Security Number Requirements
Borrower’s social security number will be verified & validated through FHAC - No T.I.N’s allowed.
Verify social security number on paystubs / W-2’s / 1040’s match.
Credit obtained must be under SSN that the Social Security Administration has on record for borrower
Employment
No time requirement for current job 2 year inclusive history required on 1003 Less than 2 years is acceptable if borrower
can document recently graduated student Acceptable explanations are required if
sporadic job history and changes in profession - must make sense - decision based on verifying capacity to repay
Probability of continued employment is very important
Recently returned to work - requires current job for 6 mos + and document min 2 year work history prior to the gap of employment
DOWNPAYMENT SOURCES
▪ Savings
▪ Secured funds
▪ Gifts - from relative or significant other
▪ Cash - if borrower meets profile
▪ Sale of personal property (must document value and sale)
▪ Sale proceeds
▪ 401K (use 60% of value)- must provide evidence the funds can be accessed.
▪ Investments
▪ Community Seconds
Bankruptcies
Chapter 7 Must document the BK was caused by extenuating
circumstances beyond the borrowers control and must document financial responsibility for exception if underwriter recommends approval Must be discharged for at least 2 years (AUS)
Chapter 13 Must be discharged for at least 2 years (AUS)
For both - Provide full BK docs and discharge papers.
Foreclosure & Del. Federal Debts
Foreclosure - must to be more than 3 years from end of foreclosure to date of application
Delinquent Federal Debts
Delinquent student loans and unpaid federal tax liens will be verified through FHA Connection
Borrower not eligible unless account is current, paid or otherwise satisfied prior to close of escrow
Liabilities
• Recurring obligations
• Revolving Credit
• Installment Debt - include student loans unless deferred > 12 mos
• Check the paystubs! Check for Credit Union payments, other payments not reflected on credit. Note: 401K payments are not counted as debt.
• Child Support/Alimony payments
• “Buy and Bail” policy in effect , similar to Agency. To use rental income on departure property requires minimum 25% equity evidenced by a FNMA appraisal (2055 for SFR, Full appraisal 1073 for condos)
• In community property states, any debt of the non-borrowing spouse must be included in debt ratio!!
Citizenship and Immigration Status
U.S. Citizenship not required
Lawful Permanent Resident Aliens are acceptable - document with copy of entire valid Resident Alien Card
Document evidence of permanent residency issued by Bureau of Citizenship and Immigration Services (BCIS)- part of Dept of Homeland Security
Non-permanent Resident Aliens acceptable with the following stipulations: property being purchased is the borrower’s principal residence. Will require:
* Valid Social Security number * Borrower must have Employment Authorization
Document issued by the BCIS * Temporary residency status that expires within one year AND there is a history of residency status renewals- assume the continuation will be granted
Required Disclosures and Forms
FHA Addendum & Real Estate Cert -(Amendatory Clause) signed at time of purchase contract by all borrower(s), seller(s), realtor(s).
92900A- FHA Addendum to Loan Application- Borrower(s) to sign page 2 at application- then sign page 4 at closing
Informed Consumer Choice - to be signed within 3 days of application
For Your Protection Get a Home Inspection (form 92564-CN)
Standard State and Federal required disclosures - signed & dated within compliance
FHA Refinance Options
Streamline Refinance without an Appraisal - FHA to FHA refinance - No cash out
No Cash Out Refinance - max cash to borrower $500
Cash Out Refinance - up to 85% LTV
STREAMLINE REFINANCE w/out appraisal
• FHA to FHA refinance
•Take Advantage of Lower Interest Rates
• Income not required to be listed on 1003.
• Employment info is required to be listed
• Payoff needs to reflect loan is current; a 12mos mortgage history is required.
• No Appraisal required
•Must show a Net Tangible Benefit to the borrower:
Reduction in mortgage payment by 5%, or
Fixed to ARM: reduction in rate by at least 2%, or
ARM to Fixed: Increase in rate by no more than 2%
STREAMLINE REFINANCE w/out appraisalContinued
Same borrowers must be on new FHA loan as were on previous FHA loan
Must have made at least 6 pmts on previous loan
210 days from the closing date of previous loan
New loan amount equals the outstanding principal balance minus the refund of UFMIP plus the new UFMIP on the refinance.
NO CASH OUT REFINANCE
Conventional to FHA refinance
Appraisal Required
Borrower must credit qualify and occupy the property as a primary residence
For lien consolidation, the liens must be one year old or used for improvements
May buy out ex-spouse’s Equity
Loan amount to 97.75% LTV’s
Maximum $500 cash out at closing
CASH OUT REFINANCE
Borrow up to 85%of appraised value Home must be owned for at least one year
Owner Occupied 1-2 units Only
All borrowers must be on title 12 mos or inherited. Trust NOT allowed.
0 x 30 days late - 12 mos mortgage history
Full Document Refinance
Appraisal required Pull cash out of free and clear properties
Debt Consolidation ok
Repairs required if noted on appraisal or safety issue
Minimum Submission Requirements
92900A – FHA Addendum to 1003 executed by borrower on page 2 GFE/TIL Social Security card and drivers license for all borrowers Borrower Authorization LOANS IN COMMUNITY PROPERTY STATES: non-borrowing spouse: provide
spouse’s individual credit report . CASE # evidence from FHA Connect - to include CAIVRS checked Purchase Contract if applicable and Amendatory Clause signed same date Credit report 2 Mos Complete Bank Statements to support assets needed to close If gift used to close, provide gift letter and proof of donor ability and gift transfer Paystub(s) including 30 days year to date income for each borrower (30 days
consecutive) Income:
Salaried: Min 2 yr W-2Self-Employed, >25% commission or rental income: 2 yrs complete 1040’s
+ YTD P&L Mortgage statements for all properties owned. If impounds not shown, need tax bills
and hazard insurance declaration pages Appraisal and/or Title if a purchase. Signed 4506T at time of application Signed disclosures
Mortgage Insurance
All FHA loans have mortgage insuranceFHA loan approval also approves the
insurance. No separate approval required.Insurance is paid both up front (UFMIP) and
monthly (MIP).Insurance is in effect until LTV reaches 78%
Upfront MIP and Annual MIPCurrent Upfront MIP Requirements
Current Annual Premium Requirements
Mortgage TypeUpfront Premium
RequirementPurchase Money Mortgages and Full-Credit Qualifying
Refinances100 BPS
Streamline Refinances (all Types)
100 BPS
LTVAnnual Premiums for Loans = or < 15 years
= or < 90 percent 25 BPS
> 90 percent 50 BPS
LTVAnnual Premiums for
Loans > 15 Years
= or < 95 percent 110 BPS
> 95 percent 115 BPS
Online ResourcesOnline Resources
■ HUD: http://www.hud.gov/ ■ Limited Denial Participation Lists:
www.hud.gov/Ecpcis/main/ECPCIS_List
■ GSA (General Services AdministrationLists: www.epls.gov
■ HUD Lender page:www.hud.gov/groups/lenders.cfm