Bulls & Blogs

FHA loan limit tops $400,000 in Austin, DFW

Loan Guidelines, Residential Mortgage Comments Off

Dec 142019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Just before Thanksgiving, we found out the 2020 conforming loan limit increased to $510,400. Late last week, FHA released its 2020 loan limits. By statute, the minimum FHA loan limit is 65% of the conforming limit, or $331,760 for a single-family home.

However, FHA allows higher limits in areas where 115% of the median home price exceeds the minimum. In TX, higher limits apply once again in the Austin, San Antonio, Dallas-Ft. Worth, and Midland metros. Higher limits no longer apply for the Houston metro and Gillespie Co (city of Fredericksburg).

The San Antonio metro took the prize for the greatest increase this year both in dollar amount and percentage rise. The limit rose more than $33,000, or 9.3%, to $393,300.

The Midland area limit also rose significantly, by $23,000 or 7.2%, to $341,550.

The limit in the Austin and DFW metros both rose to $404,800, the highest in the state. The Austin limit was 3.8% higher than last year. The DFW limit was only 2.3% higher.

Remember that these limits apply to all the counties in the metro, not just the cities themselves. Also, these limits apply to single-family homes. Higher limits apply for two- to four-unit properties.

More info on FHA condo rules

Loan Guidelines, Residential Mortgage Comments Off

Oct 212019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

I reported last week on the new FHA rules for approving a single condo unit in an otherwise ineligible complex, FHA’s replacement for the old spot approvals. At the time, I didn’t have many specifics. Now I do, so let’s look at what it takes to get a single-unit approval.

FHA considers the following characteristics for single-unit approvals:

At least 50% of the units in the complex must be owner-occupied, which includes second-homes that aren’t rented the majority of the year;
The HOA must have a 10% reserve account;
No more than 10% of the units may be owned by one person or entity;
The complex may be comprised of no more than 35% commercial space; and
No more than 15% of the units may be 60 days or more past due on their HOA dues.

And the really great thing is documentation of these characteristics generally is part of the standard buyer’s package the HOA provides to prospective buyers. With a single-unit approval, it’s the lender’s responsibility to make sure the complex complies with the rules, so the HOA doesn’t have to slog through FHA’s bureaucratic approval process.

Condos that receive single-unit approval are eligible for the same low down-payment options as other FHA loans, meaning a minimum down payment of 3.5%. The only exception to this is if the buyer’s financial situation is such that the lender cannot get an automated approval, in which case the buyer must make a 10% down payment.

Single-unit approvals really shouldn’t significantly affect the amount of time needed to close an FHA loan. FHA has a special process for registering spot-approval loans that may take up to 3 days. (Registration for other FHA loans typically is instantaneous.) However, this registration process is during the time when the buyer typically is gathering financial documents. Once FHA issues the “case number,” it’s the lender’s responsibility to make sure the condo qualifies.

Two changes to FHA mortgage insurance

Regulations, Residential Mortgage Comments Off

Jul 202019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The House Financial Services Committee recently passed two bills out of committee that could make FHA loans more attractive.

The first, The FHA Loan Affordability Act, would repeal the requirement that FHA borrowers pay mortgage insurance for the life of their loans. Mortgage insurance on conventional loans automatically ends when the loan balance is 78% of the original home value.

Mortgage insurance can considerably increase a homebuyer’s mortgage payment. On a $250k 30-year loan, mortgage insurance adds $180 to the monthly payment.

Despite the pain of never-ending mortgage insurance, this FHA requirement really has been more of an annoyance than an impediment for homebuyers who want to use an FHA loan. Home price appreciation often allows FHA borrowers to refinance into a conventional loan with no mortgage insurance within a few years of purchase, and perpetually low mortgage rates have made that an attractive option.

Interestingly, the wording of the bill appears to disallow appreciation as a means of achieving the requisite home equity to cancel mortgage insurance. Thus, homebuyers with strong credit still may favor conventional loans.

The second bill, The Housing Financial Literacy Act, would provide a 14% discount on the the upfront mortgage insurance for FHA borrowers who complete a homebuyer course prior to closing. On that $250k 30-year loan, the discount would save a homebuyer $625.

Both bills now go to the full House for consideration.

FHA crack down on down payment assistance

Loan Guidelines, Residential Mortgage Comments Off

Apr 292019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

One of a myriad of causes of the housing collapse during the Great Recession was the absence of “skin-in-the-game.” Borrowers used no-money down loans to purchase homes, then walked away from those homes when the economy went sour. Given that they had put none of their savings into the homes, walking away was easier.

One way to achieve no-money down during that time was to use seller-provided down payment assistance with an FHA loan. The seller provided the necessary 3.5% down payment and usually boosted the home’s sale price a little to make up for it. Congress outlawed this practice in 2008, mandating that no party with a financial interest in the home sale – including the seller, the agents, and the lender – could provide the homebuyer’s down payment funds. However, the law allowed governmental programs to continue providing down payment assistance.

Well, where there’s a will, there’s a way, and an entrepreneurial fellow in UT partnered with the Paiutes tribal government to create a fund, the Chenoa Fund, that lenders could use for down payment assistance. Whereas government down payment programs target homebuyers in the governmental jurisdictions, the Chenoa Fund was available nationwide, and it made a profit on the transactions.

Borrowers in down payment assistance programs become delinquent about twice as often as those who use their own funds, and the Feds see these programs as an increasing risk to the FHA Mutual Mortgage Insurance Fund, which backstops FHA mortgages.

Last week, HUD published new guidelines that clarify which entities can provide down payment assistance. The guidelines seem to target the Chenoa Fund, and it will be interesting to see how it responds.

But that still leaves the bigger issue of higher default rates for down payment assisted loans unaddressed. Many of these programs offer the assistance in exchange for higher-than-market interest rates, which stretch a homebuyer’s ability to repay the mortgage. In addition, they perpetuate the problem Congress thought it had addressed in 2008 – homeowners with no skin in the game.

FHA changes aim to deny riskier borrowers

Loan Guidelines, Residential Mortgage Comments Off

Apr 272019

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Late last month, FHA made some changes to its automated underwriting system that may prevent as many as 50,000 potential borrowers from qualifying for an FHA loan. FHA said the changes are meant to limit exposure of its insurance fund from higher risk situations.

According to the agency’s annual report to Congress, it’s seeing a concentration of mortgages with high debt-to-income ratios and low credit scores. It also reported a 60% increase in cash-out refinances. (This isn’t an issue in TX as TX homeowners cannot take cash out using an FHA loan.)

An FHA official told The Wall Street Journal that the system changes will affect 40,000 to 50,000 loans each year, which is 4 to 5% of all loans FHA insures.

The changes will flag loans with a combination of higher debt-to-income ratios and lower credit scores for “manual underwriting,” which means underwriting performed by a human being. Unfortunately for borrowers, manual underwriting also means more stringent loan guidelines, and many of those who qualified before the system changes no longer will qualify.

How the shutdown will affect your loan application

Mortgage Process, Residential Mortgage Comments Off

Dec 272018

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

If you’re in the middle of the homebuying process, you may have some concerns about the government shutdown. Even though it’s only a partial shutdown, the parts of the government that are closed are kind of important to the mortgage world. However, the potential impact on your application depends on the type of loan you’re using.

If you’re using a conventional (Fannie Mae or Freddie Mac) loan, the shutdown probably won’t affect you at all. Fannie and Freddie operate independently of the government budget.

I see mixed impacts on FHA borrowers. Most borrowers will be unaffected as most FHA systems are automated, and those system remain online. However, if your situation requires human intervention, you may experience delayed processing. Additionally, FHA will not insure any reverse mortgages during the shutdown.

The VA is fully funded, and I don’t expect any impact on most VA loans.

The USDA, on the other hand, is shut down. USDA will not issue commitments during the shutdown, which means most lenders will not fund USDA loans.

If your loan requires a new flood insurance policy, expect a delay. Even though the National Flood Insurance Program is funded through May, FEMA is disallowing the issuance of new or renewal flood insurance policies during the shutdown.

Many lenders require verifications from the IRS or Social Security Administration as part of the loan process. Neither agency will process requests during the shutdown. Check with your lender as to whether this will impact your loan. Some lenders are temporarily suspending the verifications unless there’s an issue of data integrity, such as an unconfirmed Social Security number.

Finally, if you’re a government employee, and your agency is shut down, expect a delay as your lender won’t be able to verify your employment during the shutdown.

Higher FHA and VA loan limits, too

Loan Guidelines, Residential Mortgage Comments Off

Dec 172018

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

We found out a couple weeks ago that the conventional loan limit increased to $484,350. Over the weekend, FHA released its 2019 loan limits. By statute, the minimum FHA loan limit is 65% of the conventional limit, or $314,827 for a single-family home in 2019.

However, FHA allows higher limits in areas where 115% of the median home price exceeds the minimum. In TX, higher limits apply once again in the Austin, San Antonio, Dallas-Ft. Worth, and Houston metros, and for the first time, higher limits also apply in the Midland area and the city of Fredericksburg (Gillespie Co).

Unlike past years, the higher metropolitan area limits did not rise much this year. The DFW limit rose the most, by more than $9000, to $395,600. Austin’s limit rose about $6000 to $389,850. The limit in Houston and San Antonio remained the same at $331,200 and $359,950, respectively. Remember that these limits apply to all the counties in the metro, not just the cities themselves.

Among the new entrants to the higher limit list, Fredericksburg took the prize rising almost $30,000 to $324,300. The Midland area limit, including Midland and Martin Counties, rose $24,000, to $318,550.

The limit for the VA program mirrors the conventional loan limit at $484,350.

USDA programs shouldn’t be affected because loan size is driven by annual income limits, not median home prices.

Finally, these limits apply to single-family homes. Higher limits apply for two- to four-unit properties.

Rising home prices lead to higher loan limits

Loan Guidelines, Residential Mortgage Comments Off

Jan 172018

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Rising home prices have prompted regulators to increase loan limits for standard loan programs. Fannie Mae and Freddie Mac raised the limit for their conventional, conforming loans by almost 7% to $453,100. This limit applies to all areas of TX and is in effect now.

FHA also raised its loan limit, but the limit varies by county. FHA sets the limit to 115% of the median home price in an area with a ceiling of $679,650 and a floor of $294,515. The floor applies to areas where 115% of the median home price does not reach that level.

TX home prices haven’t reached levels at which the ceiling would apply; however, four TX metros do have a limit greater than the floor. Austin’s limit rose $23k to $384,100 for a single-family home. The DFW limit rose about the same amount to $386,400, still the highest in the state. San Antonio’s limit rose by the greatest amount, over $32k, to $359,950. Houston, still recovering from the oil industry downturn, didn’t see any change, with the limit remaining $331,200. Remember that these limits apply to all the counties in the metro, not just the cities themselves.

The limit for the VA program mirrors the Fannie/Freddie limit at $453,100. USDA programs shouldn’t be affected because loan size is driven by annual income limits, not median home prices.

These limits apply to single-family homes. Higher limits apply for two- to four-unit properties.

The death of down payment assistance?

Loan Guidelines, Residential Mortgage Comments Off

Nov 032017

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Recent surveys indicate that saving for a down payment is one the biggest hurdles to homeownership. With rising home prices, that hurdle may seem like a moving target. Some homebuyers are turning to down payment assistance programs for help.

Well, Freddie Mac just threw cold water on one popular method of funding these programs. It’s called differential rate pricing or premium pricing. The lender provides assistance equal to 3 to 5% of the loan amount in exchange for a substantially higher interest rate. As Freddie correctly discerned, the result is a no down payment, higher-rate mortgage, which violates current conventional loan guidelines. As of 11/1, Freddie will disallow its use with low down payment loan programs.

I have not heard if Fannie Mae is planning a similar prohibition, but given that both agencies are owned by the government, one has to wonder. FHA officials have been squabbling among themselves for over a year about the legality of premium priced programs. For now, they are permitted.

If you’re struggling to find the funds for a down payment, I suggest you check out my Can I Qualify with limited savings videos for ideas. You also may want to check with your city or county for down payment assistance that doesn’t use premium pricing. Keep in mind that most of these programs have income and purchase price limits, and you may have to repay some or all of the assistance if you don’t stay in the home for 5 to 10 years.

No down payment loan for hurricane victims

Loan Programs, Residential Mortgage Comments Off

Oct 302017

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Government reports show Hurricane Harvey completely destroyed almost 13k homes and damaged more than 200k. As folks continue to recover from this destructive storm, some may be able to take advantage of a special FHA mortgage program specifically designed for disaster victims.

The program, called 203(h), allows a disaster victim to purchase a new home with no down payment. While the damaged home must be located in the federally declared disaster area, the new home can be anywhere. The damage to the existing home must be to such an extent that reconstruction or replacement is necessary.

As this is an FHA mortgage, it will have both up-front and monthly mortgage insurance. You can roll the up-front mortgage insurance into the loan. However, you cannot roll the closing costs into the loan. Check out my Can I Qualify video on our Web site for ideas how to cover closing costs.

The program’s guidelines provide flexibility. While you’re still responsible for any mortgage on your damaged home, we don’t have to count it when qualifying you if you provide evidence of insurance coverage. We also can ignore any late payments or other credit hiccups that resulted from the disaster as long as your credit was satisfactory before the disaster.

If this program sounds like it could help you, it’s important not to let too much time pass. You must apply for the new mortgage within 1 year of the disaster declaration date, which was 8/25. An equally important consideration is your credit. While lenders can ignore credit dings resulting from the disaster, the credit bureaus won’t, and late payments could depress your credit scores. You will find most lenders apply their standard credit score limits to the program. If you’re finding it hard to balance your finances post-disaster, it may make sense to take advantage of the program before your scores sink too low.

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