Nov 032017

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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 on No down payment loan for hurricane victims
Oct 302017

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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.

Why canceling the FHA rate reduction was the right move

 Loan Programs, Residential Mortgage  Comments Off on Why canceling the FHA rate reduction was the right move
Feb 042017

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By G. Steven Bray

I’m sure you know by now that the Trump administration cancelled the FHA mortgage insurance rate reduction put forward in the waning days of Obama’s term. This caused moans from most of my housing industry friends, but I think it was the right move.

First, keep in mind that FHA MI provides insurance against defaulted FHA loans. By law, the insurance fund must be at least 2% of the FHA’s loan exposure. The fund last year exceeded the 2% threshold for the first time in many years. Given that economists are predicting a housing slowdown this year, wouldn’t it make more sense to let the fund grow a little before chopping the premium?

Second, I don’t believe the premium reduction would have resulted in many additional homebuyers. Instead, I think it simply would have transferred business from private mortgage insurance companies to FHA. I’ve never seen an honest analysis from HUD to justify its MI rates based on its risk exposure. Moreover, FHA also has up-front MI and never cancels its MI, unlike conventional loan mortgage insurance. If FHA wasn’t just trying to increase its market share, maybe it could have tweaked those characteristics.

In conclusion, I’m not convinced the move by the outgoing administration wasn’t intended to make the incoming team look bad. Personally, I think it makes them look prudent.

FHA loan limit going up in 2017

 Loan Guidelines, Residential Mortgage  Comments Off on FHA loan limit going up in 2017
Dec 052016

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By G. Steven Bray

FHA also is raising its area loan limits in 2017, primarily affecting the 4 largest metro areas. FHA sets the limit by county and calcuates the limit based on 115% of the county’s or metro area’s median home price.

Median home prices rose in Texas last year, so loan limits rose in the Austin, Dallas/Ft. Worth, San Antonio, and Houston metro areas. Austin’s limit rose almost $30k to $361,100 for a single-family home. The DFW limit rose about the same amount to $362,250, still the highest in the state. San Antonio’s limit rose about $10k to $327,750. Houston, given its flagging market due to the oil industry downturn, rose only slightly to $331,200. Remember that these limits apply to all the metro’s counties, not just the cities themselves. The limit for the rest of the state rose about 2% to $275,650.

These limits apply to FHA case numbers assigned on or after Jan 1st. The case number typically is assigned at the beginning of the mortgage process, so if you need these higher limits, you’ll need to be patient.

Could spot condo approval return for FHA?

 Owner-occupied, Regulations, Residential Mortgage  Comments Off on Could spot condo approval return for FHA?
Oct 242016

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By G. Steven Bray

We talked a couple weeks ago about the changes FHA adopted to make it easier to get FHA financing for condos. Unfortunately, the changes are temporary, but FHA is trying to rectify that by proposing new regulations that take these changes a step further and make them permanent.

The biggest news is FHA is proposing the reinstate spot approvals for condos. Typically, a condo project must be FHA-certified for its units to be eligible for FHA financing. A spot approval allows a lender to seek approval for a single unit in an otherwise uncertified project.

Another proposed change that’s receiving mixed reviews would establish a range within which FHA could set the minimum percentage of units that must be owner-occupied. Currently, the minimum is 50%. The proposed range is 25% to 75%. FHA says this would give it flexibility to respond to market conditions. Congress has suggested 35% is appropriate, and the housing industry would prefer the certainty of the fixed, lower number.

FHA also is proposing to establish a range for the maximum commercial space within a mixed-use development. The current maximum is 50%. The proposed range is 25% to 60%.

You can find the proposed rule on HUD’s Web site,, and FHA invites your comments.

FHA makes it easier to get a condo loan

 Loan Guidelines, Owner-occupied, Residential Mortgage  Comments Off on FHA makes it easier to get a condo loan
Oct 032016

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By G. Steven Bray

The FHA loan program once was a major source of financing for condo purchases, but due to regulatory changes, its volume dropped by almost 75%. The changes disqualified thousands of condo projects, and in turn limited the housing choices for first-time homebuyers and others with limited credit, a target market for the FHA program, and limited the pool of potential buyers for condo owners in those disqualified projects.

Well, it seems FHA may have seen the light. New rules FHA adopted this summer loosen up some of the more onerous restrictions. The two biggest changes affecting TX condos are:

– FHA agreed to include second homes that are not rentals in its calculation for owner-occupied units. A condo project qualifies for FHA financing only if at least 50% of the units are owner-occupied. This change could make a huge difference for projects in vacation areas.

– FHA also has simplified the recertification process that condos must go through every two years to remain approved. Some condo associations allowed their FHA approvals to lapse because the old process was so burdensome. Lenders often pursued the recertification process for the project because of a buyer’s interest in a condo, but imagine the number of potential buyers who didn’t apply because the project wasn’t already approved.

The new rules are only good for a year, but that gives FHA time to listen to feedback and enact permanent rules that don’t unfairly restrict lending for condos.

FHA makes it easier to qualify with student loans

 Loan Guidelines, Residential Mortgage  Comments Off on FHA makes it easier to qualify with student loans
Apr 292016

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By G. Steven Bray

Last fall, FHA changed its loan guidelines to require lenders to include a homebuyer’s deferred student loans in the buyer’s debt calculation. The change made FHA consistent with other loan programs. If a creditor didn’t report a payment for a student loan, FHA instructed lenders to use 2% of the loan’s balance. Unfortunately, this was twice the percentage other loan programs required and made it more difficult for many first-time homebuyers to qualify.

Well, apparently FHA heard our complaints. For FHA loans registered on or after 6/30, FHA has changed the guideline to 1%, consistent with other programs. (I can’t explain why they didn’t make the change effective immediately.)

So, how does this change affect one’s ability to qualify? Consider a homebuyer who earns $4000/m. She has a $500/m car payment and $20k in student debt. She wants to buy a $200k home, which requires an estimated FHA mortgage payment of $1432.

Under the existing 2% guideline, the ratio of her debt to income would be 58%, and she would not qualify. However, under the new guideline, the ratio drops to 53%, and she could qualify.

Are DPA programs an endangered species?

 Loan Programs, Residential Mortgage  Comments Off on Are DPA programs an endangered species?
Feb 232016

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By G. Steven Bray

The government is having fits of schizophrenia again. On the one hand, it’s easing loan standards to promote homeownership. On the other hand, it wants to eliminate a popular down payment assistance program.

A number of down payment assistance (DPA) programs, including the state’s My First Texas Home program, use so-called premium pricing to fund them, and the HUD Inspector General has raised concerns about it. The programs grant a homebuyer down payment funds in exchange for an above-market interest rate. The higher rate makes the loan more attractive to investors, and they pay a premium for it, and that premium is what is used to fund the grant.

For FHA loans, federal loan guidelines seem to prohibit such a practice. The IG’s office wrote, “The funds derived from a premium priced mortgage may never be used to pay any portion of the borrower’s down payment.” However, a recent memorandum by HUD’s General Counsel contradicts that saying HUD changed its standards in 2013 and no longer prohibits the practice.

At this point, HUD is studying the issue, leaving the programs in limbo. Many lenders are refusing to participate in the programs until HUD takes its meds.

FHA changes may hurt homebuyers with student loans

 Loan Guidelines, Loan Programs, Residential Mortgage  Comments Off on FHA changes may hurt homebuyers with student loans
Oct 082015

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By G. Steven Bray

New FHA loan guidelines may make it harder for you to qualify for a mortgage if you have student loans.

Previous to the new rules, FHA allowed us to ignore student loans that were deferred greater than 12 months. The new rules eliminate this exemption. All student loans must be considered as part of your monthly debt.

If your student loan servicer won’t report a monthly payment, the new rules say we must use 2% of the loan balance. Fortunately, loan servicers typically will provide an effective payment based on the loan’s current balance if you ask, and this payment typically is closer to 1% of the loan balance.

The change makes FHA more consistent with conventional loan programs. However, Fannie Mae allows us to use 1% of the balance if the servicer won’t report a payment.

FHA still provides one advantage over conventional loans. It allows the use of the actual payment for income-based student loan repayment plans. These plans often have payments that are less than 1% of the loan balance.

Act quickly if you want a reverse mortgage

 Loan Guidelines, Loan Programs, Residential Mortgage  Comments Off on Act quickly if you want a reverse mortgage
Apr 222015

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By G. Steven Bray

FHA-insured reverse mortgages have been a fairly painless way for seniors to tap into their home equity. FHA has not evaluated applicants’ income, credit, and assets under the assumption that because the borrowers are receiving money that their financial situation is unimportant.

But with the housing downturn, FHA took a bath on reverse mortgages, and it ran into problems with seniors failing to pay property taxes and insurance. As a result, FHA has decided that starting Apr 27th it will only offer the program to seniors who can demonstrate an ability to maintain their homes. FHA calls it a financial assessment, and the evaluation criteria mean that applying for a reverse mortgage will be a lot like applying for a standard forward mortgage. Prepare to provide tax returns, account statements, and other documentation of your financial situation. In addition, now the lender will review a credit report.

If the financial assessment indicates you may have difficulty paying your property taxes and insurance, you’ll be required to set aside part of the mortgage proceeds, similar to way borrowers escrow for taxes and insurance with a forward mortgage.

It appears the changes will disqualify weaker borrowers regardless of how much equity they have in their homes. And given the losses FHA incurred on the program, that probably was the plan. To beat the changes you need to apply before Apr 27th.