Posts Tagged “FHA mortgage insurance”

What Are FHA Rules For Buying A Home After Short Sale?

HUD that oversees FHA came out with the Mortgagee Letter in Dec 2009 which essentially gave FHA’s blessing for buyers who were forced to short sell their homes to be able to buy a home just 1 day after short sale!

Here’s the rules

Buyers are NOT eligible if

They are exploiting declining market conditions to be able to purchase a home of similar or superior size within a reasonable commuting distance. This means ‘moving up’ is not allowed.
They were behind on their mortgage at any time in the 12 months leading up to the short sale.

Buyers ARE eligible if:

They were forced to short sell their home due to some situation beyond their control such as death of a wage earner, relocation, job or income loss, onset of sickness or illness etc.
They were on time on their mortgage payments for the 12 months preceding the short sale and had only a 1 x 60-day mortgage late in the 24 months preceding the short sale.
There’s no deficiency balance resulting from the short sale. In other words the Lender settled for less than full balance.
The loan involved in the short sale cannot have been an FHA loan.

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HUD homes are those being sold by HUD.
If such homes are indicated as “IE” this means that the FHA loan on it (203b) can be insured by HUD with Escrow Repairs. So “IE” means “Insured With Escrow Repairs”.
Only repairs below a total of $5,000 can qualify for this type of FHA financing and meet minimum property standards required for an FHA mortgage.
The “repair escrow” that’s set up will be done in coordination with the FHA Lender and the work has to be completed within 90 days. The amount of money to be deposited into that “escrow” is determined based on Contractor ‘bids’ and has to be funded at the same time the FHA 203b Purchase money mortgage loan is funded.

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Often an FHA loan application hang in the balance because the Borrower has marginal credit or income history. Often the debt to income ratio is out of line and an FHA Underwriter may be forced to look for other factors in approving the loan.
This is when compensating factors become critical and can tip the loan in the applicant’s favor.

What are some common compensating factors?

The borrower has proven he/she can make a housing payment equal to or greater than the proposed new PITI mortgage payment by means of a rent verification obtained by the Lender. This gives the Underwriter some measure of assurance that default is unlikely, as long as the rent has been paid in a timely manner. 12 mos Canceled checks would be the ultimate proof of this, and a private-landlord’s rent verification may not cut it.

The borrower makes a large downpayment, at least more than the standard 3.5% down required.

The borrower has demonstrated a conservative attitude towards the use of credit. This can be evidenced by low relative credit card balances compared to credit limits, or a an absence of multiple credit accounts.

The borrower receives compensation or income that’s not being used by the Underwriter for qualifying income for one reason or another . . eg. child support income that’s not fully documented, or cash /tip income that can’t be used in qualifying.

The borrower has healthy cash reserves after closing figures are accounted for. This may mean a well-funded retirement account, checking or savings balances, etc etc or cash surrender value of a Life insurance policy for example.

The borrower has potential for pay increase as proven by specific job training or education in his/her profession. An example would be an LVN (Licensed Vocational Nurse) about to become an RN (Registered Nurse).

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There are some sweeping changes coming in the Fall of this year (2011) which will make Mortgage lenders more accountable for the loans they fund and approve; some speculate that this is the part of the reason the USDA has chosen to tack on Mortgage Insurance (just like FHA’s) to the monthly payment.
Thankfully, we the tax payers won’t be the ones needing to subsidize things. The homebuyer pays Mortgage insurance just like he/she would for an FHA loan.
Here’s how things will change , come Oct 1, 2011.
Presently the USDA Zero down loan carries with it a 3.5% Upfront Guarantee fee and no monthly mortgage insurance.
After Oct 1, the Upfront Guarantee fee drops to 2.00% and an annual Mortgage insurance of 0.3% will be added.
The annual mortgage insurance will never go away over the life of the loan. (This makes it unlike FHA, where after 5 yrs and 78% Loan-To-Value threshold, the mortgage insurance can go away).
Good news is that the annual mortgage insurance $dollar amount will decline each year because it’s recalculated at the new principal balance of the loan each year.
Overall this means an increase of about $16/mo for every $100,000 loan amount borrowed. Not a deal killer necessarily, but definitely something that affects debt ratio and qualifying ability/buying power.
Stay tuned for more updates :)
Be sure to use our super Mortgage Calculator (unlike any other) to compare payments at www.thezerodownloan.com/mortgage-calculator

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So I often get asked, “why should I purchase a home using the USDA Zero Down loan when I have money for downpayment and can even put 20% down ?”
Truth is, your money is better ‘grown’ in other investments than remaining dormant as equity in your home. You see, historically house prices rise anyway, regardless of whether you create equity at the beginning or not.
So why not take your hard earned money and put it to better use? Like growing it for your kids’ college education or helping your parents through their retirement years?

FHA vs USDA? In terms of Payment comparison, Remember, FHA has lower Upfront Mortgage Insurance (1%) than USDA’s upfront Guarantee Fee (3.5%). But FHA has monthly mortgage insurance where USDA Zero down does not. Be sure to check out our Super Mortgage Calculator which compares these loans with just a few clicks.

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