Jason's Blog

FHA - $100 Down Program

2008-11-29T08:34:41Z

As discussed in earlier blogs, FHA loans are becoming more prominent with regards to home financing. The newest figures have around 20% of all closed loans in the 3^rd quarter of 2008 being government loans; FHA, VA, USDA. That number figures to rise to 25% or 1 in 4 loans closing by the beginning of 2009 being a government loan.

One of the true benefits of a government type loan is the no to low down payment; VA - no down payment required, USDA - no down payment required and FHA - 3% down payment required (3.5% as of January 1, 2009).

In keeping with this theme, there is another low down payment program offered through FHA in purchasing a HUD home. A HUD home is a 1 to 4 unit residential property that HUD has acquired after an FHA mortgage is foreclosed on. HUD now owns the home and in turn offers it for sale to recover any losses after paying off the bank/lender.

Any buyer purchasing a HUD home with FHA financing is eligible for the $100 down program.

Typical FHA guidelines are in play, the property must be their primary residence, they must be able to prove income, employment and assets, have sufficient credit, etc. HUD does not require the borrower to use FHA financing to purchase a HUD home BUT one way to capitalize on the $100 down program is through FHA financing.

Please make sure you familiarize yourself with a particular bank/lender that not only specializes in FHA financing but one that also utilizes this specific program.

Jason Kotar, President

Kotar Associates

(954) 734-3504

jason@kotarassociates.com

www.KotarAssociates.com

FHA 203h - Disaster Programs

2008-10-17T07:31:35Z

In continuing our review of various FHA loan programs, we shift our focus on to the FHA 203h. The 203h provides 100% financing to individuals or families whose homes, rented or owned, were located in a presidentially declared disaster area and damaged OR damaged to such an extent that reconstruction or repair is necessary. One key point is their new home purchase does NOT have to be in same area where previous home was located.

In review of some of the guidelines of this 203h, the purchase has to be a primary residence. Single family home, condos and townhomes are the only types of properties allowed under this program. As we have discussed in previous blogs, if the buyer is looking to purchase a condo-please make sure it is a HUD approved condo. See the link below:

https://entp.hud.gov/idapp/html/condlook.cfm

The buyer has one year from the date the President declared the area a natural disaster to apply for the 203h loan.

You can go to fema.gov to find out which areas have been declared disaster areas by the President.

Kotar Associates Website Launch

2008-10-15T17:29:14Z

Kotar Associates, a Florida based education and consulting firm for the Real Estate and Homebuilding industries, has launched their website outlining their many service offerings.

The Company's focus has been to identify, research, educate and publish on current issues that affect the financing of purchasing a home in today's market.

Our BLOG, KotarNews.com, updated weekly, provides timely, topical information and insights on market activities.

Our ARTICLES, published by RISMedia, are intended to provide in depth coverage on topics affecting Real Estate professionals.

Our COURSES provide detail on each topic as well as information on how to effectively apply what has been learned to increase sales potential.

Our CONSULTING services will provide our clients the specific information and tools to optimize sales opportunities.

Kotar Associates is also developing a series of online training programs for Real Estate professionals. You will be reading more about this opportunity in the coming months.

You can contact me through our website at www.KotarAssociates.com or our blog at http://Kotarnews.com

Recent FHA Changes

2008-10-15T15:13:50Z

Over the last number of months, FHA began implementing some changes to their programs. In addition, the Housing and Economic Recovery Act placed additional changes in FHA practices, some of which modified FHA proposed changes. I have listed some of those changes below.

Converting Existing Homes to Rentals

The FHA changed their underwriting rules to limit the ability of a homeowner to use rental income from a previous residence that it converted to a rental property, when applying for a new mortgage on a second property. Under the new rule, the homeowner must prove sufficient income to make both mortgage payments without the rental income or has an equity position in the rental property that it will not likely result in defaulting on that mortgage. There can be an exception to this rule for employment relocations.

This change mirrors the announcement by Fannie in August. Apparently, homeowners, in increasing numbers, are choosing to vacate their existing principal residence and purchase a new residence. They are then providing misleading information on the rental income of the property being vacated to justify the new mortgage. These changes effectively end "bail and buy" loans.

Moratorium on Risk Based Premiums

The Housing and Economic Recovery Act provided for a one-year moratorium on the implementation of the FHA's risk based premiums beginning October 1, 2008. The effect of the risk based premium was to increase the premium based on the amount of the down payment.

This will not delay the implementation of an upfront premium as well as well as monthly premiums on all loans.

Seller concessions of 6% are still allowed; however, down payment assistance programs have been eliminated effective October 1, 2008.

Down Payment Requirements

The Housing and Economic Recovery Act also called for an increase in down payment required to 3.5%. That change will not go into effect until January 1, 2009.

As with any loan program, there are a number of stipulations that need to be met to gain approval. That is why it is important to choose the right FHA approved lender. Not all FHA approved lenders service all FHA loan programs.

Comparing Loan Programs

2008-08-04T08:15:57Z

Recently, while teaching a class on VA loans to Realtors, I asked a question. "How many of you have ever asked your client if they were eligible for a Veteran's loan?" Of the 35 attendees, not one person raised their hand.

Similarly, while doing research on USDA Rural Development Loan programs, I was told by A USDA employee that Realtors were not generally aware of Rural Development loan programs. Obviously, there are exceptions to these two cases dependent upon the part of the country that you live.

As we have written previously, your best bet for loan programs are VA, USDA Rural Development, FHA or loans that lenders will portfolio. Conventional loan programs in most parts of the country generally require 620 credit score and a 5-10% down payment and mortgage insurance. Below is a quick reference guide comparing the following loan programs:

	USDA	FHA	VA	Fannie Mae
Front Ratio*	29%	29%	none	28%
Back Ratio*	41%	41-43%	41%	36%
Down Payment	0%	3.5%	0%	5-10%
Loan terms	30 years	15-30	15-30	15-30
Interest Rates	Market	Market	Market	Market
Mtg Insurance	None	Yes	None	Yes
Funding Fee/Mtg Ins. Premium	2% of loan	1.5%	2.15-3.3%	N/A
Reserves	None	None	None	Yes
Source of closing costs	No limit	6% seller	4% seller	3-6% seller

Credit scoring is another issue with USDA, FHA and VA starting to use 580 as their base while Fannie Mae uses risk based pricing starting at 620.

Changes to FHA and Fannie Mae programs will continue to occur. Fannie Mae programs will tighten up with more restrictions as it continues risk mitigation efforts. FHA, on the other hand, will have its hands full trying to handle the unprecedented loan volumes of (pre-foreclosed) loans being forced on it by Congress.

* Front and back ratios are used in determining debt to income ratios used by lenders to determine the maximum mortgage allowed. The front ratio looks at how much of your monthly gross income will be used to support housing costs. The back end ratio adds monthly consumer debt to the housing costs.

Fannie Continues Tightening the Screws

2008-08-02T11:23:11Z

Effective August 1, 2008, Fannie Mae issued some new rules affecting the conversion of a principal residence to a second home or investment property.

For a second home, both mortgages will be used to qualify for the new transaction (as occurs today.) The difference is that the borrower must prove 30% equity in the existing property or be required to escrow 6 months of principal, interest, taxes and insurance (PITI) for BOTH properties. With 30% equity, the lender may allow 2 months escrow on both properties.

On investment properties, Fannie now will require 30% equity on the existing property for the investor to claim up to 75% of the rental income as an offset to the mortgage payment in qualifying for a loan. Without the 30% equity, the rental income cannot be used as an offset AND the current and proposed mortgage payments must be used to qualify for the new loan. In addition, 6 months PITI for both properties must be escrowed.

With declining home values in most markets, these changes will make many homeowners ineligible for mortgage loans, when they want to retain ownership of the existing property.

Finally, as additional restrictions / requirements are placed on borrowers by Fannie, Freddie or the mortgage insurance companies, it becomes incumbent on real estate professionals to ask the pertinent questions of their client at the beginning of your relationship. Pre-approving your client is more critical than ever.

Down Payment Assistance Programs - Gone But Not Forgotten

2008-07-28T07:37:11Z

A key provision of the Housing legislation just passed by Congress is the elimination of the down payment assistance program. The principal advocate for eliminating the program was the FHA. Their reasoning is that these types of loans have failure rates two to three times the rates of other loans that they insure. That coupled with the fact that down payment assisted loans today account for 1/3 of all loans that FHA insures.

In Congress, members of the Black caucus and Hispanic legislators are already making plans to introduce legislation to once again allow for these seller assisted loans. With the anticipated gains by the Democratic Party in Congressional seats this November, these legislators are confident in reinstating these programs.

Another element of the legislation, effecting primarily lower income buyers, will institute risk based pricing for insurance premiums paid by the borrower. The FHA wanted this pricing action implemented immediately. The version just passed will delay implementation of risk based pricing for one year, until October, 2009.

Housing (Foreclosure Relief) Bill / Fannie - Freddie Bailout Bill

2008-07-23T20:15:48Z

A real mouthful with the potential of costing taxpayers billions. And, Congress is already considering doing more; more to bailout potential foreclosures as well as another stimulus package. This must be an election year.

One key point that you need to understand and get the message out to clients:

Effective October 1, 2008, Down Payment Assistance Programs for FHA will no longer be allowed.

Well, here are the other key points that will be included in the Legislation.

The government will back up to $300 billion in refinanced mortgages.
Gave Fannie and Freddie access to government funds to keep them solvent but the bill also included additional supervision over Fannie and Freddie.
Allow for a permanent increase in the conventional loan limit to $625,000.
Provides approximately $4 billion for local governments to buy and rehab foreclosed properties in principally inner city neighborhoods.
Allows for $15 billion in tax breaks for low income housing and up to $7500 for first time homebuyers.

This bill could be signed by the President as early as tomorrow.

The Power Behind the Throne

2008-07-07T13:49:47Z

A month ago we advised you that Fannie Mae and Freddie Mac were eliminating their "declining market programs." Well, no sooner than some Banks and other Lenders were announcing programs with 95% Loan to Value's (5% down payment), along come the Mortgage Insurance companies announcing that they will NOT underwrite loans (with few exceptions) at less than 90% Loan to Value in Florida, California, Nevada and Arizona.

The facts are that credit will continue to tighten for the foreseeable future. Lenders and Mortgage Insurance companies are continuing to write down their loan portfolios as foreclosures continue to increase. The $300 billion bill aimed at mitigating the foreclosure problem, which Congress is set to approve and send to the President, is not expected to significantly impact the default rates on loan programs. Representative Frank, one of the authors of the current legislation, is already on the record that more debt relief is likely.

Conventional loan programs (remember those) that are available are generally requiring 680 FICO scores and 10% down. As we have written previously, your best bet for loan programs are FHA, VA, USDA, hard money for investors and loans that Banks / Lenders will portfolio. We have also seen a tightening on Construction loans due to significant losses by Lenders, primarily, local and regional banks.

Not much good news, but there are options available.

USDA Rural Development Home Loan Programs

2008-06-21T10:38:47Z

During the subprime loan era, a number of government loan programs originally established to help low- to moderate income individuals and families afford home ownership, fell out of favor. We previously discussed how FHA and VA loan programs are now making a resurgence.

Similarly, the US Department of Agriculture Rural Development (RD) programs are making a comeback. These 100% financing loan programs are available for low to moderate income residents in rural areas across the country. The advantages of these programs, in addition to no down payment, are no private mortgage insurance, a 30-year fixed rate, all fees can be rolled into the loan, as well as flexible credit and qualifying guidelines. As with all loan programs, there are certain restrictions that are part of the program. However, these programs are specifically designed to enable individuals or households who cannot get conventional financing, afford a home. Let's review how they work.

There are two types of RD loan programs: "direct" and "guaranteed." Before we discuss the differences, let us review the common elements of the programs. First, you need to determine if the subject property is located in an eligible area. Second, you need to determine if you are income eligible. This information can readily be obtained by logging onto www.rurdev.usda.gov and clicking on "housing and community facilities." Each State, at the County level, has identified areas that qualify for these programs. In addition, qualifying income levels can vary at the County level. Qualifying income is determined by adding all income from those individuals that will be living in the home less certain expenses for children, child care and certain other expenses.

You must meet RD guidelines for housing and debt loads and pay your bills on time. You must also be a citizen or here legally, planning to be a citizen.

The subject property can be for new or existing homes and must meet minimum FHA standards. Construction to permanent loans are also allowed. Other types of properties that also qualify are modular and Condo / Town homes.

Direct Loans are initiated and funded directly by the USDA. These loans are for low income households (under 80% median income for the area.) Applicants for these loans need to prove that they can make payments on the property and have "reasonable' credit histories.

Guaranteed Loans are loans for moderate income families (with an income level of up to 115% of the median income for the area.) Applicants for these loans apply with Lenders approved by the USDA. In these cases, the lenders set the interest rates, which are guaranteed by the government.

As these USDA loan programs are generally not well understood by Realtors or builders, let alone the consumer, the USDA has area offices for all eligible counties throughout the U.S. ready to assist with information on these programs as well as Lenders involved in making these loans. That contact information is also available on the previously mentioned website.

While there are significant differences from traditional loan programs, there are resources readily available to help determine eligibility of potential buyers. Getting these loans approved and closed are comparable to FHA loans. These USDA loans are generally the lowest cost loans available on the market. They should be an obvious choice of a loan product for low and moderate income individuals in rural markets.

FHA/Foreclosed Homes - Great news for sellers

2008-06-17T07:56:10Z

The FHA just announced a one year suspension of the 90 day waiting period before foreclosed properties can be sold to receive government backed loans. The intent of the rule was to prevent "flipping." However, the glut of foreclosed homes on the market was serving as an impediment to getting these home sold.

As we hear more on these issues, we will keep you informed.

Jason Kotar

Kotar & Associates

Diversity Lending Group, Inc.

(954) 734-3504

JKotar@DiversityLG.com

www.DiversityMortgageNews.com

When All Else Fails

2008-05-30T14:47:44Z

It is a rough time to be in our line of business. But, as my Father always reminds me, we have to maintain our sense of humor.

With that in mind I thought that we could use a little relief from the current situation.

I am sure that a number of you that have been in the Real Estate business for a while have probably heard of burying a statuette of St. Joseph on the property to help with the sale.

For those of you who are interested in finding out more on the topic, I suggest that you go online and sign in to snopes.com. There is some interesting "history" to the practice of St. Joseph as the patron saint of Realtors.

When all else fails, maybe divine intervention will help.

Have a great day.

Getting Loans Approved - Easier Said Than Done

2008-05-29T07:04:48Z

One of the points that I make during my teaching assignments is the delay being experienced in the getting loans approved once the buyer has made on offer. I thought that it would be worth a review of the different types of issues being faced depending on the circumstances of the property.

The few conventional loans that we have seen generally have faced appraisal issues resulting from the Fannie Mae, Freddie Mac and mortgage insurance company changes in implementing their "declining market" policies. Lenders have not consistently implemented these new rules. That coupled with reduced staffs as well as a lesser number of loan programs offered, have added confusion and delays to the process of getting loans through underwriting and approved. As we have previously written, a minimum 60 to 90 day sales contract should be the norm. Refinances of existing loans are facing similar issues.

Short sales face a different set of issues. The extended times in getting short sales to closure are directly tied to the difficulty lenders have in determining who the owner of the property is. The fact that mortgages are generally "pooled and securitized" makes it very difficult in determining the actual owner of the note and getting their approval to changes in the note. Basically, the mortgage servicing system for packaging and selling notes was not setup to deal with these problems. No one anticipated the unraveling of the system. And, with foreclosures increasing in the near future, this problem is going to get more complex.

The preponderance of loans being processed today and for the foreseeable future is FHA loans. FHA, as well as VA loans, does not have the restrictions that the Fannie loans do. However, they have other requirements that you need to be aware of to minimize delays in getting your loans processed.

Condos - Do Your Homework

2008-05-27T11:54:53Z

In today's real estate market it is imperative for all parties in a real estate transaction to understand which types of properties are easier to obtain mortgage financing. One type of property that has come under increased scrutiny from lenders is condominiums.

Fannie Mae is not only tightening lending standards but they are also taking a harder look at which condominium projects pose a higher risk.

There is a glut of condominiums on the market, most of them vacant. Many condominiums are in foreclosure and plenty of real estate professionals are looking to find deals for prospective buyers. Before taking a listing or showing that buyer a particular condominium, I recommend you look at the links below.

Both Fannie Mae and FHA have a list of approved condominiums they will finance. This does not mean if a particular condominium is not on the list it will not get financing, it just means finding a lender might prove more difficult.

https://www.efanniemae.com/syndicated/documents/dps/condopud/FL.pdf

https://entp.hud.gov/idapp/html/condlook.cfm

Hard Money Loans Made Easy

2008-05-24T06:37:27Z

With the number of bank-owned foreclosure properties on the rise and the decline in home values throughout the country, there are certainly good deals to be found if you are looking to purchase an investment property or two or refinance a default personal mortgage loan.

The fact is there are many investors and real estate professionals not familiar with hard money loans.

No matter how good of a deal you can get on a property, qualifying to purchase an investment property can be very difficult under conventional lending guidelines. Additionally, many conventional mortgage lenders have not only tightened their lending guidelines, but have simply done away with financing investment properties.

If you are planning on building a spec home, purchasing a property as an investment, or are even a real estate agent and are working with someone who would like to purchase a short sale or investment property, knowing what types of private financing are available and a general understanding of how private "hard money" financing works is a must.

A brief rundown on hard money loans

Hard money loans are generally used to purchase non owner-occupied investment properties or refinance owner occupied foreclosure bailouts. Hard money loans are also equity-based instead of credit and asset -based, so the borrower does not have to meet the same lending criteria, income ratios, and credit worthiness that they would have to meet under conventional lending guidelines.

Hard money deals are backed by private investor capital and are reviewed and approved on a case-by-case basis. Generally, if the borrower is interested in purchasing an investment property, the only real requirement is that the property truly is a good investment for everyone involved.

So what signifies a good deal in the eyes of a hard money lender?

Here are some general guidelines hard money lenders follow...

The total loan amount is no greater than 60% of the CURRENT, AS-IS value of the home. This is also referred to as the loan-to-value ratio or "LTV".

The borrower has a stake in the property rather it be their own cash they are investing or even other investment properties they are using as collateral to secure the loan. Most hard money lenders generally like to see that the borrower has at least 20% of their own cash invested in the project, not including closing costs.

The lender must also hold "first position" on the property. This means that the hard money lender must hold the primary, 1st mortgage on the property. Hard money lenders will rarely lend a 2nd mortgage on a property unless there is other collateral involved.

Another benefit to hard money loans is that often times the total interest and points for a portion of or the entire loan term are "rolled" into the loan amount and paid in advance at closing. This means that most borrowers will not have to worry about paying a monthly mortgage payment to the hard money lender for most, if not all of the loan.

Hard money purchases can be closed in as little as 5 business days and financing is available for nearly any type of property. Everything from raw land, to single family rehab properties, to large commercial, hotel, and condo developments in Florida.

Fannie Mae Reverses Policy on Down Payment

2008-05-23T09:17:45Z

At the end of last year, Fannie Mae announced a major policy change regarding down payments required on loans for homes located in declining markets. Fannie announced a "soft market policy" that effectively reduced loan-to-value (LTV) ratios on homes in high risk markets. Lenders chose to implement these restrictions differently, some down to the zip code level. That policy obviously added a lot of confusion to the marketplace.

Under a new national policy, which goes into effect June 1, Fannie will accept LTV's up to 97% for "conventional mortgages processed through its automated underwriting system called Desktop Underwriter (DU) and 95% for loans underwritten outside of DU." This change only applies to single family, primary residence homes.

When Fannie, and subsequently, Freddie Mac first announced their soft market policies, their stated intent was to mitigate their continued financial risk in acquiring or insuring higher risk mortgages. What Fannie said in this latest press release is that their new automated DU will assess each loan "more precisely." My interpretation of that statement is that other factors evaluated in the loan process, i.e. income, debt, assets, employment, etc, will carry more weight.

Also, one of the other major policy changes that Fannie and Freddie implemented earlier this year was to put an "interest rate surcharge" on loans based on a buyers credit score. No mention was made by Fannie on this policy. This is obviously a major point, as it could add from 1/8 to 3/4 percentage point of increased interest rate on a mortgage.

Obviously, we expect more changes in the coming months. As further changes are announced, we will keep you informed. If you have any questions, send me an email.