Shane's Blog

FHA to allow Tax Credit as Downpayment

Shane Milne (The Best Home Loans) — Tue, 12 May 2009 16:31:50 -0500

Just announced that FHA will permit the $8,000 tax credit, via a "bridge loan", to be used towards the down payment.

This is done by an approved nonprofit or governmental agency who typically will give the loan on the condition of being provided certain documents at closing (Final HUD namely), and will require that the credit be filed for that day. The loan is recorded in 2nd position on title, typically interest free, and is released when it is repaid. Missouri started this before FHA made this announcement, and they require theirs to be repaid by June 2010. Washington, Colorado, Idaho, Ohio, New Jersey, Delaware, Tennessee, Pennsylvania and New Mexico soon followed in participation. I'm sure many more state, local and likely federal agencies will get involved.

Full FHA guidance can be found in their mortgagee letter 9-15 found at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-15ml.doc

Shane Milne

Loan Officer

Banner Mortgage

949-273-4161 direct office

www.thebesthomeloans.com

How to Calculate Your Mortgage Payment

Shane Milne (The Best Home Loans) — Sun, 26 Apr 2009 13:28:47 -0500

I've found there is a lot of confusion when using online mortgage calculators to try and estimate payments when buying a home. Most calculators just give principal & interest, and there is good reason, but it's nice to have the big picture when trying to estimate payments - as these days it is more common to have an escrow account where property taxes/homeowners insurance is paid along with the principal & interest portion of the mortgage payment. Plus even if you don't pay those items along with your mortgage payment you'll see want to be aware of their costs.

The makeup of a mortgage payment can consist of: principal & interest on the loan, property taxes, homeowners insurance, mortgage insurance, and flood insurance. Other items to be aware of are any homeowners association (HOA) fees that your specific neighborhood, community or city might have. The reason for the underlined letters is that is what generally makes up the mortgage payment - PITI, the other items aren't always charged (on condos homeowners insurance isn't required either).

Principal & interest is easy to calculate as like I said, all online mortgage calculators can calculate that as you just input a loan amount, interest rate, and loan term (15 years, 30 years, etc.).

Property taxes are a little trickier. Most think that you just take the current property taxes but that can be misleading. What the current property taxes are is what the current owner is paying, not necessarily what you will be paying, they could be but not always. To get a real good idea of what your property taxes will be after you purchase the home call the county's assessor and ask if anything triggers a re-assessment of a properties value, if re-assessments are done on a set schedule, etc. and all other types of questions you'd like to know about how they determine a properties assessed value. Values can be assessed in various ways but the most common that I've seen is when it's based on the new sales price (where a % of the sales price, or a formula based on the sales price, determines what the new amount of property taxes are), is on a set schedule to assess (such as every 12 months, 2 years, etc.), or when an additional impovement has been placed on the property (such as when a home is put up, or a casita addition out back in the yard, etc.). If taxes are re-assessed on a set schedule in a lot of cases it is not based on the new sales price, just based on the general direction of home values. Whatever the case is, you now know when, what triggers a re-assessment, and what the assessed value would like be. But that doesn't answer what the property taxes are, just the assessed value. So next you need to contact the county treasurer's office or in some cases it's actually just called the tax collector, these are the people that collect the property taxes from you. In less populated areas this could also be the same as the assessor's office. You'd supply the tax collector people with the assessed value you determined by using the information the assessor gave you, an address you have in mind or perhaps just a street name, zip code or school district, and ask what the formula would be to determine how much the property taxes are. It can be simple or have multiple steps and involve some algebra, either way it's important to know so you can properly budget for your new home. I'd also ask if the formula is different for other areas, as it often is. Here in California property taxes are re-assessed when a home is sold or transferred, they take the new sales price or value minus a $7,000 homeowners exemption (if owner occupied), multiplied typically by 1%, and that equals the base amount of property taxes, and then any special assessments/mello-roos is added on top of that (usually flat $ amounts).

Homeowners insurance isn't as involved to determine. The best way to determine what you could be paying for homeowners insurance is simply by calling up a homeowners insurance agent and inquire about quotes. Depending on the square footage of the home, sales price/value, proximity to a fire hydrant, type of roof, if it has an alarm system or not, amongst other items determines the annual premium - but you can always be as general or specific as you'd like when you ask for the quote. When you talk to the insurance agent you can also find out if any other special type of insurance is generally required or taken in your area, such as flood insurance if you are in a low lying area (some of the central plains states, Florida and parts of Louisiana), or hurricane insurance (Gulf Coast areas), or earthquake insurance (if you live along/near a fault line). I've seen insurance policies as cheap as a few hundred bucks all the way up to several thousands (and that was just a normal sized home in Florida).

Mortgage insurance is another item that may be included in your mortgage payment. Mortgage insurance is becoming more common as the use of FHA, and the reduction of the % of your home's value a 2nd mortgage can go up to (called the "loan to value" or LTV), have developed. When you have 20% down (or can get the 1st mortgages LTV to 80% or below) with conventional financing mortgage insurance is not required - however when the 1st mortgages LTV exceeds 80% then an extra insurance policy is needed to protect the lender in the event you default on your mortgage, that is private mortgage insurance (PMI). FHA requires mortgage insurance (MI) too, but is waived after you've paid it for at least 5 years and until your LTV gets to 78% of the original value, or you take a 15-year mortgage term or less and have 10% equity/down payment. Since conventional financing relies on the use of 3rd party insurers, it's called PMI, FHA is self insured by HUD, and therefore is just MI. When talking about it in general though either is common to use. The amount of MI is based upon your loan amount, it's either .55% or .5% per year, divided over your 12 monthly payments each year. PMI is also based on your loan amount, as well as FICO score, loan program type, property type, occupancy type, LTV, purpose, etc. PMI can also come in various forms rather than the straight additional amount added to the other portions of the mortgage paymet, you can take a slightly higher rate in trade for not paying the monthly amount, pay an upfront lump sum to buy it out, and other options depending on what the mortgage lender has set up with it's PMI vendors VA & USDA loans do not have monthly MI.

Lastly, in some areas (newer areas) you might have homeowners association (HOA) fees. The development you are buying in could have HOA fees to keep up it's common areas, the landscaping in your own yard, the electric gate that leads to your neighborhood. Then that development could be part of a community/city which could have more common elements such as a clubhouse, a pool/splash park, trails, skate park, etc. HOA fees on a condo will be more than they would be on a house, if any at all. This is because on a condo the HOA fee usually includes a homeowners insurance policy that covers the dwelling (not personal or liability coverage though). So if the condo burns down it could be rebuilt, but all of your items inside would not be replaced or value reimbursed to you, and the neighbor who trips over your garden hose and busts his teeth while escaping the fire would not be covered either. Because of that you should also look into getting an additional condo policy for those extra coverage areas, usually runs just a few hundred a year.

Ginnie Mae has put out a mortgage calculator that compares FHA, VA & Conventional payments given a sales price, interest rate and any funds for down payment you may have. You can edit/add/remove property taxes, insurance, HOA fees and even a space for utilities & maintenace costs. Once you gather the above information, and know what interest rates you could expect to qualify for, you can accurately estimate your payments on your own. You should find that the P&I portion of the payment is not the same amongst FHA, VA & Conventional given the same loan amount/interest rate... this is because on FHA & VA loans there is an additional upfront cost not found on conventional loans (FHA has an upfront mortgage insurance premium, UFMIP, and VA has a funding fee usually).

Ginnie Mae mortgage calculator: http://www.ginniemae.gov/2_prequal/le_intro_questions.asp?section=ypth

Example of my county treasurer's website where you can get current tax rates, tax amounts, and estimate taxes (saves a call to the treasurer): http://tax.ocgov.com/tcweb/search_page.asp

One PMI provider's PMI rate/amount calculator (most user friendly one I've found): http://www.mgic.com/is/html/ratefinder.html

FHA current MI rates/guidelines: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-22ml.doc

Shane Milne

Loan Officer

Banner Mortgage

949-273-4161 phone

www.thebesthomeloans.com

USDA "income band" changes delayed until April 20th 2009

Shane Milne (The Best Home Loans) — Mon, 16 Mar 2009 15:45:43 -0500

I just got an email from the South Carolina USDA office stating the below - at least the delay isn't due to lack of funds, etc. and is just because HUD is taking a little longer to come out with their 2009 income limits:

A notice will be published in the Federal Register this week changing the effective date for the consolidated income bands from March 20 to April 20, 2009.

The reason for the change is that the USDA Rural Development receives the basis for its income limits from the Department of Housing and Urban Development (HUD) and HUD has not published their 2009 income limits as early as they usually do.

Once Rural Development receives HUD's income limits, Rural Development must make a number of adjustments. After the adjustments are made, the Information Technology staff must make changes to our automation tools, for example, our eligibility website (link below) and our Guaranteed Underwriting System (GUS). Making those changes includes testing them to make sure they work properly.

www.rurdev.usda.gov/rhs

www.rurdev.usda.gov/rhs/sfh/GSFH_Information/GSFH_Specific.htm

Shane Milne

Loan Officer

Banner Mortgage

949-273-4161 phone

www.thebesthomeloans.com

FHA officially limits cash out to 85% LTV

Shane Milne (The Best Home Loans) — Sat, 14 Mar 2009 21:01:49 -0500

You might have been reading a lot of lenders limiting cash out on FHA loans to 85% LTV, or maybe have heard rumors about FHA limiting cash out to 85% LTV... well the end of March will be the last day you can order FHA case #'s and still be able to do cash out over 85% LTV. See snippet from mortgagee letter below:

"Effective for case number assignments on or after April 1, 2009, the loan-to-value (LTV) of any cash-out refinance to be insured by FHA may not exceed 85 percent of the appraiser's estimate of value.

Given the continued deterioration in the housing market, and FHA's need to limit its exposure to undue risk, this reduction to the maximum LTV for cash-out refinances is being instituted on a temporary basis while FHA further analyzes the housing and mortgage industry as well as its own portfolio to determine whether permanent measures should be taken. "

Shane Milne

Loan Officer

Banner Mortgage

949-273-4161 phone

www.thebesthomeloans.com

FHA raises loan limit until end of 2009

Shane Milne (The Best Home Loans) — Wed, 25 Feb 2009 10:41:11 -0600

Mortagee Letter 2009-07 (link to a .doc file)

February 24, 2009
MORTGAGEE LETTER 2009-07

TO:        ALL APPROVED MORTGAGEES

SUBJECT:    Loan Limit Increases for FHA

This Mortgagee Letter provides information on Federal Housing Administration (FHA) single family loan limits that have changed as a result of the American Recovery and Reinvestment Act of 2009 (ARRA) signed into law on February 17, 2009. These limits are effective for those loans for which credit is approved in calendar year (CY) 2009 and will remain in effect until December 31, 2009.

FHA Single Family Programs Affected:

The loan limits described in this Mortgagee Letter are effective for those mortgages insured under the following Sections of the National Housing Act: 203(b)(FHA's basic 1-4 family mortgage insurance program - including individual condominium units), 203(h)(mortgages for disaster victims), and 203(k)(rehabilitation mortgage insurance).

FHA loan limits for Section 255, Home Equity Conversion Mortgages (HECM) are effective immediately for those loans closed on or after the date of this mortgagee letter. Further instructions for HECM loan limits are set forth below.

Revisions to Current Limits:

Under ARRA, the revised FHA loan limits for 2009 will be set at the higher of the loan limits established for 2008 under the Economic Stimulus Act of 2008 (ESA) or those established for 2009 under the Housing and Economic Recovery Act of 2008 (HERA).

2009 HERA vs. 2008 ESA Limits:

Under ESA, loan limits for high-cost areas were set at 125 percent of local house price medians, with a maximum high-cost limit (the national ceiling) of 175 percent of the national conforming limit ($729,750 in the continental U.S.). See Mortgagee Letter 2008-06, dated March 6, 2008.

HERA, on the other hand, stipulated that the national conforming loan limit remain at $417,000 for 2009, and that in future years, it shall be pegged to a house-price index chosen by the Federal Housing Finance Agency. HERA also provided that the one-unit mortgage limit for any given area shall be set at 115 percent of the median house price in that area, except that the FHA mortgage limit in any given area could not exceed 150 percent of the Freddie Mac national conforming loan limit ($417,000 in 2009), nor be lower than 65 percent of that limit. See Mortgagee Letter 2008-36, dated November 7, 2008.   FHA's floor and ceiling loan limits for 2009 under ARRA, which relies on the higher of HERA or ESA, are set forth below.

FHA Floor:

Under both HERA and ESA, and thus under ARRA as well, the FHA national floor limits remain set at the 65 percent amount (the "floor,") by property size, as follows:
One-Unit    $271,050
Two-Unit    $347,000
Three-Unit   $419,400
Four-Unit    $521,250

"High-Cost" Local Limits:

Any area where the limits exceed the floor is known as a "high cost" area. Because ESA used a higher multiple in establishing the national FHA loan limit ceiling, as a percentage of the conforming loan limit, than does HERA (175 percent versus 150 percent), the ESA national ceiling is binding under ARRA for 2009. By property size, these national "ceiling" limits are as follows:
One-Unit    $729,750
Two-Unit    $934,200
Three-Unit    $1,129,250
Four-Unit    $1,403,400

For areas where the higher of the ESA-determined loan limits for 2008 and the HERA-determined limits for 2009 is in between the national floor and the ceiling, the limit shall be at the higher of those two limits, effective for any loans for which credit is approved in CY 2009.

The list of areas where the FHA mortgage limits are at the ceiling is provided in Attachment I. The list of areas where the FHA mortgage limits are in between the ceiling and the floor is provided in Attachment II. For any areas not listed in either Attachment I or II, the FHA mortgage limits are at the floor; this includes the vast majority of those areas (i.e., counties, parishes, boroughs, and independent cities) for which FHA has published loan limits.

Special Exceptions for Alaska, Hawaii, Guam, and Virgin Islands:

Loan limits for the special exception areas of Alaska (AK), Hawaii (HI), Guam (GU) and Virgin Islands (VI) also follow the ARRA rule of choosing the higher of the 2008 ESA and 2009 HERA limits. The National Housing Act permits mortgage limits for Alaska, Guam, Hawaii and the Virgin Islands to be adjusted up to 150 percent of the above national ceilings, by property size, to account for higher costs of construction. Thus, these four areas have a potential higher ceiling in 2009 of $1,094,625 (1-unit), $1,401,300 (2-unit) $1,693,875 (3-unit); and $2,105,100 (4-unit). At the present time, no counties in these areas qualify for limits above the national ceiling of $729,750.

Home Equity Conversion Mortgages (aka a reverse mortgage):

Under ARRA, the national FHA loan limit for HECM will increase from $417,000 to $625,500 (from 100 percent to 150 percent of the conforming limit). HECM loan mortgagors do not undergo the same procedures for credit approval as do mortgagors for forward mortgages. FHA does not deem the credit approval process to be complete until the HECM loan is closed. Therefore, HECM loans closed on or after the date of this Mortgagee Letter are subject to the higher maximum dollar amounts.

    In those areas, the maximum claim payable by FHA is 150 percent of the Freddie Mac conforming limits. To avoid potential cases where a claim could be less than the national limit, as adjusted for the special exception areas, HUD had decided not to make the adjustment. Therefore, these few special exception areas will have the same $625,500 limit as all other areas.

FHA will, for a limited time, allow HECM loans that received case number assignments but did not close prior to the effective date of this mortgagee letter to be closed using either the old limit that was used to originally calculate the loan, or the new limits as prescribed herein. An option will be made available in FHA Connection for the lender to choose which rate to use. This option will be available until April 30, 2009.

Where to find comprehensive listing of FHA local limits:

Complete schedules of FHA mortgage limits for all areas, for forward loans and reverse mortgages, are available through the internet at https://entp.hud.gov/idapp/html/hicostlook.cfm.   The limits are determined by the county in which the property is located, except that for properties located in metropolitan or micropolitan statistical areas, as determined by the Office of Management and Budget, the limit for the entire area is set based on the county with the highest median price within the metropolitan or micropolitan area. If you are unsure if a county is within one of the metropolitan or micropolitan areas listed on the attachments you should check the internet site before closing the mortgage at the revised limit. For a complete list of all metropolitan counties in the country by MSA, view the most recent bulletin updating statistical areas of definitions and guidance at http://www.whitehouse.gov/omb/bulletins/index.html.

Shane Milne

Loan Officer

Banner Mortgage

949-273-4161 phone

www.thebesthomeloans.com

California Action Alert: Help Stop the Vet Tax

Shane Milne (The Best Home Loans) — Fri, 06 Feb 2009 00:00:09 -0600

Hello everyone

We are sending this to our California animal lovers and asking you all to read the following and then make a quick call to Sacramento.

It's no secret that California is in dire need of money, but the governor is proposing that pets be considered 'luxuries' and therefore a 9% to 10% tax should be levied on services rendered by vets. While most of us can afford such a tax, others will be pushed beyond their ability to pay, resulting in the abandonment of many pets.

Please protest this tax by calling Sacramento. The number is to an automated survey at the governor's office. The call is not free, but it It will take less than a minute and ill cost very little.

Dial: 916-445-2841

The numbers to press in response to the questions are: 1 - 5 - 1 - 2 (i.e., 1 = for English; 5 = to transfer to veterinary tax proposal; 1 = to choose to comment on the veterinary tax proposal; and 2 = to oppose the tax.

Take a moment and take action NOW.

Please tell your friends and ask them to do the same.

Shane Milne

Loan Officer

Banner Mortgage

949-273-4161 phone

www.thebesthomeloans.com

Orange County, CA Homebuyer Programs

Shane Milne (The Best Home Loans) — Wed, 28 Jan 2009 22:17:59 -0600

Opportunities for Homebuyers

County of Orange Mortgage Assistance Program

The County's Mortgage Assistance Program provides silent second loans to aid low income first-time homebuyers, with annual incomes not exceeding 80% of the Area Median Income (AMI). The loans are designed to help pay for down payment and closing costs to purchase a home. The 3% simple interest, deferred payment loan has a term of 30 or 45 years depending on the funding source and a maximum loan amount of $40,000. Homebuyers must occupy the property as their primary residence. There is a 1% minimum down payment required, and the total sales prices shall not exceed 85% of the Orange County median sales price for all homes. All applicants are required to attend a homebuyer education workshop.

For additional information on the Mortgage Assistance Program or to get pre-qualified, please contact the Affordable Housing Clearinghouse at (949) 859-9255.

Orange County Workforce Loans

The Orange County Housing Trust also provides low-interest second mortgages to qualified first-time homebuyers and down payment assistance grants to members of the Orange County workforce who wish to move closer to their place of employment. Second mortgages up to $110,000 are available to first-time homebuyers with incomes up to 160% of the area median income.

For additional information on this program, please contact the Orange County Housing Trust at (714) 490-1250 or visit their website www.ochousingtrust.org.

Mortgage Credit Certificate Program

The Mortgage Credit Certificate (MCC) program is offered through the County of Orange, in partnership with Affordable Housing Applications. The MCC is a Federal Income Tax Credit program and entitles applicants to take a federal income tax credit of twenty percent (20%) of the annual interest they pay on their home mortgage. Because the MCC reduces an applicant's federal income taxes and increases their net earnings, it helps homebuyers qualify for a first home mortgage. The MCC is registered with the IRS, and it continues to decrease federal income taxes each year for as long as an applicant lives in the home.

For more information on the Mortgage Credit Certificate Program, call (800) 591-3111 or visit www.ahahousing.com.

Orange County Housing Fund

The NeighborWorks HomeOwnership Center of Neighborhood Housing Services of Orange County provides services and training for clients looking to purchase and maintain their home. Services range from providing comprehensive homeownership education to a wide-range of down payment assistance loans and grants. Neighborhood Housing Services also partners with lenders and realtors to offer a selection of affordable mortgage products and real estate services that assists homebuyers avoid excessive down payment and closing costs fees. For more information on the types of services Neighborhood Housing Services provides, call (714) 490-1250, or visit their website at www.nhsoc.org.

Down Payment Assistance Programs

Orange County Housing Trust

The Orange County Housing Trust can provide loans of up to $8,000 to first time buyers in Orange County, or current Orange County homeowners who will reduce their commute to their place of employment by 30 miles a day. To qualify for this assistance, the borrower must have an income below 40% of the area median income. The down payment assistance loan carries a 1% interest and is payable in full on the maturity date of the first mortgage or upon any sale, transfer, assignment, or refinancing of the first mortgage. For additional information on this program, please contact the Orange County Housing Trust at (714) 490-1250 or visit their website www.ochousingtrust.org.

WISH Program

The Neighborhood Housing Services of Orange County offers a down payment assistance grant program that provides up to $15,000 to each household, matching up to $3 for each $1 contributed by the first time homebuyer. Families must not exceed 80% of the Orange County median income, and must purchase a home within the County. For more information on the qualifying criteria, call Neighborhood Housing Services at (714) 490-1250, or visit their website at www.nhsoc.org.

Shane Milne

Loan Officer

Banner Mortgage

949-273-4161 phone

www.thebesthomeloans.com

Does USDA have enough funds?

Shane Milne (The Best Home Loans) — Thu, 15 Jan 2009 01:51:36 -0600

That question seems to be popping up quite often lately. In recent weeks memo's from USDA offices have informed us that they estimate funds will run out very soon. There are even banks who have decided to cut off funding for USDA too, sometimes in the midst of the transaction. For the most part banks are still funding USDA loans, and they say everything is status quo, but the question is for how much longer.

It is pretty normal for USDA to run out of funding, happens quite often. USDA gets their funds in blocks that are approved by congress, and the current block of money was supposed to run until the end of March, however since USDA is one of the remaining sources of 100% financing this last block was used up at a quicker pace than was expected.

USDA has never run out of funds this quickly before and some officials have said they are unsure when more funding will be approved by Congress. In the past when funds have run out lenders have been able to use surplus funds to fulfill those loans it committed to doing and kept it in their servicing portfolio until the USDA was granted more money by Congress and then those loans became saleable, and when sold then lenders freed up that money to fund new loans. However since banks are not as liquid as they used to be they have less money to fund new loans, they will appropriate less of dollar amount of money towards funding new USDA loans due to not being able to sell them without USDA's guarantee.

The way that a lender secures/reserves funds with USDA to guarantee their loan is by sending off a Request for Reservation of Funds form after they have received a loan file in underwriting. Typically this is not done until most of the documents are in the file although one can be sent in earlier in the process if really needed. When the USDA office grants the request, not when the request is sent, is when the funds in the block of money they are using are set aside for the loan. What you are used to hearing that the lender is waiting to get something back from USDA is the conditional commitments, which is saying if USDA has money then they will guarantee the loan. If the request for funds was not approved the lender may still fund the loan if they are OK with the conditional commitment and not the guarantee funds are there.

So what will eventually happen, short of a rush funding package by Congress, is that more and more lenders will stop funding USDA loans. It probably won't be all of them, and it might not be most of them but you will hear some of lenders temporarily suspending their USDA programs. The next block of money was scheduled to guarantee loans in April, May & June, however if another source of funds isn't come up with until then, those funds in the next block will be used to fulfill any commitments that have been issued prior to then. In short, we could see some rocky times with USDA loans in the next few months, so keep your ears & eyes open, and don't be afraid to contact your local USDA office, so you know what to expect.

Shane Milne

Loan Officer

Banner Mortgage

949-273-4161 phone

www.thebesthomeloans.com

Buying a home at auction and what to be aware of

Shane Milne (The Best Home Loans) — Wed, 14 Jan 2009 14:56:04 -0600

Because I often see these infomercials running on weekend mornings and obscure night hours, and I often get asked what is buying a home at one of these auctions like, I thought I'd write a little about what I know about them.

My father in law went through the home auction process in the spring of 2008 out in Las Vegas when he tried to buy a home through USHomeAuction.com, the process was comical. His bid was accepted, however when the bid was presented to the bank (Countrywide) they balked and then countered to a higher sales price, which he accepted, paid for an appraisal, etc. and then finally when the bank who was doing the new loan (also Countrywide) got around to doing a verification which should have been addressed during the pre-approval stage, it failed, then they were denied their loan, and fortunately were able to back out and eventually got their earnest money back. I didn't know much about the auction at that time other than reading what was on the website, so I didn't know what really goes on.

I suspect what these home auctions are is a way for banks to get top dollar for their homes, it is not specifically designed for the buyer to get a smoking deal. When your offer is accepted at the auction it does not mean that the seller has accepted your offer, it just means that no one else at the auction bid more than you did. Your offer is now presented to the seller (the bank who owns the home) and if they determine it meets their minimum required amount then you get to buy the home for that price - this isn't much different than making an offer on a bank owned home that is listed on the MLS which your real estate agent can take you to see, plus you give up a lot of rights in the mandatory purchase agreement the auction houses use. However if they think the accepted bid is too low, they will counter the buyer back for a more beneficial (to the seller) offer. Further in a lot of situations there is a "reserve" amount that has to be met, meaning if a certain sales price isn't met it'll be denied at the end of the auction or in some reported situations there are actually "straw bidders" or "shills" who appear to only bid after it appears no other bids are being placed, creating the illusion as if people are wanting to pay higher prices and "rallying up the crowd". One person even observed one of these people winning, and then that same property being re-auctioned later on because the buyer wasn't able to qualify.

You also will want to make sure of the qualifications one has to meet in order to bid - is the bid open to anyone who can plunk down the initial $5k or do they actually need to be pre-approved in order to bid? If they aren't required to be pre-approved then non-approved individuals are jacking up the price of the home you want to buy every time they bid.

If you buy a home at an auction, make sure it is an "absolute auction" or "no reserve auction", where no minimum bid is required to be met and the highest qualified bid wins. I am aware Freddie Mac does these from time to time and if you search your local area you can find them advertised as well.

In any auction you want to do your own research before bidding on the home, usually you will know what homes will be auctioned off ahead of time so you should check each home out carefully, perhaps hire a home inspector for a day even, and the homes you really really want you should pay $350 (or however much) for an appraisal to determine what the fair market value is... and then with the appraisal & insight from your home inspector, you'll know exactly what your max bid on the home should be.

Lastly, check out this article in my local paper about a family who is suing REDC (USHomeAuction.com), http://mortgage.freedomblogging.com/2008/06/20/foreclosure-auction-firms-accused-of-bait-and-switch/.

Shane Milne

Loan Officer

Banner Mortgage

949-273-4161 phone

www.thebesthomeloans.com

You Don't Have to be Behind on the Mortgage to get a Loan Modification

Shane Milne (The Best Home Loans) — Mon, 12 Jan 2009 13:05:45 -0600

Since I am relatively close to the epicenter of the foreclosure crisis you might imagine how many homeowners in distress over their current mortgage situation I talk to. Since I am not a loan modification expert, nor do I do loan modifications for profit, I usually refer them over to www.loansafe.org so they can read up on successful loan modification stories from people with their same lender, or who are in similar situations. A good majority of them are usually having trouble making their current mortgage payment due to an ARM reset, going from interest only to fully amortized, or just because of poor budgeting. Occasionally, but a much smaller percentage, I'll hear from people who aren't having difficulty with their payments, rate isn't about to adjust, have budgeted just fine, but are on ARMs which will eventually lead to a dramatic rate change and are trying to be proactive by trying to renegotiate terms with their mortgage lender.

Below is a story from a client of mine in that later situation. It is here in California, but I've edited some parts to protect my client. For some background, the client has great credit, good financial position, had several years left on the fixed period of the ARM, but is in a market where values are falling so if they continue to do so, by the time the ARM does reset, there could very well be value issues. I also won't tell you the exact terms that were granted, as I'm sure the lender doesn't want this information floating around either, but I can tell you the rate was modified to a 5-year fixed rate at an extremely low interest rate (well below current market rates) and then the remaining 25 years fixed at another rate (that is less than 1% higher than current market rates). The client was able to get most of their information and develop their game plan just by reading the posts at www.loansafe.org.

Here is my clients letter to me explaining the process, I hope that you can use this to formulate your plan to get yourself help on your own loan modification and save your home from potential disaster down the road:

First, calling the loss mitigation number was useless. They're swamped with inquiries from people who are already behind, and whenever I called I was routinely told that since I wasn't behind in my payments, there was nothing to be done for me.

Failing that, I got the email addresses of several upper level executives from LoanSafe. I was given a list of about 18 or 20 individuals; it is common practice among some ailing homeowners to take a shotgun approach and send emails to all of them. I thought this was inappropriate, because I thought that it would give the appearance of non-rational reasoning. After all, why would the president of global investments or some random spokeswoman care about my appeal? Instead, I chose about 4 or 5 key executives, including the president, as the recipients of my email.

I knew that these executives must be inundated with requests titled "Please help!", "Desperate! Need a modification!", etc. I also knew that since I wasn't claiming hardship, I needed to bring something different to the table. If you recall, the situation I was in was a interest-only ARM at 6.25% with a second lien hanging over my home. My goal was to fix the ARM, but could not refinance because of my total LTV ratio.

The subject of my email was "Modification request - with a twist". I figured that it might at least pique somebody's curiosity. In my letter, I acknowledged that I was neither in distress nor was I facing an impending rate reset. My motivation for seeking a modification was to ensure some long-term stability during these difficult times. I highlighted the fact that I had made good faith efforts to refinance, but for the reason above was always turned away.

Here's my twist: in my letter, I proposed a modification that would have led to a higher monthly payment. I suggested changing my ARM to a fully-amortized 30 year fixed-rate loan at something like 5.5%, which was close to the prevailing rates (for conforming, though, not jumbo). This would have actually led to a slightly higher payment. I laid out my income and other debts to demonstrate that I would be able to afford the higher payment.

I highlighted my creditworthiness, noting that at one time a specific lender pulled my score and came up a score over 800. I commented that a prime, fixed 30 year loan of a well-qualified borrower would be an attractive financial instrument on the derivatives market. I noted that such an agreement would be advantageous to both borrower and lender. I also suggested that failure to act now could lead to more difficulties in the future, especially if property values continue to drop and a principal write-down is necessary.

Knowing that these financial considerations might not be "interesting" enough to the reader, I added a couple paragraphs which had a little bit of information about my spouse and me, to demonstrate that we're "good people" who deserve consideration.

I didn't exaggerate. I didn't complain. I didn't blame anyone for the loan that I was in. There are a lot of people out there who are in the "it's-everyone's-fault-but-mine" camp, and I do not believe that approach garners as much sympathy or extra attention as before. I took a chance on my approach because I thought it had a better-than-average chance of being noticed. If not, then no harm done; I'd try again later.

Well, obviously I got someone's attention. I was called a week later by an analyst from my mortgage company, and also received a letter from a supervisor who had seen my email message after it was forwarded to her by the president. My modification was approved shortly thereafter. I sent in our first new payment last week, and the final papers were notarized and returned this week. After my mortgage company signs and notarizes their sheet, it will be recorded with the county.

Shane Milne

Loan Officer

Banner Mortgage

949-273-4161 phone

www.thebesthomeloans.com

Adjustable Rate Mortgages (ARMs), when they adjust, how is it calculated?

Shane Milne (The Best Home Loans) — Thu, 18 Dec 2008 13:33:31 -0600

On an ARM, when the rate is going to adjust, there are a few things that it is based on. First thing you want to do before reading this is go into the loan docs you signed/received a copy of at closing, in those docs are some papers called the "Note" or "Adjustable Rate Note" or "Adjustable Rate Rider", sometimes you'll get just an Adjustable Rate Note, or sometimes it'll be a Note with the two addendums, it varies slightly with each lender and each state.

Once you have that info you'll want to look for some items. The first is the "Index" that your rate is based on when it starts to adjust. Common indexes are the the LIBOR and treasury/CMT. There are 1 month, 3 month, 6 month, and 1-year averages of these indexes that are released each month (1 month LIBOR is the average LIBOR rate for the past 30 days, the 6 month LIBOR is a 6 month average of the LIBOR index, etc.). Odds are your index will either be a 6-month or 1-year average of an index, if it's a sub-prime program then it's likely tied to the 6-month LIBOR. OK, now that you've found your index in your docs, you'll now want to look for the "Margin". The margin is what is added to the index to determine your "Fully Indexed" interest rate when your rate adjusts. The margin is a fixed number, whereas the index number changes constantly. So as an example, let's say your rate is about to adjust, based on the 6 month LIBOR, and let's say the 6 month LIBOR is at 2.17% (because it is right now), and let's say your margin is 5%... when your rate adjusts, your fully indexed rate will be the fully indexed rate (2.17%) + the margin (5%) = 7.17%. Lenders usually round up to the nearest 1/8th of a percent, so figure it'd be rounded up to 7.25%.

The next thing to look for are the "Rate Caps", which can also be found in the documents you have. The rate cap is the maximum amount your interest rate can change on any given rate adjustment. There are three different caps - the initial cap, the subsequent cap, and the lifetime cap. The initial cap is the maximum amount the interest rate can increase over the rate you had for the fixed period. So while you are at 6.975%, and if your initial cap is 5%, the maximum it can increase to would be 11.975%... even if the index + margin equals over 11.975%. The next cap is the subsequent cap, meaning you also have a cap on any other time the rate will adjust either. That cap is usually lower, such as 2%. So let's say you went from 6.975% to 7.25% on your 1st adjustment, and then on the 2nd adjustment, the index + margin would equal 10%, but since your subsequent cap is 2%, the most your interest rate can adjust to would be 9.25% (7.25% + 2%). The final cap is the lifetime cap, and this is the maximum your interest rate can increase over the rate you had for the fixed period, and is often the same as the initial cap. So if the lifetime cap is 5%, and your initial fixed rate was 6.975%, then your interest rate may never exceed 11.975% for the entire term of the loan.

When you go to apply for a new ARM you can get all of this information upfront - index, margin + caps. The caps are usually in a X/X/X format, where the first X is the initial cap, 2nd X is the subsequent cap, and the 3rd X is the lifetime cap - such as 5/2/5, 2/1/5, etc.

Shane Milne

Loan Officer

Banner Mortgage

949-273-4161 phone

www.thebesthomeloans.com

City of Laredo Down Payment Assistance Program

Shane Milne (The Best Home Loans) — Tue, 16 Dec 2008 11:44:41 -0600

http://www.ci.laredo.tx.us/CommDev/HOME%20Program/HOMECode.htm

Down Payment Assistance Program

The purpose of the down payment assistance program is to provide an opportunity to make housing more affordable by providing first time, low-income homebuyers with down payment loans. Loans of up to $15,000 are provided to households with incomes up to 60% of housing area median family income; up to $12,000 for those households with incomes above 60% and up to 70% of area median family income; and up to $9,000 for those households with incomes above 70% and up to 80% of area median family income. All loans bear a 0% interest on the principal amount and are due on sale of the property or after the first lien is paid (usually 30 years). If the homebuyer should decide to refinance the existing loan, the City of Laredo will subordinate its 2nd lien provided the structure of the loan remains the same. There are no pre-payment penalties.

Eligibility Criteria

The family income must not exceed 80% of the area's median family income as per HUD Section 8 Program Income Guidelines updated annually.

The applicant(s) must be first-time homebuyer. Exceptions to this rule are a displaced homemaker and a single parent.

The applicant must have resided within the City limits at least six months prior to being assisted with HOME funds.

The Eligible Borrower must have a valid earnest money contract.

The applicant must have a valid, pre-approved conditional mortgage commitment. A letter from the mortgager stipulating the need for a down payment and the applicant's lack of affordability for it must be on file.

The applicant must have at least a two-year employment history.

The applicant must be determined to have credit worthiness by a financial lender.

The applicant must occupy the property as his/her principal residence.

Terms of Downpayment Assistance Loans

Applications are processed on a first-come, first-serve basis. The Department of Community Development Director will have the final decision on the approval of the applications.

It is recommended that the assisted homebuyer(s) make a minimum investment of $1,000.

Homebuyer(s) must enroll and complete a Homebuyer Education Course Program.

The property may be an existing home or a newly constructed home.

Existing homes that were built prior to 1978 will require lead-based paint testing at the responsibility of the seller. Proper documents attesting to the lead hazard clearance must be remitted to the Department of Community Development at this point.

The property value limitation will be set by HUD's section 203 (b) guidelines.

A second Lien Deed of Trust and Real Estate Lien Note will be recorded against the property being purchased.

The eligible borrower(s) will comply with the binding commitments regarding the unit's affordability.

Process

The City of Laredo welcomes all eligible applicants to participate in the Home Investment Partnerships Program (HOME) First-Time Homebuyer Down Payment Assistance Program (DPAP). The DPAP is intended to serve those individuals/families who are of low to moderate-income levels and who have not owned a home three years prior to the assistance. Prospective homebuyers may contact a builder or real estate agent of his/her choice. The builder/real estate agent in turn will refer the homebuyer to a finance/mortgage company. The Finance/Mortgage Company will assist the homebuyer in completing the application for downpayment assistance and forward a complete package to the City of Laredo-Community Development Dept. for review and approval.

Shane Milne

Loan Officer

Banner Mortgage

949-273-4161 phone

www.thebesthomeloans.com

Being Prepared for Mortgage Qualification Questions

Shane Milne (The Best Home Loans) — Sun, 16 Nov 2008 12:58:52 -0600

It's hard these days to know what lenders are looking for when someone is trying to qualify for a mortgage. This blog entry isn't so much to tell you what one needs to get you approved, rather than just a list of all of the applicable questions that are likely going to be asked during the mortgage process. Not every single question is covered here but the most important 11 items that I could think of are.

Credit. What are your credit scores and if you have any, what negatives (collections, charge-offs, late payments, BK's, judgments, tax liens, back owed child support, etc.) are on are credit and if they are owing or not. When were the negatives, this is important, month/year is preferred, such as 3/07. For BK's the Ch, filing & discharge date. Even if credit isn't less than perfect, if you only have credit for a short period of time (<24 months), authorized user accounts (which aren't considered by underwriting), accounts from your father with the same exact name because you are a Jr., etc. that is important information to know too.
Income. Gross income is what is important when qualifying, not net income. For self-employed/1099'd people it's your gross income minus expenses/write-offs, adding back in depreciation/depletion. Ultimately a loan officer will review your income but it's good to at least have a rough estimate on what it is.
Source of income. Where is the income coming from? Employment, pension, social security, disability, foster care, VA benefits, rental income, lottery income, etc. If it's from employment, is it salary, hourly, overtime, bonus, commission, etc.
Monthly debt payments. This goes hand in hand with income and the new mortgage payment to determine your debt to income (DTI) ratio. Only items on credit is the general rule, but also items such as alimony, child support, union dues and some other work related expenses are included too. Only the minimum required payment amount is what underwriters are concerned with. Items such as utilities, cell phone, insurance, etc. are not included in the DTI. If you have a question if something is included just ask.
Employment (for those who are employed). What type of employment such as self-employed, S-corp, W-2'd, 1099'd, part-time, full time, 2nd job, etc. How long have you been on the job & how long have you been in the industry. A 2 year employment history is what most loan programs require. For those who have been self-employed less than 2 years, what did you do before your venture? For those of you who have less than 2 years employment history, did you graduate from a higher education school before you started working?
Assets/Reserves. This is to determine how much you could potentially have as a down payment and also as reserves to help qualify (for example if your debt to income ratio is high this could help qualify you anyway). Savings, checking, 401k, IRA, stocks, bonds, CD's, mutual funds, money market accounts, gift, etc. all can qualify. If it is a pension or retirement account that does not permit you to withdraw or take a loan against (other than for hardship), and is only able to be used after you quit or retire, then it cannot be used as reserves.
Location. What state & county. City or zip if you want but usually that is not needed. This is to determine FHA loan limits, what special programs might be available for you, how much property taxes & homeowners insurance will likely be, amongst other items.
Property. Is it a single family house, condo, townhome, 2-4 units, 5+ units, manufactured home, a co-op, condotel, the penthouse of a 45 story apartment building, suburban, rural, a lot of acres, a working farm, a gas station, etc. Also the condition of the property is helpful, as lenders have certain minimum requirements properties must meet (working utilities, etc.).
Value. For a purchase transaction, what is the home price range you are looking in, narrowed it down to, or are under contract for... and for a refinance transaction what is the appraised value of the home and when did you purchase your home.
Occupancy. Primary residence, vacation/2nd home, non-owner/rental property.
Transaction Type. Is it a purchase, refinance just for better terms, refinance to take cash out, looking for a 2nd mortgage, a reverse mortgage, etc.

Of course not all of that covers every person's situation, so feel free to also elaborate on your own if you think there are important details that should be known, such as buying your new primary residence in another state, having a co-signer, buying a home from someone you are related to, the home you are buying is on an Indian reservation, you are employed by family, you aren't a US Citizen, your employment will start after you are buying, your down payment is coming from your current home when it sells, the seller is crediting you $5k towards your closing costs... just to name a couple. If even if you think something is not important, don't leave it out, as it might have a bigger impact than you think.

Shane Milne

Loan Officer

Banner Mortgage

949-273-4161 phone

www.thebesthomeloans.com

Homeowners Insurance Requirements

Shane Milne (The Best Home Loans) — Thu, 13 Nov 2008 10:22:11 -0600

Since just about every loan I do I get asked if there is anything special the homeowners insurance needs to contain I thought I'd write something brief. While most standard homeowners insurance policies will do the trick, there are a few things to keep in mind.

Coverage typically needs to be for at least fire and extended coverage
Amount of the coverage must be at least equal the lessor of 100% of the insurable value of the improvements (usually determined by the cost approach on the appraisal, sometimes lenders will accept the property insurer's determination) or the unpaid balance on the mortgage with a replacement cost endorsement for full amount of damage (this is important to know when you go to refinance, especially a cash out refinance, as your premium usually will increase)
Insurance company usually needs to be rated BBB or better; A or better in Demotech, Inc.'s Hazard Insurance Financial Stability Ratings; B or better in Best's Insurance Reports.
Coverage through the state's insurance plans are acceptable if the insurance is the only insurance available (such as in the times of insurance moratoriums)
Generally the maximum dwelling deductible for homeowner insurance and flood insurance cannot exceed the higher of $1,000 or 1% of the face amount of the dwelling coverage (unless a higher max amount is required by law, this is primarily so homeowners aren't faced with a huge expense if something were to go wrong with their home and also to prevent cheaper premiums in order to qualify for "more" of a home)
Be sure to keep your homeowners insurance updated with your lender and within their guidelines at all times. If you fail to do this if you switch insurance companies, change policy #'s, reduce coverage below minimum requirements, etc. you may be forced to use your lender's homeowners insurance company. This is called "forced placed insurance" and it ain't cheap.

Shane Milne

Loan Officer

Banner Mortgage

949-273-4161 phone

www.thebesthomeloans.com

Conforming Loan Limit in 2009 to remain at $417k, higher in some areas

Shane Milne (The Best Home Loans) — Fri, 07 Nov 2008 15:12:51 -0600

CONFORMING LOAN LIMIT FOR U.S.

TO REMAIN $417,000 IN 2009;

DIFFERENT LIMITS IN SOME AREAS

WASHINGTON, DC
- The Federal Housing Finance Agency (FHFA) today announced the conforming loan limit will remain $417,000 for 2009 for most areas in the U.S. but specified higher limits in certain cities and counties. The conforming loan limit is the maximum size of loans that Fannie Mae and Freddie Mac can purchase in 2009.

According to provisions of the Housing and Economic Recovery Act of 2008 (HERA), the national loan limit is set based on changes in average home prices over the previous year, but cannot decline from year to year. Loan limits for two-, three-, and four-unit properties in 2009 will remain at 2008 levels as well: $533,850, $645,300, and $801,950 respectively, for homes in the continental U.S.

The national limit was left unchanged at $417,000 based on declines in FHFA's monthly and quarterly house price indexes over the past year. The monthly purchase-only index declined 5.9 percent over the 12 months ending August 2008, and the quarterly all-transactions index dropped 1.7 percent from second quarter 2007 to second quarter 2008. Virtually every other measure of house prices has also fallen, with many showing even larger declines. FHFA has not yet determined whether it will continue to use a currently existing FHFA price index to gauge price movements in future years. For this year, however, all reliable metrics point to lower prices, and a price decline of any size is sufficient to determine that the national limit will not change.

Following the provisions of HERA, FHFA has set loan limits for "high-cost" areas in 2009. These limits are set equal to 115 percent of local median house prices and cannot exceed 150 percent of the standard limit, which is $625,500 for one-unit homes in the continental U.S. The new limits affect loans purchased by an Enterprise in 2009, unless the loans were made permanently eligible for purchase under the Economic Stimulus Act enacted earlier in 2008 and has generally higher limits.

Under rules set forth in the Stimulus Act, loans originated in 2008 and the second half of 2007 are subject to limits of 125 percent of local price medians up to a maximum of $729,750. As a result of the difference in the formula for determining high-cost area limits, many of the high-cost area loan limits are different for 2009 than they were for 2008. They are generally lower because of the lower median price multiplier in HERA (i.e., loan limits are 115 percent rather than 125 percent of median prices) and the lower ceiling ($625,500 rather than $729,750). For loans originated during the period covered by the Stimulus Act, the higher of those limits and the 2009 limits will apply.

In calculating loan limits, FHFA used median house price estimates calculated by the Federal Housing Administration (FHA) of the Department of Housing and Urban Development (HUD). Those values have been estimated in a manner consistent with requirements of the National Housing Act, which requires that median prices for all counties in metropolitan statistical areas (MSAs) be set equal to the median price for the highest-cost county. FHA has estimated median house prices for the purpose of setting its own loan limits and has used data from a number of sources, including aggregated county recorder data (supplied by Radar Logic), the American Community Survey, and the National Association of Realtors.

HUD will allow a 30-day appeals period for those wishing to contest its median price estimates. Appeals are to be based upon data suggesting a potentially higher price median for a given area. Details concerning the appeals process will be released today in an FHA mortgagee letter. To the extent that appeals are deemed valid and HUD's median price estimates change in response to the one-time appeals process, the FHFA loan limits will be changed to reflect the updated data.

While FHFA has used median house prices estimated by FHA for 2009 loan limits, it may choose alternative methods in future years. FHFA will be seeking public comment on a forthcoming proposal concerning the best approach to measuring price medians for this application.

As in previous years, the 2009 maximum conforming limits are higher in Alaska, Hawaii, Guam, and the U.S. Virgin Islands than in the contiguous U.S. In those areas, as delineated in the attached list, loan limits vary from $625,500 to $721,050 for one-unit properties.

In addition to a table containing a list of all conforming loan limits for all U.S. counties and statistically equivalent areas, also attached is a list showing only those areas where 2009 loan limits are set by the high-cost area provisions in HERA. These areas have loan limits above $417,000 for one-unit properties in the continental U.S. and above $625,500 for properties in Alaska, Hawaii, Guam and the U.S. Virgin Islands.

Links to high cost loan limits by area:

http://www.ofheo.gov/media/cll/HighCostLoanLimits2009.pdf (PDF)

http://www.ofheo.gov/media/cll/FullCountyLoanLimitList2009.xls (Excel)

This is an official release from the Federal Housing Finance Agency (FHFA), reposted with permission from Corinne Russell.

Freddie Mac announces max 45% DTI

Shane Milne (The Best Home Loans) — Thu, 06 Nov 2008 04:19:00 -0600

Upcoming Changes to Freddie's Credit Requirements

These credit changes will be published in the November Guide Bulletin and will be will be effective for Freddie Mac settlements on and after February 2, 2009:

Eliminate purchases of all mortgages originated with stated income and/or stated assets, including borrower selected programs, lender-branded and marketed programs, and system-selected programs such as Loan Prospector® Accept Plus.

Establish a maximum debt-to-income ratio of 45 percent for all mortgages they purchase, except for Streamlined Refinance Mortgages.

Even though this change isn't happening at Freddie Mac until February, I expect lenders to change their guidelines well before that. Fannie Mae has not made an announcement like this yet, but I would not be surprised if it happens soon after.

Good Faith Estimates Explained

Shane Milne (The Best Home Loans) — Mon, 03 Nov 2008 17:34:02 -0600

Receiving a good faith estimate (abbreviated as GFE) is an important step in determining if the loan you are being offered is a good one for your situation. A GFE includes the proposed interest rate, the term of the loan (XXX/YYY is the typical format, where XXX is the months the payment is amortized over and YYY is the months the loan is due in), a line by line description of the anticipated fees being charged on the loan (all together are called settlement costs), the estimated funds to close (or in some situations, such as a refinance, or on some purchase transactions, you could be getting some cash back at closing), and the proposed monthly payment. The GFE is required to be provided to you within 3 days of a complete application being taken or your credit report being run.

Remember this is a good faith estimate, and while it should be very close to what is expected to be on the final closing statement (called a Final HUD-1 Settlement Statement), some figures can change, including the interest rate if the rate hasn't been locked in, and various costs from third parties (title, appraisal, escrow, pre-paids/reserves). What should remain the same, unless agreed on by both the originator (broker or lender) and the borrower (you), are the costs in Section 800, "Items Payable in Connection with Loan", with the exception of the appraisal fee.

The Section 800 costs are determined by the originator, and since the originator is the one providing the GFE to you, their charges should be consistent from the beginning until the end.

Line 801 is the Origination Fee & Line 802 is the Loan Discount Fee, when both or one or another is being charged it means you are getting a lower interest rate than if you were not being charged an Origination or Loan Discount Fee. This is negotiable, if you want the Origination or Loan Discount Fee to be reduced, you can accept a higher interest rate (in .125% increments). You can ask your loan officer for various GFE's for each interest rate you so desire. It is not uncommon to ask for a GFE for (example) a 6.000%, 6.125%, and 6.250% interest rate to compare all of the payments and charges. Your loan officer should also give you feedback on which interest rate/costs scenario would be better for your situation.

Line 803 is the Appraisal Fee. This is determined by the appraiser that is being used on your mortgage transaction. The appraisal fee varies depending on the customary fee for the area you are doing the mortgage financing in, the type of appraisal, and the complexity of the appraisal. On average it'll be about $300, but in some areas it can be $400 on average. An FHA, USDA or VA appraisal, rent survey & operating income statements (for rental properties) add additional costs to the appraisal fee. The reason the appraisal fee in this example is in parenthesis is because the appraisal fee was paid directly to the appraiser outside of closing (POC - paid outside of closing) rather than at the closing of the loan, which is typical for an appraisal fee.

Line 804 is the Credit Report Fee. It's about 50/50 if you'll be charged for the credit report fee; it is definitely something that is common though. You should only be charged for the amount the credit report costs, if you see a high credit report fee above the $25-30 range then it's suggested you ask to see an invoice for the credit report fee to make sure you aren't being charged more than the actual charge to the originator.

Line 805 is used when the lender needs to inspect the home for one reason or another - for example if there is a question on occupancy of the home, if the property is somewhat commercial in nature so the lender wants to determine if it still has a residential feel, etc. Common amount for a Lender Inspection Fee is around $150, but it's not a very common fee.

Line 808 is a fee that is being charged when you use a Mortgage Broker. Not all mortgage brokers charge a fee on line 808, and more often than not there isn't one. If one is being charged, it serves the same purpose as Line 801, so it is negotiable just like an Origination Fee is.

Line 809 is a Tax Service Fee, which is charged by the lender to handle the property tax information on a home. This may cover the costs of establishing and maintaining an escrow account as well as making sure that property taxes are being paid on time.

Line 810 is a Processing Fee. This is charged for the processing of the loan. It is most commonly charged on brokered mortgage transactions but lenders may charge a processing fee as well. Average for a processing fee is $300 up to $600, and can sometimes be negotiable.

Line 811 is an Underwriting Fee. This is charged by the lender to cover their underwriting costs. Can be anywhere from $400 up to $1,000, and is usually not negotiable. Sometimes instead of charging an underwriting fee, lenders will charge an Admin fee, or a combination of Underwriting/Doc Prep/Funding fees, that when all totaled up will be in the $400 to $1,000 range. For this fee a majority of lenders will be in the $400-750 range though.

Line 812 is the Wire Transfer Fee. Wiring funds from the lender to the title/escrow/attorney company costs money and this is the lender's way of recouping their costs for that.

Line 813 is the Flood Certificate Fee. On every loan a flood certificate is obtained to determine if the property is in a flood zone or not, charging for this service is the lenders way of recouping their costs for obtaining the flood certificate.

Section 1100 are the costs that are charged by the title/escrow/attorney company (as a general term, "closing company" or "closing agent" is used). These fees are estimated by the originator, and in some cases can be very precise. Ask your originator if they are estimating these fees or if they already have contacted a closing agent to obtain the costs laid out in this section.

Line 1101 is the Closing/Escrow Fee. This is the closing agent's fee for doing their part in the mortgage transaction. The amount of this fee varies around the U.S., and even from closing company to closing company within the same geographic area in the U.S. On purchase transactions it's usually a bit more than on refinance transactions. The closing company can be pre-selected by the mortgage company, by the seller (on a purchase), or you might be able to choose the one that is used on your mortgage transaction.

Line 1105 is the Doc Prep Fee. This is the fee that the closing company charges to prepare the loan documents for your signing. After the docs are prepared by the lender and sent to the closing company, the closing company prepares some of their documents such as the Final HUD-1, and in some cases the Grant Deed and other documents. This fee could also be for receiving docs via email and printing them out.

Line 1106 is the Notary Fee. Some closing agents charge a separate fee for the notarization of documents and some include the notary fee within the closing/escrow fee. If you are signing away from the closing agent's office, a mobile notary fee is often charged in the amount of $100-150.

Line 1107 is the Attorney's Fee. If you are in an Attorney State (New York, Georgia to name a couple), instead of a Closing/Escrow Fee you will be charged an Attorney Fee. It serves the same purpose. Another situation where someone would be charged an Attorney's Fee is if there is some paperwork reviews required, or certain legal documents have to be prepared by an attorney, then an Attorney Fee could also be charged (regardless of which state you are doing the mortgage transaction in).

Line 1108 is the Title Insurance Premium. This is the premium for the title insurance which the lender requires to be obtained on a mortgage transaction. Title insurance protects whoever the insured is against defects in title to the property. There are two forms of this, the Lender's Coverage, which is based on the loan amount and good for the life of the mortgage (so it's terminated when the mortgage is paid off) and then also the Owner's Coverage which is based on the purchase price which lasts even after the mortgage is paid off and even after the property is sold (so it's forever). Lender's coverage is always required on a mortgage transaction, while Owner's Coverage is optional. Some examples of the protection that title insurance affords the insured are fraud, unrecorded easements (where someone has a right to enter your property), invalid deeds, and claims for unpaid inheritance/gift taxes from a previous owner.

Other title costs, which don't always have a specific "line number" associated with them, are Endorsements, Courier/FedEx, and Wire Fee's. Endorsements are used to change the coverage of the title insurance policy. An ALTA title policy provides adequate coverage for a majority of the "simple" real property transactions. If the transfer of title is not "simple", the policy coverage needs to be added by endorsement to tailor coverage to meet the needs of the insured. The two most common title endorsements are ALTA 8.1 & ALTA 9, and often you are not charged for those endorsements. If additional endorsements are needed, such as if you are getting an ARM mortgage, financing a condominium or PUD, or doing a construction loan, then you are charged for those specific ones (usually around $25 to $125 per endorsement). Courier/FedEx fees are pretty self-explanatory, they are for any overnighting that needs to be done by the closing company (such as overnighting docs back to the lender) or if a deed/mortgage needs to be run down to the recording office for recording then a courier is used. Wire Fee's are usually charged on a refinance transaction as the closing company needs to wire the amount of money to the mortgage company which is getting paid off.

Closing company costs can vary from area to area as well, so there are some fees that are charged which have not been mentioned - such as an Illinois State Policy Fee ($3.00) and other state specific fees. You are always more than welcome to ask what purpose a fee has.

Section 1200 is for fees charged by the government (state, county or city). These will vary depending on what state/county/city you are doing the mortgage transaction in and are set by the government. The costs of these are not negotiable, however if you are doing a purchase transaction you might be able to get the seller to cover some/most/all of them.

Line 1201 is the Recording Fee to record the Mortgage & Deed. This cost is determined by how many pages need to be recorded. Usually the first one or two pages have a flat fee, say $20, and then every page after that has a per page fee of $1 to $5. On the GFE this is usually estimated, but as soon as the docs are delivered to the closing agent it is revised to the exact figure. A resourceful originator will contact a local closing company to determine the reasonably accurate estimate on the recording fees.

Line 1202 is the City/County Transfer Tax or Tax Stamps. Some cities or counties charge fees for doing a mortgage transaction, or purchasing/selling real estate. This funds local government programs, schools, etc. Some base is on the mortgage amount being obtained and some base it on the transfer sales price of the property. Your originator should be doing research on if you will be charged city/county transfer tax/tax stamps on your mortgage transaction, and should be listed on the GFE.

Line 1203 is the same thing as line 1202 but on the State level. Some states, such as FL, GA & NY to name a few, charge fees on mortgage transactions or purchasing/selling real estate. Some base is on the mortgage amount being obtained and some base it on the transfer sales price of the property, and sometimes there is a tax on both (such as FL & NY).

Section 1300 is for miscellaneous fees that can't be fit into the other sections (800, 1100 or 1200) because there are not enough line items to squeeze them in on. Such items could be a pest inspection fee, a survey, a breakdown of the mortgage payoff, or pretty much anything.

Below section 1300 is the total for your Closing Costs.

Section 900 is for items that the lender requires you to pay in advance.

Line 901 is Pre-Paid Interest. On mortgages, interest is paid in arrears. Meaning a mortgage payment due on July 1st will pay for principal due for July, but for interest that accrued on the mortgage balance being borrowed in the month of June. So let's take an example where you are closing on your mortgage transaction on May 20th. Your mortgage lender would not make your 1st payment due on June 1st because there just isn't enough time to set it up with their servicing department (usually needs about 20 days for that to be set up). The first payment would be due on July 1st. So since interest is paid in arrears, and July 1st payment pays for the interest that accrued in the month of June, and you are not making a June 1st payment which would've paid for the interest that accrued in the month of May, you prepay May's interest on the closing of the loan. So a closing on May 20th would have 12 days of prepaid interest charged at closing (5/20 through 5/31).

If you close within the first 10 days of the month there are some lenders which will give you the option of having your first mortgage payment due the 1st of the immediate month following the closing - this is done by "funding into the month" where instead of being charged pre-paid interest at closing you would receive an interest credit. So using an example of closing on May 5th, and let's say you chose to have your 1st payment due on June 1st (which pays for May's interest), you would have a full normal payment due on June 1st, but at closing you would receive an interest credit from the lender for 5 days (5/1 to 5/5). On the GFE this would be represented by a negative amount of days of interest on line 901.

Line 902 is any Mortgage Insurance Premium (MIP) that is paid upfront. This is most common on FHA loans however some conventional loan mortgage insurance plans might also give you the option to pay MIP instead of it on a monthly basis. On FHA loans the mortgage insurance premium is 1.5% of the amount being financed, on conventional loans which have the option to pay upfront mortgage insurance it will be determined by the characteristics of your loan (credit score, mortgage type, mortgage term, occupancy, loan-to-value to name a few). On FHA loans the MIP can be financed into the loan amount (base loan amount + extra loan amount to cover the MIP), but on conventional loans it is a cost that must be paid for (if a purchase) or paid for/financed into the loan amount (on a refinance if there is enough room to increase the base loan amount to cover it). On USDA Guaranteed Rural Development loans, this is where the 2% guarantee fee would be listed as well. On USDA GRD loans the 2% guarantee fee can be rolled into the loan (base loan amount + extra loan amount to cover the 2% guarantee fee).

Line 903 is the Hazard Insurance (homeowners insurance) Premium. Homeowners insurance is required when you have a mortgage against your home. There are basically three parts of homeowners insurance - dwelling coverage (to rebuild your home in case of a disaster), personal coverage (to protect your belongings, house gets robbed, etc.), and liability coverage (someone trips on a garden hose in your yard, etc.). Lenders only require you have sufficient dwelling coverage, the other two forms of coverage are optional but I do recommend you get them. On purchase transactions the premium for this insurance needs to be paid up for a full year, which is typically how insurance companies bill homeowners insurance anyway. You can pay this through the closing on the mortgage or to the insurance company directly "outside of closing", which it would then be marked with a "POC" (like the appraisal fee on line 801). On refinance transactions, unless the premium falls within the first two months after closing, you can just pay it as normally scheduled. On a refinance transaction, if the premium has to be paid within the first two months after closing, and you are "escrowing" (described in section 1000) then lenders often require you pay the insurance premium at closing.

Line 905 is the VA Funding Fee. This is similar to line 902, Upfront Mortgage Insurance, where it can be financed into the loan amount (base loan amount + extra loan amount to cover VA Funding Fee). The VA Funding Fee amount is determined by the Veteran's status, the transaction type (refinance, cash out refinance, or purchase) and how much in remaining VA benefit entitlement they have remaining.

Section 1000 is for Escrow Reserves Deposited with the Lender in the situation where you are establishing an escrow account to pay property taxes/homeowners insurance from.

Line 1001 is for the Hazard Insurance Reserves. This is determined by when your homeowners insurance premium is next due. On a purchase transaction it is most common for there to be 4 months of reserves collected for at closing. The reason being is that the lender is often 2 months shy of a full amount to pay the homeowners insurance premium the following year, plus in addition to however many months the lender would be short by, it is legally allowable for the lender to collect an additional two months as a "cushion". For example you are closing on the purchase on May 20th, which is when the homeowners insurance goes into effect. On 5/20/09 is when the next homeowners insurance premium is due. Your first payment is not due until July 1st. You would be making July, Aug, Sept, Oct, Nov, Dec, Jan, Feb, Mar, and April's mortgage payment (10 months) before the lender would send out the money to pay the insurance premium due on 5/20/09. The reason they don't assume you'd have made May's payment, and would then need 1 less month of reserves, is because often you can make your payment up until the 15th of the month without incurring a late fee, and that would be too late for the lender to pay out the insurance company the premium and have it received on time - the lender isn't interested in cutting it that close. Thus the 2 months of reserves + 2 month cushion = 4 months. On a refinance transaction the hazard insurance reserves are calculated by the 2 month cushion + however many months they lender would be short by when it comes to paying the upcoming homeowners insurance premium.

Line 1004 is similar to line 1001 except for it's the Property Tax Reserves. This is determined by when your property taxes are due, and how much is due on each due date. Most states/counties have their property taxes due twice a year in equal amounts (6 months each), however there are areas of our country where they are collected for 4 times a year in equal amounts, once a year in one lump amount, and even twice a year in unequal amounts. Your mortgage originator should do their due diligence and find out when property taxes will be due for the property you are financing. Line 1003 is grouped in the same category, as there are some areas in the country where there are school taxes/county taxes/municipal taxes, etc. If you are ever interested in finding out ahead of time, you can call up the taxing authority for your county and they can explain when taxes are due, how they are calculated, and any exemptions one can qualify for (such as homeowners exemption, disability exemption and senior citizen exemption, which availability may vary depending on location).

An escrow reserve is not required to be established on all loan programs. If you are doing a conventional loan program and your loan-to-value (LTV) is 80% or below (90% or below in California) you have the option not to establish an escrow account. Keep in mind you are solely responsible for paying your homeowners insurance and property taxes in that situation. If the lender determines you have not paid those items on time they can force you to establish an escrow account and/or force you to use their own homeowners insurance company (called force placed insurance). On FHA loans, VA loans, and USDA RD loans you are required to have an escrow account. Sub-prime programs, which are a type of conventional loan program, often give you the choice to set up an escrow account or not regardless of what the LTV is.

Line 1005 is if Flood Insurance is required and is paid separately from your normal homeowners insurance. Often the flood insurance premium is included in the homeowner's insurance premium amount; you should speak to your insurance agent to determine how that would be set up if flood insurance is required.

Below section 1000 is the total for the Pre-paid items/Reserves, as well as a total of for the Settlement Costs.

In the lower left corner is the breakdown of the Total Estimated Funds Needed to Close. It'll include the purchase price (purchase)/payoff (refinance), the new loan amount, estimated closing costs, estimated prepaid items/reserves, any settlement costs being paid for by the seller (or another party, such as the real estate agent, mortgage broker or mortgage lender), and any cash deposit you've put down (in the case of a purchase transaction), new 2nd mortgage (subordinate financing), new 2nd mortgage closing costs, and at the very bottom of that section will be the estimated amount of funds you will need to bring in to close on the transaction or in some situations (such as a refinance) will be the estimated amount of cash back to you at closing.

In the lower right corner is the breakdown of your Total Estimated Monthly Payment. It'll include the principal & interest (P&I) payment on the 1st mortgage, P&I payment on any other mortgage on the property (other financing), hazard/homeowners insurance, property taxes, mortgage insurance, and homeowners association fees. Even if you choose not to establish an escrow account to pay your property taxes/homeowners insurance from, and even though you never pay your homeowners association fees with the mortgage payment, they will still be listed just for reference.

Even though a lot was covered in the above information, there are still transaction specific questions that you might have pertaining to charges seen on a GFE. Feel free to create your own thread (or find another thread which contains a similar question) to ask follow up questions.

Shane Milne

Loan Officer

Banner Mortgage

949-273-4161 phone

www.thebesthomeloans.com

FHA Manual Underwriting: The Rule of 3

Shane Milne (The Best Home Loans) — Mon, 03 Nov 2008 17:29:37 -0600

If you can't get approved for an FHA loan through automated underwriting, then your loan might need to be manually underwritten to get approved. Having 3 compensating factors is a good rule of thumb when going for a manual underwriting approval. Compensating factors are when you are better off than whatever the minimum requirement is. Compensating factors aren't needed all of the time but if there is anything questionable or borderline about a person's situation, they are better to have than not to have. A list of compensating factors is:

- More than the required down payment, in increments of 5% (95% LTV, 90% LTV, etc.)
- 3 or more months of reserves (PITI payment) in savings, checking, 401k, IRA, stocks, etc. (retirement accounts qualify at 60% of vested balance)
- Limited use of credit, such as low credit card balances, not a lot of accounts with balances
- The duration of time on the job/in the industry, there is no minimum required but 2 years work history is needed (except under special circumstances) and underwriters like it when you've been with the same employer for at least 2 years
- Down payment is your own rather than getting it as a gift or a loan
- Potential for increased earnings, such as an employer verifying you are in training or getting a raise in a few months, or you are in school getting a degree, certificate, or license that would make you a more valuable or skilled employee, or primary wage-earner is being relocated and secondary wage-earner has a history of stable employment, is seeking employment but has not found new employment yet
- Less than a 10% increase from your current housing payment to the new housing payment
- The new home is closer to work than your current home
- An energy efficient dwelling can allow expanded debt to income ratios (33 & 45%)
- Victim of a disaster
- There is income that can't be used as qualifying income, such as a non-borrowing spouses, or employment income that has been received for less than the required amount of time, food stamps or public benefits
- Lower debt to income ratios, under 28% for housing & 41% for total
- Strong credit & scores, underwriters are looking for at least 12 months of clean credit, the longer credit has been clean past 12 months the better

Shane Milne

Loan Officer

Banner Mortgage

949-273-4161 phone