Bryan's Blog

FHA Loans combined with Down Payment Assistance Programs $0 from borrower

Bryan Kelly (Professional Mortgage Partners) — Fri, 13 Jun 2008 08:46:18 -0500

In recent years, FHA loans have accounted for about 2% of all mortgages, as there had been so many other options for people with less than perfect credit. The market for mortgages has changed significantly, these "other" options are no longer avaialble, FHA loans are coming back strong, and it's important to understand how FHA loans can benefit buyers and sellers.

FHA loans are not only for people with less than perfect credit. FHA loans can offer very competitive rates, sometimes equal to or better than conforming ("A-Paper) loans, and they work with Down Payment Assistance (DPA) programs, which allow a borrower to become a homeowner with $0 out of his/her own pocket. Below is an overview:

FHA Loans vs Conforming loans

* FHA loans are much more lenient on credit, allowing people with less than perfect credit to still get Prime rates

* FHA "price adjustments" (hits to the fees and/or interest rate) start when a borrowers middle credit score goes below 620, and aren't even significant unless the borrowers middle credit score goes below 600

* Conforming "price adjusters" can start when a borrowers middle credit score goes below 720 (my how times have changed)

* FHA requires only 3% down, and the 3% does not need to be from the borrowers own funds (can be a gift from a family member or the use of a Down Payment Assistance Program (DPA) - read about DPA below)

* FHA loans have no issues with areas that may be considered to be in "declining markets"

* The Private Mortgage Insurance (PMI) requires an "Up Front Fee" due at closing, which can be rolled into the loan amount, but the monthly PMI payment can be signifantly less than that of a conforming loan, resulting in a lower monthly housing payment than an equivalent conforming loan

* FHA loans are government insured, so there are no issues with PMI coverage due to credit scores or declining markets

* FHA loans can be used in combination with a Down Payment Assistance Program (DPA), such as Ameridream or Nehemiah. Here is how that works:

* Seller credits to buyer can only be for closing costs and pre-paid items (insurance, tax escrows, etc...) but not for down payment

* Lender guidelines do not allow for seller credits to be used for borrowers down payment

* Loan programs today require at least 3% down, but if a borrower does not have 3% or cannot get a 3% gift from a family member, etc... then they can use an FHA loan with a DPA program.

* The DPA organization "gifts" the borrower between 1% - 6% (whatever the borrower needs) of the purchase price for the 3% down payment and, if needed, the closing costs. At the closing table the seller must "replenish" the DPA organization this gift plus an additional $500 administration fee. This is allowed per lender guidelines and allows a borrower to buy a home with $0 out of their own pocket. Example: $300,000 purchase. DPA program "gifts" borrower 3% of purchase price ($9,000) for down payment, plus $5,000 for closing costs = $14,000 total. Borrower uses $9,000 for their 3% down payment, uses $5,000 for closing costs, and has no out of pocket expense to buy the home. Seller agrees to "replenish" DPA program back $14,000 plus a $500 admin fee.

* Usage of the DPA program really does not affect the sellers bottom line. If the seller knows they will be providing the DPA organization 3% + $500 admin fee, then the seller can factor that into the final purchase price. The seller may not be willing to discount the purchase price of their home by that additional 3% + $500. So by working with this program, it can be structured to have no effect on the sellers' bottom line.

* The seller would be interested in this program because it opens up the pool of buyers for their home. The buyer would be interested in the program because it allows the buyer to become a homeowner with no out of pocket expense.

* FHA loans work fantastic with single family homes, 2-flats, 3-flats, 4-flats, requiring only 3% down for each type of property. If trying to use an FHA loan on a condo, the condo project would need to be FHA approved. Otherwise, an exception would need to be made.

* FHA loans are for primary residences only.

* There are no income restrictions or purchase price restrictions, but FHA loan limits are as follows in my home state of Illinois (there are some "high cost areas" of the country, like areas of California, where these limits have been significantly increased):

# of Units		FHA Loan Limit
1		$410,000
2		$524,850
3		$634,450
4		$788,450

Please contact me anytime should you have any questions about FHA loans and / or Down Payment Assistance Programs or if would like a flyer for your home for sale. I'm here to help! I can be reached at 773-742-7940 or bkelly@bryankelly.biz

Fannie Mae / Freddie Mac changes affect City Mortgage Program...

Bryan Kelly (Professional Mortgage Partners) — Tue, 19 Feb 2008 22:21:39 -0600

Fannie Mae and Freddie Mac have made some recent changes that will significantly impact many buyers as well as developers. If a borrower is putting down less than 10%, Fannie Mae and Freddie Mac will require a full review of the condo project. This full review is a "condo questionnaire" consisting of literally 20 questions that Fannie Mae and Freddie Mac want to know about the condo project before they will approve the loan.

Many loan programs, including the City Mortgage Program (4% Gift), are sold to Fannie Mae and Freddie Mac and must concur with their guidelines. Of the 20 questions, the ones that jump out are the first 3:

1. Total number of units in the project

2. Total number of units sold

3. Total number of units closed

Add up the Total number of units sold (under contract but not yet closed, and include the subject property) and the Total number of units closed, and this must be 51% or greater than the Total number of units in the project. If this is not the case, then Fannie Mae or Freddie Mac are not buying that loan, and many of the loan products, including the City Mortgage Program, will not work. The only way they can work is if the condo project is FHA approved. Again, remember that the full review of the condo is when a borrower is putting down less than 10%. There are lenders out there that can do a "limited review" of the condo with $0 down, but they are not Fannie Mae or Freddie Mac loans.

First Time Buyers - City Mortgage Program...

Bryan Kelly (Professional Mortgage Partners) — Sun, 02 Sep 2007 23:27:05 -0500

With many lenders tightening guidelines and the pool of possible buyers shrinking, consider utilizing the City Mortgage Program to cover closing costs and/or down payment. This program is helping many buyers become homeowners today by offering a 4% gift for down payment and/or closing costs, as well as a very low fixed rate mortgage with the option to put $0 down.

What is a City Mortgage Program? The City of Chicago has enforced a program that gives borrowers a huge step up by giving low income as well as middle income Chicago home buyers a 30-year mortgage at a fixed-rate and at bargain interest rates with up-front grants to help pay for the house's down payment and its closing costs, all of these amounting to 4%. Along with this 4% gift from the City of Chicago, there are other benefits to be had from this City Mortgage Program. They have included such perks like a very low fixed-rate mortgage for the 30 year period previously stated and the option of 100% financing.

Chicagoans have to meet pre-required income brackets as well as the purchase price limits for their Chicago home choice to be able to qualify for this program. They do not need to be first-time home owners if they are buying in a "targeted area." These areas are neighborhoods where the city is trying to boost home ownership in or increase the number of people who own their own Chicago homes.

To register for this program or find out more, please go to www.my-first-mortgage.net