In Part 1 and Part 2, I discussed the trials and tribulations of getting financing for a condo purchase as well as some of the problems with verifying a borrower's employment. In Part 3, I want to address something that Ralph Gorgoglione had asked about in his post and that was the new documentation requirements for FHA.
The truth is that there isn't really any new documentation being requested by just FHA (except in property flips) but to those Realtors who are not familiar with an FHA transaction, the additional documentation required by FHA may seem like new documentation requirements.
While there is some new documentation that is being required by lenders, this documentation is being required for all loan transactions and not just FHA loan transactions. As for the additional documentation required on FHA transactions, these are documents that have always been required by FHA for any and all FHA transactions.
There are quite a few of them and I'm not going to go into all of the different forms because most of them are only required by the borrower and require absolutely no assistance and/or cooperation from the other parties in the transaction. However, there are a few that require the signature of other parties in the transaction and they are a) FHA Amendatory Clause, b) FHA Real Estate Certification and c) 203(k) Purchase Forms.
FHA AMENDATORY CLAUSE: This is basically just an agreement between the buyers and sellers of what the sales price is and that the maximum amount of mortgage will be determined based on the appraised value and not the sales price. Furthermore, an amendatory clause must be included in the sales contract when the borrower has not been informed of the appraised value before signing the sales contract.
FHA REAL ESTATE CERTIFICATION: This is basically an agreement between the parties of the transaction that the terms and conditions of the purchase contract are true to the best of their knowledge. Furthermore, any other agreement between the parties (i.e. repairs, credits, etc...) are also part of the sales agreement.
203(k) PURCHASE FORMS: This is a whole series of documentation that is required by some of the other parties in the transaction in addition to the borrowers. One of the conditions of a 203(k) loan is that the seller must sign a purchase agreement addendum agreeing to the terms and conditions of the 203(k) guidelines as outlined by FHA.
Furthermore, there will also be a designated amount of funds placed into an escrow account after the close of escrow on the sale of the property. This additional escrow account is for the sole purpose of repairs and/or rehabilitation of the property. As a result, the escrow company must agree to adhere to the terms and conditions of the borrower's agreement with the lender on how and when these funds are to be distributed.
Lastly, as I mentioned before, the only new documentation that FHA is really requiring is in the case of properties with less than 90 days of seasoning (i.e. property flips). The reason for the new documentation is because this is actually a new option for FHA; FHA has never allowed flipped properties before.
As of February this year. they are now allowing them (temporarily) in an effort to reduce the current inventory of all of the properties being scooped up by the tremendous amount of all cash investors.
I could write an entire post on the FHA requirements of this new process and the trials and tribulations of getting an FHA loan for a property with less than 90 days of seasoning. However, suffice it to say that if the cash investor who purchased the property less than 90 days ago is making a HUGE profit on the resale, they are going to need to justify the HUGE increase from the previous acquisition price to the current sales price (I speak from exerience when I say this).
If a cash investor isn't willing to prove what they spent to improve the property in the less than 90 days then chances are they will be turning away approximately half of their prospective buyers, which is about the percentage of FHA loans being funded these days.
None of these things have to hang up and/or delay the loan transaction but they will require the assistance and cooperation from the other parties in the transaction. What we (MLO's) don't need are a bunch of whiny, juvenile agents, escrow officers as well as buyers complaining about all of the additional documentation required by FHA. SERIOUSLY!!!
If you don't want to do what's necessary to get an FHA loan then put down a bunch more money and get a conventional loan. Otherwise, do what is necessary (preferably without a bunch of whining and complaining) and I will personally do everything I can to make the process as less stressful as I possibly can.
UNDERWRITING REALLY ISN'T THAT MYSTERIOUS BUT IT'S NOT STANDARD BY ANY MEANS EITHER - Part 1
UNDERWRITING REALLY ISN'T THAT MYSTERIOUS BUT IT'S NOT STANDARD BY ANY MEANS EITHER - Part 2
UNDERWRITING REALLY ISN'T THAT MYSTERIOUS BUT IT'S NOT STANDARD BY ANY MEANS EITHER - Part 4
Comments(12)