FHA Financing Replaces the Subprime Market

As the market keeps changing, we are constantly challenged with buyers obtaining financing.  After attending an office "lunch and learn" yesterday, our Plaza Mortgage representative, John Jeffries, updated us on the world of FHA financing and the changes incurred.  Here are some of the highlights:

FHA Financing

FHA is a government insured loan not the government lending money.  It is also one of the oldest loan programs with FHA 203(b) being the most popular.

Facts:

1. FHA offers fixed & adjustable rates
2. Gift funds can be used for down payments and closing costs
3. Down Payment Assistance Programs can be used to get into a home without any money out of pocket
4. There can be a non-occupant co-borrower
5. Must be owner occupied
6. Loans are assumable

FHA & The Contract:

1. Only $75 is non-allowable by the buyer (must be paid by the seller)
2. BE CAREFUL with allowances and personal property
3. Show the Down Payment Assistance on the correct line
4. All agents must sign the Financing Addendum

FHA Repair Requirements have been reduced significantly as of January 2006.

Property Flipping:

1. Must be owned 91 days before a new contract can be written
2. Must be owned 180 & 181 days if the value increases 100%+ and 2 appraisals are required
3. Exceptions granted for HUD, VA, FNMA, FHLMC, federal agencies, state or local government agencies, state or federally chartered agencies, relo agency transactions, inherited properties and builders
4. Owner of record must be verified

Debt to Income Ratio Guidelines:  Housing Ratio: 31%     Total: 43%

NO MINIMUM CREDIT SCORE

• FHA will accept loans after 2 years of Chapter 7 Bankrupcy
• FHA will accept loans after 3 years of Foreclosure
• Allows non-traditional credit references and can accept a borrower with no credit
• Loans can be approved with a letter of explaination and/or documentation

New Limits:  (No Maximum Sales Price)

1 Unit: $271,050

2 Units: $347,000

3 Units: $419,400

4 Units: $521,250

Down Payment:

• Requires 3% in the transaction between down payment and closing costs (pre-paids do not count)
• Seller consessions can be up to 6%

Example: 

• List Price of home: $105,000
• Contract Price: $110,000
• Down Payment Assistance (3%):  $3300
• Down Payment Assistance Fee: $300
• Seller Paid Non-Allowables: $75
• Seller Paid Closing Costs: $1325 (Just for fun)

This is all good- as long as the home will appraise for the new contract price!  Use caution- if it doesn't appraise for the higher price to cover all the seller paid costs, you've got a whole new set of issues to deal with.......