FHA Loans and FHA Mortgages

Are you ready for some more changes in the mortgage industry? Many of us know that there has been a lot of change, both with FHA loans and conventional loans. And the changes that I am about to mention have already been out there for about a month now, but this is more of a refresher post of information. These are changes that will start to take place next week and up until January 1st, 2009.

Is change good?  Yes and no…..  The first major change as of right now is that down payment assistance programs will be discontinued for now. As you noticed, I said discontinued and not banned.  HUD and the government wanted to ban these programs, more so because of HUD’s misleading figures. This is something that I have proof of and that I will write about in the next few days. Hence why I went to Washington D.C. to help keep the DPA programs alive. For more info, please read:

Mr. Belonger Goes To Washington!  By Patricia Kennedy

Video : Down payment assistance rally - 9/10/08 -  with Jeff Belonger

As of now, there are some gentleman handshakes on the table between Congressman Barney Frank and the rest of the Senate in regards to bringing back these down payment assistance programs. Right now, they end on October 1st, 2008. But with the help of so many individuals such as you and me, and Scott Syphax of Nehemiah, the DPA’s should be back by the end of the year. (this is my opinion)

What will the new DPA look like and what is being talked about? Some other things that HUD supports as a compromise to bill HR 6694 are :

  –  Borrowers with a credit score above 680 will be allowed to participate in these down payment assistance programs with no penalties.

  –  Borrowers with credit scores from 620 to 679 could be subject to higher insurance premiums. (I personally wouldn’t have a problem with this)

  –  Borrowers with credit scores below 620 would be banned from using the down payment assistance program until mid 2009. ( I truly think that we could improve on this one. First off, why down to 620?  Secondly, even people with credit scores of 570 or such can still have decent credit, under FHA’s credit guidelines.  I would think 600 would be a good place to start. And I will share some of the facts with charts in another post in the next several days. These are from outside sources that aren’t connected with HUD & FHA.

FHA Loan changes for 2008 - 2009

Part 1 - Down Payment Assistance Programs

Part 2 - Upfront Mortgage Insurance Premiums

Part 3 - Down payment and Maximum Mortgage Requirements

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Experience & Knowledge at its BEST !!!

FHA loans have been used 30% more as the choice of mortgages as of lately in many parts of the country. What I hate hearing is that they have taken the spot of the subprime loans. This is not true by any part of the imagination. This statement is from those that are inexperienced in both the mortgage industry and the real estate industry. The realization has been that 30% of the subprime mortgages in the last 5 years previous to the last 1 1/2 years should have been FHA mortgages, not subprime.

The subprime loan for many years could go down to a 500 credit score, as long as you had more money down. But your rate was usually higher. The better your score, the less you needed to put down, the lower your rate. Sounds good, right?  Wrong, because the subprime rate was always higher than the FHA rates.

To compound this, so many said just because you had a conventional loan, that you had the better loan. This was not always true when putting 3 percent down. In most cases, you were told this, because that particular lender was not FHA approved. Now?  Even with 10% down and credit scores less than 680, FHA loans in most cases, will be the best mortgage for you.

Okay, you could argue the fact that this is just my opinion. True, even though I have over 16 years of experience as a loan officer in the mortgage industry. But numbers don’t lie. Let me show you…..

The example below is based on a $300,000 purchase price with 5% down. One reason why conventional rates are a little higher in this scenario as in FHA rates is because Fannie Mae and Freddie Mac have added penalties per se. If you are putting down less than 30% and your credit score is less than 680, certain fee penalties would apply to you, which would increase your rate.  The FICO (credit score) that I am going to use is 659, which is above the average credit score and I will still show in this example that FHA loans are cheaper, even with 5% down.  

***And keep in mind, some lenders have penalties on FHA mortgages with credit scores under 620. And many lenders can’t do FHA loans under 580. I can still do credit scores down to 530 with a manual underwrite.***

Disclaimer :  These rates are based on today’s rates for a 30 year mortgage and can change any time because of various market conditions. To compare this scenario apples to apples, the fees are the same and with zero points. The conventional rate also includes the penalty for the 659 credit score.

Some of you might be saying that you will be adding $4,897.00 onto your principal balance if you did the FHA mortgage because of the FHA one-time mortgage insurance premium. This is correct and I don’t want to confuse you with more numbers and charts. But here is a quick breakdown. If you kept your house for 5 years, which most people sell in a 6 year period, you would have saved $12,807.00 in payments in 5 years. This is a difference of $7,910 that you have saved!!!   And one other thing that is very small, but still makes a difference. You will be subtracting a few more dollars per month from your principal because your interest rate is lower, which would offset the interest that you would write off on the 7.125% rate. Just something else to remember, but consult your tax consultant or CPA. 

FYI –  If you sold your house in less than 3 years, you are entitled to a refund of the upfront mortgage insurance premium (UFMIP) of $4,897.

How dto I find an FHA approved lender?    You want to make sure who you are dealing with is FHA approved.

Why do I say this?  Not all lenders are approved FHA and some may tell you that you don’t qualify FHA because in reality, they aren’t FHA approved. Another reason might be is because a conventional or subprime loan would be easier than a FHA mortgage.

You can find a HUD approved lender in your area by going to the following HUD website: http://www.hud.gov/ll/code/llplcrit.html     DISCLOSURE (just be careful of the spelling of the lender. If I put in my company’s full name, Infinity Home Mortgage Company, Inc, it tells me that there is no such company. If I put in Infinity Home Mortgage, it shows my company as being FHA approved. Just keep this in mind. You can always call HUD also. (202) 708-1112

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Experience & Knowledge at its BEST !!!

What a topic of discussion in the past 30 days…….  The DOWN PAYMENT ASSISTANCE PROGRAMS !!!!!!

For many of you, you have until September 30th to have a lender actually underwrite your loan and sign off on the MCAW. For those that don’t understand, stop listening to the rumors that the Down payment assistance programs, such as Nehehmiah, Ameri Dream, & a few others, are done after August 29th.  That date has been mentioned because Countrywide and Wells Fargo have told their loan officers that they can’t accept any loans after August 29th. That is a whole month prior to the date that HUD set and HUD is like god in a way. It basically comes down to your lender…..

. 

Just because Countrywide & Wells Fargo are some of the biggest lenders out there, doesn’t mean when they say something, the mortgage world stops And if you were promised this type of program with them, call them now.  They should have called you though.

I have read and I have had calls from realtors, loan officers, and consumers that the DPA program will stop before September.  It was passed in congress and signed by the president to be banned by October 1st, 2008.  Any rumors out there, might not be a rumor, but by that specific lender. Unless HUD authorizes a mortgagee letter stating otherwise, business as usual until 10/01/08. And this is the date that the lender needs to approve the loan, not close the loan, settle the loan, or fund the loan.

I just had a consumer call me yesterday from Florida, from reading my blogs. He told me that he had been pre-approved for a FHA loan by Wells Fargo. I first asked him, “are you sure that you were pre-approved“?  He said yes, and that was what he told his realtor. I then asked this client if he had filled our an application and gave the lender pay stubs, W-2’s, and bank statements. He said no to all questions. I then explained that he was not pre-approved. He understood the difference and was upset, to as why this loan officer told him and his realtor that he was pre-appoved.  For a complete understanding of this, please read : The difference between a Pre-Approval and a Pre-Qualification letter.

One other thing that he was very disappointed about. That Wells Fargo has issued last week, that all DPAloans would be stopped with their company by August 29th. This client is still shopping for a home and was very upset that his loan officer hadn’t contacted him as of yet.

The moral of this story is that you want to work with a true mortgage professional. Someone that is on top of things and will tell you even when they have bad news, and not wait around. And this is also a good example that even your local lender might not always be your best for a smooth closing. I asked this individual if I could help him and he said that he wasn’t sure, because I was out of state. Not all lenders out of state are bad. As I pointed out to him, I explained everything to him in a timely manner. That he read a handful of my  blogs that said they were more informative than the loan others that he spoke with locally. I have over 16 years of mortgage experienceand that I know most things about about FHA loans. About 80% of my business is now out of state, which means that more people trust me, even if I am 1,000 miles away. I just closed on a client in Miami, Florida today and she received her deposit of $2,500 back at closing. Meaning, she didn’t put a dime out of pocket for her closing. And it went very smooth, even though I am based out of New Jersey.  Just food for thought, next time you are deciding on what loan officer to use for your mortgage transaction. It doesn’t matter if it’s a FHA loan or a conventional loan, please don’t hesitate to call me.  thanks, jeff

PS… I am heading down to DC the 2nd week of September. The fight is not over as of yet. There is still hope and this fight is picking up speed  and votes. It still might be alive, but with some new rules. To help with this fight, please click on this link :     http://www.dpagroundswell.org 

FHA Loans - FHA Mortgages - Conventional Loans - VA Loans - Experience & Knowledge at its BEST !!!