Tag Archive for 'FHA'

If your credit is, well, iffy, you'll want to take note of this. FHA is taking a hard look at lenders with higher default rates, and taking away their approval to underwrite FHA mortgages. Even if every loan they approve and fund conforms 100% to FHA's underwriting guidelines. Why should you care? A couple of reasons.

First, if you have an FHA loan in process, and your lender gets yanked, your loan ends up in limbo. Not something you want to happen, especially if you're trying to get a loan closed before June 30th so you can take your first-time home buyer tax credit. So if time is of the essence, you don't want a lender with a high default ratio.

The second reason is even more compelling for people who have bad credit or have re-established credit after having bad credit. FHA guidelines may allow you to be approved for a mortgage with 3.5% down and only a 580 credit score, but many lenders require 620, 640, or 660 to approve you. In fact, the average FHA borrower today has a credit score of 693, up from 621 just a couple of years ago. Knowing which lenders have higher default ratios may point you to the ones that accept lower credit scores or underwrite with more leeway. So if you need that kind of consideration, you may want to seek out these lenders when buying a home.

What is a default and claim rate (DCR)? FHA looks at two things over a 24 month period when it rates its lenders. First, the default ratio, which is the number of FHA loans that go into default divided by the number of FHA loans funded. So, if a lender funds 500 FHA loans in a 2-year period and 20 go into default, its default ratio is 20/500, or 4%. This rate is compared to that of every FHA lender in a field office's jurisdiction, using what is called a compare ratio (CR). So if the average default / claim rate is 2%, the lender with the 4% rate's clients are defaulting twice as much; its compare ratio is 200%. Ratios of 200% or higher put the lender at risk for losing its approval. Ratios of 150% or lower are considered safe.

You can look up the DCR and CR of any lender in your area. Just go to the Neighborhood Watch Web site (the site was set up by FHA). Click on the "Early Warnings" tab and then on "single lender" to check on a specific company, or choose all the lenders in the jurisdiction of the field office in your area. Then you see the CRs and DCRs for all of them. Click “Submit” to get the data.

For those with no down payment, a low or moderate income, and borderline bad credit, USDA rural mortgages can be the fairy godmother. But, unlike FHA or VA, which just guarantee mortgages underwritten by private mortgage lenders, USDA, through its direct lending program, actually funds those loans. That means the agency can run out of money.

USDA loans have a lot to recommend them. The interest rate can be subsidized if you qualify. You can finance up to 102% of the property's appraised value if it needs repairs, and there is no mortgage insurance or funding fee. But if you miss the boat, there's no more money until October, when the federal government starts a new fiscal year.

Other programs aren't unlimited either. While down payment assistance in the form of grants, loans, or both are available courtesy of state, county, and city governments, plus charitable organizations, the money tap does turn off. And demand is higher than ever, thanks to first time buyer tax credits fueling interest in these programs.

Get thee to a mortgage or housing counselor. You can find them on the HUD Web site. Just go to the State Pages, choose your state, then select "Learn About Home Ownership" for a list of housing resources. A housing counselor can help you determine which programs you qualify for and when you should apply to increase your chance of success.

Charitable organizations can help too. Just make sure if you plan to use an FHA mortgage that your assistance comes from an approved group. You can find out by contacting your nearest HUD home ownership center.

It looks like FHA is planning to beef up its falling reserves by requiring borrowers to come up with a bigger down payment. Can you see your home ownership dream fading away? Well, don't let it! Yes, FHA is likely to require 5% down instead of 3.5% in the near future. HUD Secretary Shaun Donovon says that's a virtual certainty. But what about deserving sorts who really need some help? What if you know you could pay your mortgage but could never save a down payment while paying rent and other obligations? Is there hope for you?

Yes, Virginia, there is a down payment assistance program. Many state, local, and charity-based programs exist to provide down payment help to those who meet income or other guidelines. And HUD's Web site has links to all of them.

Home ownership assistance takes many forms. Some organizations offer interest-free loans for your down payment, and some of these don't have to be repaid until you sell your home. Others offer grants, or subsidize your mortgage interest, or help you with closing costs. If you are a member of certain professions, like teachers, first responders, or nurses, your state may have special home ownership assistance for you. And HUD offers the Good Neighbor Next Door plan, which allows you to purchase a HUD home with a 50% discount and only $100 down!

USDA loans can finance 100% of your purchase price, if you live in a designated "rural development" area.

What today's FHA changes mean is that you will have to do more homework and jump through more hoops to get into your first home. But the resources are still there. So, buying your first home won't be as easy as it used to be. But it won't be impossible either.

It's fairly common knowledge that bankruptcy can drop your credit score by hundreds of points and render you ineligible for a new mortgage for several years. You may have resigned yourself to renting for the foreseeable future. But you might not have to.

The reason for your bankruptcy filing has a big influence on how much grief lenders will give you about your next home purchase or refinance. For example, FHA's guidelines normally require that you put at least two years' distance between your mortgage application and your bankruptcy discharge. You will also have to prove that you have established good repayment habits and demonstrate financial responsibility, preferably by saving some money.

But FHA allows some applicants to be approved as soon as 12 months after filing for bankruptcy! FHA's underwriting guidelines state that:

"An elapsed period of less than two years, but not less than 12 months may be acceptable for an FHA-insured mortgage, if the borrower
?? can show that the bankruptcy was caused by extenuating circumstancesbeyond his/her control, and
?? has since exhibited a documented ability to manage his/her financial affairs in a responsible manner.

In addition, a Chapter 13 bankruptcy is treated more leniently than most Chapter 7s, as you are making a commitment to repay some or all of your obligation. FHA says:

"A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage, provided that the lender documents that
?? one year of the payout period under the bankruptcy has elapsed, and
?? the borrower’s payment performance has been satisfactory and all required payments have been made on time.

The borrower must receive written permission from the court to enter into the mortgage transaction.

Note: The lender must document that the borrower’s current situation indicates that the events that led to the bankruptcy are not likely to recur."

However, don't expect any mercy if your difficulties were the result of laziness sending your payments or financial mismanagement. To catch a break from an FHA lender:

* Document the cause of your financial difficulty (a medical emergency? unemployment?).

* Prove that the problem has been solved (for example, your medical bills were discharged in the bankruptcy, your income is sufficient to cover your expenses, and you can show that you have paid your bills on time).

* Demonstrate that you have taken steps to prevent the same difficulty recurring (you have purchased medical insurance).

And keep in mind that FHA has this to say about people who don't have a good excuse for their bad credit:

"If a borrower’s credit history, despite adequate income to support obligations, reflects continuous low payments, judgments, and delinquent accounts, significant compensating actors will be necessary to approve the loan." Remember that FHA, like God, only helps those who help themselves.

On January 1, 2010, would-be borrowers will get a rude awakening from FHA. The agency's streamline refinance will no longer be the easy transaction it is today. Today, the biggest advantage of FHA streamline refinances is that they don't require an appraisal or credit qualifying. So even if your home's value has tanked and you have bad credit, you have been able to refinance easily into a better FHA loan. That opportunity is about to go away.

Until recently, FHA's objective always was to help its homeowners lower payments any time. Because FHA insured the mortgage it didn't care if your credit imploded or if your home's neighborhood was blighted with foreclosures and fraternity houses. By helping homeowners to lower their monthly mortgage payments, the FHA was also lowering its overall credit risk.

That's about to change.

Starting January 1st of next year, FHA will start to turn down streamline refinance applications on the basis of employment, income, assets, and appraised value. You can be sure a lot of today's FHA borrowers will be wishing they acted sooner. So here's the deal: If you've got an FHA mortgage--just for fits and giggles--check available streamline refinance rates against what you're currently paying. If you can save money, pull the trigger on a refi ASAP--those with bad credit may not get the opportunity again soon.

You have your money together for a down payment. You've gotten preapproved by your lender. But if you have less than 20% for a down payment, you may not get your loan if you live in certain states. Because it's not just Fannie Mae or Freddie Mac approving you for your mortgage. There will also ...

Government mortgage programs are all the rage these days--mainly because that's where the money is. And unlike the crazy, water-tight underwriting of private mortgage programs, government mortgage lenders don't require that you provide a saliva sample and turn over your first-born child. However, there is one hard-and-fast test. You've got to get through a CAIVRS test. ...