How the 2009 FHA Loan Limits Impact Homeowners

November 10, 2008 by 2 Comments

I was so busy sulking about my neck of the woods having the FHA loan limit reduced by $61,500, that I didn’t realize that two Washington State counties (Chelan and Douglas) actually had their limits increased!  Kitsap county has been hit the hardest with a reduction to their FHA loan limit by $167,950. The following comparison is based on single family dwellings for FHA loans:

King, Pierce and Snohomish Counties

2009: $506,000 vs. 2008: $567,500 (reduced by $61,500)

San Juan County

2009: $483,000 vs. 2008: $593,750 (reduced by $110,750)

Clark and Skamania Counties

2009: $362,250 vs. 2008: $418,750 (reduced by $56,500)

Chelan and Douglas Counties

2009: $342,700 vs. 2008: 323,750 (increased by $18,950)

Jefferson County

2009: $322,000 vs. 2008: $437,500 (reduced by $115,500)

Island County

2009: $316,250 vs. 2008: $381,250 (reduced by $65,000)

Kitsap County

2009: $307,050 vs. 2008: $475,000 (reduced by $167,950)

Whatcom County

2009: $304,750 vs. 2008: $375,000 (reduced by $70,250)

Clallam County

2009: $296,700 vs. 2008: $383,750 (reduced by $87,050)

Skagit County

2009: $295,550 vs. 2008: $373,750 (reduced by $78,200)

Thurston County

2009: $293,250 vs. 2008: $361,250 (reduced by $68,000)

What does this mean to you?  Congrats if you’re in Chelan or Douglas counties–you now have more buying or refinancing power should you need an FHA mortgage.  But what if you’re in an area where the FHA loan limit has been decreased?  If you’re considering refinancing beyond 80% loan to value, you should check with your local Mortgage Professional ASAP and make sure they’re HUD approved.  FHA allows up to 95% loan to value for refinances (including cash out if you need to consolidate debt) and is more forgiving on credit scores than conventional.  Some homeowners are surprised to find out they need to use FHA for financing when their home doesn’t appraise as high as they had hoped, bringing their loan to value higher than estimated.   Appraised values used by mortgage companies are based on what other homes (3-4) similar to yours in your neighborhood have sold and closed for within the last 6-12 months.

Start early NOW.  Effective January 1, 2009, odds are in Washington State, you will not be able to finance as much (unless you live in Chelan or Douglas county) and there’s not much time left in 2008. 

Filed Under: FHA

2009 FHA Loan Limits for Washington State

November 10, 2008 by 5 Comments

King, Pierce and Snohomish Counties

1 Unit – $506,000

2 Unit – $647,750

3 Unit – $783,000

4 Unit – $973,100

San Juan County

1 Unit – $483,000

2 Unit – $618,300

3 Unit – $747,400

4 Unit – $928,850

Clark and Skamania Counties

1 Unit – $362,250

2 Unit – $463,750

3 Unit – $560,550

4 Unit – $696,650

Chelan and Douglas Counties

1 Unit – $342,700

2 Unit – $438,700

3 Unit – $530,300

4 Unit – $659,050

Jefferson County

1 Unit – $322,000

2 Unit – $412,200

3 Unit – $498,250

4 Unit – $619,250

Island County

1 Unit – $316,250

2 Unit – $404,850

3 Unit – $489,350

4 Unit – $619,250

Kitsap County

1 Unit – $307,050

2 Unit – $393,050

3 Unit – $475,150

4 Unit – $590,500

Whatcom County

1 Unit – $304,750

2 Unit – $390,100

3 Unit – $471,550

4 Unit – $586,050

Clallam County

1 Unit – $296,700

2 Unit – $379,800

3 Unit – $459,100

4 Unit – $570,550

Skagit County

1 Unit – $295,550

2 Unit – $378,350

3 Unit – $457,350

4 Unit – $568,350

Thurston County

1 Unit – $293,250

2 Unit – $375,400

3 Unit – $453,750

4 Unit – $563,950

Adams, Asotin, Benton, Columbia, Cowlitz, Ferry, Franklin, Garfield, Grant, Grays Harbor, Kittitas, Klickitat, Lewis, Lincoln, Mason, Okanogan, Pacific, Pend Oreille, Spokane, Stevens, Wahkiakum, Whitman and Yakima Counties:

1 Unit – $271,050

2 Unit – $347,000

3 Unit – $419,425

4 Unit – $529,250

Filed Under: FHA

Game plan for preparing to buy a home when you’re credit score is low

October 28, 2008 by 2 Comments

I don’t blame anyone for wanting to own a home.  Sometimes when I meet with clients and review their current scenario, a game plan needs to be created so they can work on getting themselves into a better position to buy a home.  The last thing anyone wants is to cram themselves into a mortgage they cannot afford or to commit to a long term payment when they don’t have a great track record of making payments on time. Some times a plan may take 6 months or a year or longer before someone is ready to buy a home.

I have someone with low credit scores who wants to buy a home.   She knows she will probably be a candidate for FHA financing because she has little down payment and her credit.  Although FHA is not as persnickety about credits scores as conventional financing, they scrutinize credit history: especially the last 12 months.

This person has a few late payments this year, the last one being as recent as August.  FHA financing is most likely out of the question for her until August next year assuming she does not make any other late payments between now and then. She can work on her credit for the next 10-12 months (until she has 12 months since her last late payment).   She doesn’t have any collections but she does have a few small accounts that are “maxed out”. 

  • Credit card “A” with a balance of $477 and a limit of $500.
  • Credit card “B” with a balance of $323 and a limit of $300.
  • Credit card “C” with a balance of $215 and a limit of $300.
  1. The first thing she should do is focus on getting card “B” under the limit of $300.  She’s getting whammo’d with her credit scores for being extended beyond what her credit limit is with this account (in addition to being maxed out).   She should at least pay it down enough to make sure that her interest fees won’t keep popping her over her limit.
  2. Next she should select one of her two smallest cards to pay down to at least just below 50% of her card limit.   Card “C” would only take about $65 to bring her debt down to 50% of the line limit (300 x 50% = $150).
  3. Then pay down the next card to at least 50% of the limit.  “Card B” will take $150 (assuming she’s paid the extra $23 that has pushed her over the limit) to be at 50% of the credit line limit.
  4. Credit card “A” will take a little extra cash at $227. (500 limit x 50% = $250.  477 – 250 = 227).

She needs to keep her credit below 50% of the credit line at the very minimum.  I know I said FHA is not as picky as conventional.  However, you do want your credit scores above 600 in order to receive better pricing (620 and higher is even better).

Not only will this help her with qualifying for FHA financing, she’s probably also paying higher insurance rates due to her current credit scores. 

She has a decent income and no savings.   She needs to use this time of working on her credit to also build up her reserves.  Not only for what the lender will require (3.5% minimum down payment for FHA as of January 1, 2009); but for her sake should her income change or issues arise, she should have a minimum of 6 months worth of living expenses saved (FHA does not require this, I’m suggesting it).

She has been considering homes priced around $275,000.  FHA’s minimum required investment for this home next year will be $9,625.  The seller can pay the remaining closing costs and prepaids as long as she has met the above requirement (which can be a gift or loan from family members)–this would need to be negotiated in the purchase and sale agreement. 

The proposed mortgage payment would be around $2,000 (including taxes, home owners insurance and mortgage insurance).  This is $700 more per month than what she is currently paying for rent.  Once she has corrected her credit, she should practice making a $2000 mortgage payment by paying the difference ($700) into a savings account that she leaves untouched for her down payment and to hopefully create a savings cushion.  $12,000 in savings would be ideal (6 months of mortgage payment) but not required.   If she has no savings, it will take her just over a year to pay $700 per month to come up with the down payment (9625 divided by 700 = 13.75).  Another 17 months to have a savings cushion of $12,000. 

I know this isn’t instant gratification.  It is developing responsible financial habits.  There are expenses to owning a home beyond renting.  One of my last homes required a new roof just months after moving in to the tune of $15,000.  Savings has always been important and it’s even more true in our current economy.

She’s all ready moving in the right direction by contacting a Mortgage Professional who is interested in her long term financial well-being and is willing to help her create a game plan.

Check out my related article:  Getting on Track to Buy Your First Home. 

Filed Under: Credit Scores and Reporting, Debt Restructuring, Economy, FHA, Financial Planning, First Time Home Buyer, Residential Purchase Tagged With: ,

Can I buy a $620,000 home with a low credit score?

October 27, 2008 by Leave a Comment
This morning I received this email:
My wife and I found a house we are in love with. I wanted to write and tell you our situation, maybe you can tell us if we are even in the "ballpark".    The house we like is 620,000. We have 20% to put down. We have very little debt and well documented income. I have a low credit score, 660 or lower. Is this worth pursuing or is the credit score too low?
Based on current guidelines/pricing, you really need to have your credit scores above 660 if you’re considering loan amounts above "true conforming" (presently $417,000). It’s very possible that this couple can buy a home utilizing an FHA jumbo mortgage which leans more towards credit history rather than credit score.  Here are some factors that would indicate whether or not this is a possibility for this couple:
  • Credit history.
  • Loan limits.

Unfortunately the loan limits where this couple are considering to purchase are much lower than what we have in the King County area.  They’re wanting to buy in Clark County which currently has a temporary jumbo limit of $418,750.   They would need about $200,000 for their down payment with the seller paying closing costs and prepaids (est. at $12,000).   Or they could opt for conforming financing with a loan amount of $417,000 and try to get a conventional approval (with a larger down payment, it’s possible).

If they were buying in King, Pierce or  Snohomish County, the loan limit is currently $567,500 and would have the option of putting less than 20% down (as low as 3.5%), should they wish assuming they qualify for the payment.

Regardless of where the property is located, the last 12 months of credit history is more critical than credit score (as long as the credit scores are 600 or higher) for a purchase using an FHA insured loan.

FHA loans are full doc and will need to be sourced and seasoned.  Buyers should be prepared to provide their last 2 years of W2s (and possibly tax returns) as well as at least 30 days of income on their paystubs.

Remember, we should be learning in early November what the new jumbo loan limits will be.  I’ll keep you posted!

Filed Under: Credit Scores and Reporting, FHA, Jumbo/Non-Conforming, Residential Purchase

A Solution for FHA Buyers Searching for a Down Payment

September 22, 2008 by Leave a Comment

DPA’s, such as Nehemiah, will no longer be allowed with FHA mortgages as of October 1, 2008 with the passage of HR 3221.  Congress currently has legislation in the works to bring DPA’s back to life for those with better credit scores…but until that is successfully passed, DPAs are soon to be gone.   

Buyers who are shy on down payment (or wish not to tap out their savings) can ask intermediate family members for a loan.  Here are some of the FHA guidelines:

  • The loan can be secured or unsecured against the subject property.  No third parties.
  • The loan must only be with immediate family (parent, stepparent, grandparent, child, adopted or foster child, etc.)
  • The family member can borrower the funds for the loan–however, the loan must be between the family member (again, no third parties allowed).
  • No balloon payments can be due within 5 years.
  • Borrower must qualify for both loans (FHA mortgage and the family loan).   Terms of the family must be submitted to underwriting.
  • The combined loan to value (when you factor both loans) may exceed 100% of the sales price however, no cash back to the borrower is allowed (except for the earnest money deposit).

Sellers can still contribute up to 6% of the sales price towards actual closing costs and prepaids AFTER the borrower has met their 3.5% contribution towards down payment (this is where the family loan comes in).  If the home buyer has not owned a home for the past 36 months, they may qualify for the First Time Homebuyer Tax Credit which could give them up to $7500 to pay back the family loan once they receive their tax refund. 

Family members can still provide "gift" funds towards the down payment and closing costs as long as they do not expect repayment.  Currently, the IRS permits up to $12,000 per person for an annual gift before gift taxes are to be paid without tax.

Filed Under: FHA

FHA Mortgage Insurance Increasing October 1, 2008

August 27, 2008 by 3 Comments

This is another result of HR 3221, I mentioned in an earlier post that the ceiling was raised for how much could be charged for FHA upfront and monthly mortgage insurance…I recently learned the actual details.

Upfront mortgage insurance will increase from 1.5% to 1.75% for purchases and refinances (not FHA streamlined).  Streamlined refinances will be 1.5% and FHA Secure will be 3.0% (hopefully you refinance before you need FHA Secure).

Monthly mortgage insurance will be 0.55% for loans with less than 10% down (or over 90% loan to value) and 0.50% for loan to values equal or greater than 90%.

Currently we have risked based pricing in effect through the end of September 2008 which rewards down payments and better credit scores.

Based on a 90% loan to value and 680 mid score purchase with a loan amount of $400,000, here’s how now and October 1, 2008 compare (using rates I posted Monday for example sake only–this is NOT a rate quote):

FHA case numbers issued NOW through September 30, 2008:

Upfront MI = 1.25%. 400,000 x 1.25% = $5,000.  Adjusted loan amount (FHA upfront mortgage insurance may be financed) = $405,000 @ 6.5% for 30 years = principal and interest payment of $2559.88.

Montly mortgage insurance (referred to as annual MIP) is 0.50% = 400,000 x 0.50% = 2000.  2000 divided by 12 months = $166.67.

Total payment not including taxes and insurance = $2726.55

FHA case numbers issued October 1, 2008 and later (at least until the moritoriam is over on September 30, 2009):

Upfront MI = 1.75%. 400,000 x 1.75% = $7,000.  Adjusted loan amount = $407,000 @ 6.5% for 30 years = $2572.52.

Monthly mortgage insurance based on this example is the same 0.5% = $166.67 (monthly mortgage insurance is calculated off the base loan amount and not the adjusted loan amount).

Total payment not including taxes and insurance = $2739.19

$12.64 a month may not be enough to have you jump off the fence to buy a home or refinance if the above scenario resembles you.  I know that I would rather have the lower financed upfront mortgage insurance ($2000 lower based on this example).

I prefer the risk based pricing model.  It makes the most sense to me.  Reward more down payment and higher credit and compensate HUD for taking on loans with higher risk (lower down payments and lower credit scores).

FHA’s popularity continues to grow with convetional (Fannie/Freddie) guideines tightening and with the risk based pricing increasing.   Do make sure that your Mortgage Professioanal is qualified and approved to do FHA loans–not all originators are.

Filed Under: FHA, Legislation, Mortgage Insurance

How Will the New Jumbo Limits Impact You?

August 21, 2008 by Leave a Comment

If you’re buying a home $520,000 or below over the next year, you won’t really be impacted by the reduced FHA Jumbo and Conforming Jumbo limits.   However, if you’re considering buying a home with minimum down, you’re losing $45,000 of financing power on January 1, 2008 with a $522,100 loan limit.

I wrote an article at Rain City Guide in June about how much home $17,550 can buy you in King, Pierce and Snohomish County with the current loan limit of $567,500.  The answer: $585,000 utilizing a FHA Jumbo.   Once the new loan limit is in place for our region, the most you can buy with minimum down will be closer to $540,000.   Although the new minimum required investment at 3.5% (effective October 1, 2008) will increase the amount required to $18,900 (based on a $540,000 sales price).

Want to do conventional 20% down and stay away the "true jumbo" rates by utilizing the maximum conforming jumbo?  Currently, a sales price (or appraised value in the case of a refinance) of $709,000 will get you pretty close to the existing limit at $567,200.  As of January 1, 2009, that sales price (or appraised value) is reduced to $652,500 for a loan amount of $522,000.

Refinances may also be impacted depending on what the payoffs are on the existing balances and if it’s classified as a "cash out" refinance (second mortgages not obtained from when you purchased your home is considered cash out) which have tougher guidelines than a "rate term" refinance.  Underwriting guidelines continue to tighten and will continue as well.

As always, I highly recommend that if you are considering buying or refinancing in the next year, to contact a local Mortgage Professional at your earliest convenience.   The loan limits may not even impact you, it’s never to early to prepare considering our current climate. 

Filed Under: FHA, Jumbo/Non-Conforming, Refinance, Residential Purchase

FHA Mortgage Insurance Premiums to Increase October 1, 2008

August 19, 2008 by 1 Comment

Yep…another bi-product of HR 3221, The Housing and Economic Recovery Act of 2008.  We don’t have the final figures yet…this should be coming out any time from HUD.  The ceiling for FHA’s upfront mortgage insurance will increase after October 1, 2008 from 2.25% to 3% for 30 year fixed programs. 

Currently FHA’s mortgage insurance is risk based (tiered based on credit score and loan to value).  This will be put on hold beginning October 1, 2008 through September 30, 2009.  During this time, FHA’s mortgage insurance will be a flat fee.

I will update you as soon as information becomes available.  HUD should be issuing a Mortgagee Letter with the final rules in the next 30 days.

Other posts regarding HR 3221:

FHA Minimum Down Payment Payment Increasing January 1, 2009

Down Payment Assistance Programs Days Are Numbered

First Time Home Buyer Tax Credit

Conforming/FHA Jumbo Loan Limits to Decrease January 1, 2009

Filed Under: FHA, Mortgage Insurance
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