One More Week before FHA Changes Mortgage Insurance Premiums

September 24, 2010 by Leave a Comment

I've written about the upcoming changes to FHA's upfront and annual mortgage insurance premiums which is effective on all case numbers obtained October 4, 2010 and later.  This impacts both purchases and refinances.  If you're considering utilizing FHA for a refinance and you're going to retain your home for more than four years, you may want to consider taking now.

Here's a comparison between the two mortgage insurance scenarios based on an FHA streamline refinance with no appraisal based on the current 30 year fixed rate of 4.250% (apr 5.013) as of today, Sept. 24, 2010, at 12:30 p.m. with a $528,695 base loan amount:

FHA mortgage insurance with FHA case number issued by October 1, 2010 or earlier:

Upfront Mortgage Insurance Premium of 2.25% = $11,895.00

Base loan amount of $528,695 plus $11,895 (most borrowers finance the ufmip) = $540,590.  Amoritzed for 30 years at 4.25% provides a principal and interest payment of $2,659.38.

Annual mortgage insurance premium of 0.55% of the base loan amount ($2907.82) divided by 12 months = $240.46.

$2,659.35 plus $240.46 = $2,899.91 principal, interest and mortgage insurance payment.

FHA mortgage insurance with case numbers issued October 4, 2010 or later:

Upfront mortgage insurance premium of 1.00% = $5,286, creating a total loan amount of $533,981.  Amortized for 30 years at 4.35% provides a principal and interest payment of $2,626.87.

Annual mortgage insurance premium of 0.90% of the base loan amount ($4758.26) divided by 12 months = $393.48.

$2,626.87 plus $393.48 = $3,020.35 principal, interest and mortgage insurance payment.

THIS IS AN INCREASE IN PAYMENT OF $120.44 PER MONTH IF WAITING UNTIL OCTOBER TO OBTAIN YOUR FHA CASE NUMBER.  

What can you do if you're considering an FHA loan?  If you're "tight" on qualifying with your debt-to-income ratios, you may want take action PRIOR TO OCTOBER.  Obtaining an FHA case number has nothing to do with when  you take your application or lock in  your rate.

If you are interested in an FHA purchase, refinance or streamline refi and your home is located in Washington state, I am happy to help you!  Mortgage Master Service Corporation is a Direct Endorsed, HUD approved FHA lender and I've been originating FHA loans for over 10 years.  Just click on the apply tab above or send me an email!

PS:  Many home owners who currently have an FHA mortgage are able to take advantage of today's low interest rates with an FHA streamline refi without an appraisal.

Filed Under: FHA, Mortgage Insurance, Refinance, Residential Purchase

Is 714 a Good Credit Score for Buying a House?

September 1, 2010 by 2 Comments

This is a term someone entered into a search engine, like Google, who wound up on my blog.  “Is 714 a Good Credit Score for Buying a House?” is a fair question.  Just a couple years ago, having clients with credit scores 700 or higher was considered “excellent”.  In fact, previously credit scores of 680 or higher were considered good. Now with conventional loans, we have several brackets based on credit scores and loan to value.  Many lenders are adopting this with FHA loans too.

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Filed Under: Credit Scores and Reporting, Residential Purchase Tagged With: , ,

How to Buy a Seattle Home with $10,000

April 28, 2010 by 2 Comments

NOTE: Mortgage rates quoted in this post from April 2010 are outdated and no longer valid. For a current mortgage rate quote for a home located anywhere in Washington, please click here. Also, other programs available since this post was published. 

I recently had someone getting ready to buy their first home ask me if $10,000 would be enough for a down payment.  If she had served in the military, she could possibly qualify for a zero down VA loan; this was not an option for her.  USDA loans also offer 100% financing but the area she’s considering is not classified as rural. 

An FHA loan will currently allow her to buy a home with as little as 3.5% of the sales price.  Until this summer*, sellers can contribute up to 6% of the sales price towards allowable closing costs and prepaids (*in a few months, this will be reduced to 3%).

So how much with $10,000 buy?  How about a sales price of $285,000.   Here’s how that pencils out.

$285,000 x 3.5% required minimum down payment = $9,975.  This is the buyers minimum required investment if utilizing an FHA insured loan.   A parent can gift funds towards this amount, but the seller cannot.

The rate (as of writing this post 4/28/2010) for an FHA insured 30 year fixed mortgage is 5.000% assuming we’re closing in 30 days (APR 5.620) and priced with zero points to help keep the closing costs down.   Pricing the loan with zero points means that you’re asking the seller to contribute $2,750 less than they would if your rate was priced with a point (1% of the loan amount).  This may make your offer more acceptable.

Based on this scenario, if the Seller contributes $5,500 towards allowable closing cost and prepaids, you’ll wind up needing approximately $10,000 for your down payment and remaining closing costs.

I did use 6 months for property taxes, which will vary depending on when your first mortgage payment is due.  And I used 15 days of prorated interest which is based on closing in the middle of the month.   Closing towards the end of the month reduces the prorated interest (your cost)…of course the trade off is that you don’t own the property until it’s closed.

The total monthly payment, including PITI and mortgage insurance, is going to be around $2,000 (depending on interest rate, taxes and home owners insurance).  My scenario has a payment of $1981.  

In addition to your down payment, you may be required to have reserve funds after closing of at least two months proposed mortgage payments.  Based on this scenario, that would be around $4,000 in the bank (stocks, 401k, etc) after closing. 

Also of note, your first payment will not be due until the month after closing unless you close on an interest credit.  This is a great opportunity to “pay yourself” by putting that mortgage or former rent payment into your savings account.  Owning a home does come with expenses…some not always planned.

If you are interested in buying a home located in Washington state, I’m happy to help.   Please contact me or apply on-line by clicking the tab at the top this page.

Filed Under: FHA, First Time Home Buyer, Residential Purchase Tagged With: ,

Can I Convert My Existing Home to an Investment Property to Buy My Next Home?

April 27, 2010 by 13 Comments

EDITORS NOTE: These guidelines have changed. If you’re buying a home in Washington state, please contact me for current guidelines.

This is a common question I’m asked these days…mostly because many home owners don’t have as much equity as they would need in order to sell their current residence.  With home prices being at their lowest in years, many want to take advantage and buy their next home and simply rent out their current residence.

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Filed Under: Fannie, Freddie and FHFA, FHA, Investment Property, Residential Purchase, Underwriting and Qualifying, USDA Tagged With: ,

FHA Financing Not Available on a Listing? BIG MISTAKE

April 25, 2010 by 3 Comments

Someone recently landed on my blog by entering the phrase:

Why are so many homes not FHA approved?

It's an interesting question.  I'm assuming the person doing the research on the internet is a home buyer and that they're looking at a stand-free home and not a condo…pure assumption on my point.  (If it is a condo, that's another story).

I'm wondering if the person is finding that sellers are not promoting that they will accept FHA financing on their listed homes…which is a huge mistake.

FHA loan amounts in the Seattle and Bellevue area goes up to $567,500 for a single family dwelling and currently allows a down payment as low as 3.5%.   FHA is also more flexible with credit and some underwriting guidelines.

FHA loans are more popular than ever with the ever tightening guidelines and risk based pricing that conventional loans have.  Many of my FHA home buyers are putting down more than the minimum required investment of 3.5%. 

Some might be selecting FHA for their purchase because they're converting their existing home to a rental property and FHA does not have the same reserves conventional guideline requiring 6 months of mortgage payments (PITI) for EACH property owned (or buying) if the converted home has less than 30% equity (which is often the motivation for turning the home into a rental).

Some select FHA financing because they plan on selling their home in the future and are hedging that mortgage interest rates will be higher in the future.  They know that their current low rate FHA mortgage may be assumable to a future buyer in a higher rate environment.

I've had well established clients opt for an FHA mortgage because FHA treats alimony payments different than conventional financing.

FHA is not the same mortgage that it was a few years ago.  At the end of 2005, appraisals became more "common sense" allowing minor conditions to exist, focusing  more on the safety and soundness of the property.  FHA appraisals are very similar to conventional these days.

FHA transactions do not take longer to close nor are their higher closing cost for the seller than a conforming loan

My point is, there are many reasons sellers should accept FHA financing.  If a seller or real estate agent is steering away from an FHA approved buyer, they're really reducing the potential of excellent buyers for their home.

Filed Under: FHA, Real Estate Agents, Residential Purchase Tagged With: , ,

Seattle Area Rent vs Buy Ratio

April 22, 2010 by Leave a Comment

Chris Lodge, Property Information Manager at The Talon Group double checks some stats that the NY Times have came up with regarding home ownership in the Seattle area which is being picked up by the media.   From Chris: 

I've long championed the idea that local news and data is more valuable than what the national news gives us.  So when a client of mine sent this New York Times article over to me, it definitely piqued my interest.  The headline , "In Sour Home Market, Buying Often Beats Renting", is a great attention grabber for sure. 

Do they believe that Seattle is a good place to buy?

Chris has done some research on his own which provides different stats, read his article and data on Talon Blog by clicking here. 

If you would like a free rate quote, to compare to what you're paying in rent, for a home in Washington, click here.

Filed Under: Residential Purchase, Title Insurance

What Should a Preapproval Letter Contain?

April 21, 2010 by Leave a Comment

This isn’t the first time I’ve written about preapproval letters at The Mortgage Porter…however it has been a while and I would say that with all the changes in the mortgage industry, your preapproval letter is more important than ever.  Most Seattle area real estate agents will not accept an offer on a home that’s listed for sale without a bona fide preapproval letter.

Preapproval letters may vary in appearance and content from lender to lender.   Some mortgage companies may have different protocal for when a preapproval letter may be issued.   When I provide a preapproval letter, it means that I have a complete loan application, most likely with exception to the property address since the home buyer has not yet identified a home.   It also means that the home buyer (i.e. borrower) has provided me all the necessary documenation that supports or backs up the information that has been provided on the loan application, such as

  • income documenation (to make sure they qualify for the proposed montly mortgage payment)
  • assets (at minimum, enough to cover the down payment and closing costs)
  • credit report…everything seems to be based on your credit score from potential interest rates to what you qualify for.   This is something that we need to pull if you are interested in obtaining an actual preapproval.

A good preapproval letter should address all of these items so that the seller and the real estate agents know how qualified the home buyer is.  This is done in a manner in which not to violate the buyers privacy.  For example, a seller or real estate agents should not see the buyers income, assets and credit scores.  If a buyer wants to share that information with someone other than their mortgage professional, it is up to them!   Instead, the preapproval letter will address that these items have been reviewed and are acceptable. 

For example, I might include something like this in a preapproval letter:

This preapproval is due to your job stability and excellent credit.  Funds to close this transaction are from your personal savings and a seller contribution in the amount of $5,000.

You can see that I have addressed income, assets and credit in this paragraph. 

My preapproval letter also includes program type, the sales price and loan amount.  Every so often I’ll have a real estate agent want me to leave the sales price blank.  This is something that we can do IF the borrower has substantial cash reserves.  I’ve found that some home buyers would rather not have their preapproval letters written this way…and I’m happy to provide several preapproval letters with staggered sales prices (as long as the borrower has documented the funds for down payment and closing costs).

You may find a total mortgage payment on a preapproval letter.  This is because borrowers are qualified by their mortgage payment since loans have a certain allowed debt to income ratio.  If a borrower is a little pushed with their ratios and they find a home within the sales price and loan amount they are preapproved for, but the property taxes or home owners insurance are higher than estimated or mortgage rates climb higher than what they were approved at, you no longer have a preapproved buyer.   Whether or not your mortgage originator includes what payment you’re preapproved for, it’s important to ask.

Any conditions to the loan approval should be included on the preapproval letter.  Standard conditions on our preapproval letter may include:

  • satisfactory purchase and sales agreement
  • satisfactory title commitment 
  • subject to appraisal 
  • subject to changes to financial situation as disclosed on the loan application (i.e. changes in your employment, debts or assets may jeopardize your preapproval status).

Preapproval letters may also have an expiration date.  Before our current lending environment, preapproval letters would be valid for a longer period of time.  Now credit reports and other supporting documentation “expire” earlier.  Should your preapproval letter expire, they’re typically easy to update by just supplying your latest supporting documentation (paystub, bank statement, etc). 

The letter should have a date and be signed by whomever prepared the letter with their contact information. 

When I prepare a preapproval letter for someone who’s buying a home located in Washington, at the very least, they have gone through preliminary underwriting.  If a mortgage originator has not obtained your documentation or if you have not completed a loan application, you are probably just prequalified and not preapproved.

With HUD’s new Good Faith Estimate, unless you have a property address, you may not receive a good faith estimate with your preapproval letter.  This is a glitch with RESPA that I hope HUD finds a way to correct.  Even HUD admits that if a mortgage professional provides a good faith estimate without a property address, they’re doing so at great risk (due to the financial liabilities packed in the new Good Faith Estimate).   Your mortgage professional can provide you with a “work sheet” until you have a transaction (property address).

If you are shopping for a home anywhere in Washington state, I’m happy to help you become preapproved. 

Filed Under: Real Estate Agents, Residential Purchase Tagged With: , ,

15 Days Remaining for the Home Buyer Tax Credit

April 15, 2010 by Leave a Comment

NOTE: this is a post from 2010 and this tax credit is no longer available.

If you are planning on taking advantage of the home buyer tax credit, either as a first time home buyer or a "repeat" home buyer (aka "long time resident"), you have fifteen days to be in a binding sales contract with mutual acceptance.    This means that both you and the seller have ironed out the negotiations which can sometimes take a few days to agree on…so in reality, you probably have less than 15 days unless you submit the "perfect" offer to the seller and they decide to accept it with no counter offers.

If you are hoping to claim the home buyer tax credit, you should check in with your mortgage professional to make sure that your preapproval is still valid.  In the Seattle-Bellevue area, listing agents and sellers expect a preapproval letter to accompany the purchase and sale agreement before they will consider the offer. 

Preapproval letters may expire if your paystubs, bank statements or credit report are outdated.   The terms stated on the preapproval letter should match with the terms of the offer being presented to the seller.  Mortgage rates have been volatile and if your debt to income ratios were "pushed" to the limit, you may or may not be qualifed for what you once were.

If your offer is countered past April 30, 2010 because you didn't have all your ducks in a row with your lender, you may not qualify for the home buyer tax credit.

And before you try to get into a mutual contract before the deadline–it's a good idea to make sure that you actually qualify for the tax credit.  

You may be disqualified from the home buyer tax credit if:

  • the government has deemed you make too much money–modified adjusted gross incomes up to $125,000 for a single taxpayer, or $225,000 joint, qualify for the full credit.  Those with MAGI up to $145,000 for a single taxpayer   and $245,000 joint qualify for reduced credit.
  • if the purchase price is over $800,000 (better write that offer for $799,950 if your income qualifies).
  • if the home being purchased is not going to be your primary residence.
  • family members are not eligible (you cannot buy the home ancestors or dependents)
  • if the contract is accepted after April 30, 2010
  • if the transaction is closing after June 30, 2010

Remember, I'm your mortgage expert for homes located in Washington.  I am not a tax expert–please consult your CPA or tax advisor for more information.

Filed Under: Current Affairs, First Time Home Buyer, Legislation, Residential Purchase
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