One benefit of FHA insured mortgages is that they are assumable to qualified buyers. This means that if you have an FHA insured mortgage at today’s low rates and you’re selling your home during a higher mortgage rate environment, being able to offer a lower rate to potential buyers could provide a distinct advantage over other competing listings. [Read more…]
Did You Know that FHA Mortgages are Assumable?
April 14, 2010 by 2 Comments
Why It Pays to Get Preapproved Early: You May Think You Know Your Credit Score
April 7, 2010 by Leave a Comment
I recently met with a couple who had relocated to the Seattle area and were ready to make an offer on a home. They’re very qualified with their income stability and enough savings to put a twenty percent down payment on their next home. What surprised them was the credit report. [Read more…]
Gifts from the Bank of Mom and Dad – Part 2: Conventional Financing
March 12, 2010 by 2 Comments
Often times when gifts from family members are involved, borrowers my opt to use FHA financing since the guidelines are (currently) more flexible than conventional with regards to gifts. With FHA, a gift from a family member can go towards to borrowers minimum required investment with conventional financing, it cannot.
Here’s an example. Let’s say we have a sales price of $265,000 with 10% down payment creating a loan amount of $238,500. Once you factor in estimated closing costs of $2,400 and and prepaids/reserves of $3,100; the amount due at closing is roughly $32,000 (10% down = $26,500 + $2,400 + $3,100). The borrowers also have a $5,000 contribution towards closing costs from the seller.
At this loan to value, with conventional financing requires that the borrower invests a minimum of 5% of their own personal funds into the transaction. Unlike FHA, these funds cannot be gifted from the family members. NOTE: if the gift is 20% down or more, the 5% rule for conventional financing does not apply (the whole down payment can be gifted).
Staying with our example, this means that the borrower must contribute 5% of $265,000 of their “seasoned” funds = $13,250.
With the amount due at closing at $32,000, the borrower must contribute at least $13,250 (5% of the sales price) of their own funds towards the $32,000 (10% down payment). This leaves $18,750 remaining “due at closing”. The borrowers earnest money check (if sourced – meaning documented as being their own funds) can count towards the 5% investment requirement and so can deposits with the mortgage company. For example, the our borrowers submitted an earnest money check in the amount of $5,000 with their purchase and sales agreement, they would have $8,250 remaining to invest into the transaction of the 5% requirement ($13,250 – $5,000 = $8,250).
Once the borrower meets the 5% down payment, the gift and any seller credits can be applied towards the transaction. A seller contribution can only go towards allowable closing costs and prepaids. With this scenario, that totals $5,500 ($2,400 + $3,100). The seller cannot contribute more than $5,500 (actual closing costs and prepaids).
Unlike a seller contribution, the gift from parents can be applied towards down payment or closing costs/prepaids, once the borrower’s 5% investment is met. If your gift from the parents is larger than the remaining amount due at closing, you can either reduce your loan amount or not use the entire gift. NOTE: Your parents may want to check with tax adviser regarding possible tax implications with gifting funds.
With FHA financing, their is also a minimum required investment from the borrower, which is currently 3.5% of the sales price. A gift from parents CAN be applied towards the borrowers minimum required investment (the 3.5%).
When parents provide a gift with conventional or FHA financing, they need to be prepared to provide documentation of where the funds came from. They will sign a gift letter and provide a recent bank statement showing that the funds are available. There also needs to be a “paper trail” documenting the transfer of the gift funds (photo copy EVERYTHING–you’re better off having too much paper work to provide your mortgage originator than not enough).
If you have questions about financing a home located in Washington State, please contact me, I’m happy to help! We have both FHA and conventional programs available.
Related post: Gifts from the Bank of Mom and Dad – Part 1: FHA
FHA Flips for Flipped Homes (Some Restrictions Apply)
March 11, 2010 by Leave a Comment
UPDATE: HUD HAS EXTENDED THIS WAIVER THROUGH DECEMBER 2014. Information in this post from March 2010 may be outdated – as are many blog posts about mortgages (thanks to our ever changing guidelines).
I recently shared with you some of the upcoming changes to FHA insured loans that were addressed in a letter from HUD’s David Stevens. In this letter, he reminds readers that FHA has recently “waived the regulation that prohibits the use of FHA financing to purchase properties that are being resold within 90 days of previous acquisition”.
Due to previous FHA guidelines, investors who purchased homes to renovate and resale in a short period of time (90 days), would not be able to accept an offer from an FHA buyer. They were limited to cash buyers or those who qualified with conventional financing. From Stevens:
“During this period of high foreclosures, FHA wants to encourage investors that specialize in acquiring and renovating properties to renovate foreclosed and abandoned homes for homebuyers. Our aim is to help stabilize real estate prices as well as neighborhoods and communities where foreclosure activity has been high. The waiver is applicable to all properties being resold within the 90-day period acquisition and is not limited to foreclosed properties.”
The waiver takes effective February 1, 2010 and not every flipped home will qualify. Per the Waiver of Requirements:
- All transactions must be arms-length with no identity of interest between buyer and seller or other parties participating in the sales transaction.
- If the sales price of the property is 20% or more above the seller’s acquisition cost be prepared for extra scrutiny. A second appraisal will be likely required as well as an inspection ordered by the lender.
The waiver is set to expire one year, unless it is extended or withdrawn from the Commissioner. More information is expected to follow from a HUD Mortgagee Letter.
Currently, the FHA loan limits for single family residences in King, Pierce and Snohomish counties is $567,500. FHA mortgage insurance is set to increase on case numbers issued April 5, 2010 and later. And this summer, the amount a seller can contribute to allowable closing costs will be reduced from 6% to 3%.
I won’t mention that the Home Buyer Tax Credit is expiring in 50 days on April 30, 2010 (oops…guess I just did)!
If you would like a rate quote for an FHA insured mortgage for homes located anywhere in Washington, please click here. I have been originating FHA mortgages at Mortgage Master Service Corporation since April 2000 and I’m happy to help you.
Claiming Your Home Buyer Tax Credit
January 28, 2010 by Leave a Comment
April 15th will be here before we know it and many are preparing for filing their income tax returns. If you are planning on claiming the home buyer tax credit (up to $8,000 for a first time home buyer or $6,500 for a repeat/long-time resident home buyer) there are some things you need to know as far as what the IRS will require.
First of all, you will not be able to e-file if you're claiming the home buyer tax
credit. This is because the IRS is requiring supporting documentation due to all the fraud that transpired previously with the first time home buyer tax credit. So along with Form 5405, you may also need to send the following when you submit your return to the IRS:
- a copy of your HUD-1 Settlement Statement with signatures of both parties (your autographs and the Seller's). In Washington State, this is something you receive from your escrow company.
If you're claiming the tax credit as a "long time resident" home buyer (meaning you've owned and occupied your previous residence for any 5 consecutive year period during the 8 year period ending on the purchase date of your new home), in addition the the Settlement Statement, you will also need to provide the IRS one of the following:
- Form 1098 or Mortgage Interest Statement
- Property Tax Records
- Home owner insurance records
The IRS is requiring this documentation to prove you owned and occupied your home for a minimum of five out of eight years. And per their instructions:
"These records should be for 5 consecutive years of the 8 year period ending on the purchase date of the new home."
Be sure to review the IRS Instructions for Form 5405 for more information and please consult with your tax professional to make sure you qualify. My specialty is helping Washington State residents with their residential mortgage needs…not income taxes!
If you are considering buying a home and taking advantage of the first time or repeat (long time resident) home buyer tax, you only have about three months left. You must have a binding contract (signed purchase and sales agreement) by April 30, 2010 which must close by June 30, 2010.
100 Days Remaining for the Home Buyer Tax Credit (and my 1000th Post)
January 20, 2010 by Leave a Comment
My apologies for the home buyer tax credit clock I've added to the left side bar of my blog ticking away the time remaining for home buyers tax credit. It's not my style, I don't like to pressure folks and I really don't like telling someone that they missed an opportunity.
Whether you are for or against our home buyer tax credit it is something that many home buyers, first time and "move-up" home buyers, will take advantage of. Unlike the first tax credit that was passed where the home buyer had to pay it back over 15 years, this is a "tax credit". This credit repaid if you sell your home within three years.
The available tax credit for first time home buyers (those who have not owned a home in the last 36 months) is up to $8,000. For the "move-up" or "long-time resident" (you don't have to be buying a bigger home to qualify), the available tax credit is up $6,500. The long-time resident is defined as someone who has owned their home as their primary residence for the last three out of five consecutive years. The tax credit for both first time and long time residents is for the purchase of a primary residence (owner occupied).
Income limits were raised for transactions closing after November 6, 2009 to up to $125,000 modified adjusted gross income (MAGI) for taxpayers and $225,000 for joint filers. The credit is reduced up to those with MAGI above $145,000 for single and $245,000 for joint.
Homes with a sales price of over $800,000 are not eligible (too bad–the Jumbo market needs all the help it can get).
In order to qualify for the tax credit, home buyers must be in contract to purchase a home by April 30, 2010 (100 days away as of today)* with a closing date no later than June 30, 2010 (no summer vacations for escrow officers in June). Home buyers will need to file IRS Form 5405 and be sure to include a copy of their HUD-1 Settlement Statement.
Members of our Armed Forces serving outside of the United States have been granted an extra year for the tax credit. They must be in contract by April 30, 2011 and close prior to June 30, 2011.
Check with your tax advisor for more information.
Special note: this is my 1000th article posted at Mortgage Porter! Thanks again for your continued support and readership.
What’s Wrong with the New Good Faith Estimate?
January 5, 2010 by 4 Comments
The new good faith estimate is getting plenty of protest from mortgage originators across the country…my biggest issue is that I cannot effectively use it as a tool to help people who are interested in buying a home or refinancing effectively see what the proposed mortgage scenario may look like.
I received this email from a client I've been working with this morning:
"[We] are back on the search for a new home and we have found a couple that we would like to run past you. When you have a moment, could you crunch the numbers for us and provide a good faith estimate on these two properties. We would like to see one with the variable that the seller covers the closing costs and one with us covering the closing costs. That will give us a good idea of what the middle looks like once we start negotiating."
The new good faith estimate from HUD does not show consumers:
- seller contributions towards allowable closing costs
- total funds due at closing
- total monthly mortgage payment (PITI aka principal, interest, taxes and insurance)
For what my clients are interested in seeing, HUD's good faith estimate isn't very useful or meaningful.
I do like that the new GFE is a uniform document required to be used by all mortgage originators however it is not effective for consumers who actually want to compare potential scenarios.
I find the new good faith estimate conflicted since it has a heavy emphasis on shopping rates (page 3 of the document includes a shopping chart), yet mortgage originators are (and will be) discouraged from using it for "rate shoppers" since the document is binding for a minimum of 10 business days even though the consumer does not have to sign it or commit. It's one thing to be bound by our lender fees I quote (I've done that for years without this new document), however to be stuck with third party fees that I have no control over for 10 business days is something I'm not too happy about.
Many mortgage companies, banks and loan operating systems are in the process of creating forms that can be used for the purpose of rate quotes and/or illustrating what the new good faith estimate has missing. This recreates the very same scenario which I thought HUD was trying to correct: consumers will have to sift through various documents which will not be uniform from lender to lender. It's very puzzling to me and I'm sure it will be to the consumer as well.
My “Ideal” Home Purchase Time Line
December 18, 2009 by 3 Comments
Previously I reviewed HUD's Home Purchasing Time Line, which I found several issues with if you're a home buyer in Washington State. If I'm going to pick something apart, it's only right that I offer an example of how I think it should be corrected.
Below is HUD's suggested time line.
Here is how I see a successful purchase transaction evolving. My modifications to HUD's time line are in blue below.
Rhonda Porter's Ideal Home Purchase Time Line
Step 1: Determine what you can afford. Make sure you really consider how much home you can personally afford (not just how much home you qualify for or what a lender tells you). Please do not stretch yourself to be "house poor". Keep in mind the lessons that this economy is teaching all of us.
Step 2: Shop for a mortgage pro. Oh how I wish that instead of a shopping cart for rates (which is a moving target) and fees on page 3 of the new Good Faith Estimate, that it had a place for you to "shop" your mortgage professional instead. Perhaps a place where you could compare resumes and available products instead of focusing so much on rate and fee. The person who will be guiding through the process of obtaining one of the largest debts you may have in your lifetime should not be selected so casually.
Step 3: Choose the best loan for you. After selecting your mortgage professional; he or she should consider your financial goals and help provide you with information to allow you to make an educated decision on which mortgage program best suits your goals based on what you currently qualify for. You need to know what your total payment will be and how much money will be required for your down payment and closing costs BEFORE you start looking for your next home.
Step 4: Find a real estate agent. I recommend asking friends and family members who have recently purchased or sold a home and interview them. If you need a recommendation for one around the greater Seattle area, please ask me!
Step 5: Shop for other service providers. This has to happen BEFORE you prepare an offer on your next home assuming your lender permits you to shop (this is per RESPA guidelines–not a control freak mortgage originator). If you select your own title and escrow service provider, there is no cap to how much their fees can change at closing. If you use the providers from the mortgage originators preferred list, the accumulative fees at closing cannot exceed 10% from the good faith estimate.
Step 6: Find a home and negotiate contract terms. Now you can start searching for your next home with confidence since you know what you can afford and you have your home buying team assembled.
Step 7: Have house inspected. I recommend this even if your home is new construction. I can tell you a few stories…but this post is all ready getting too long!
Step 7.5: Shop and select your home owner insurance provider. Do not wait until closing to do this. Home owners insurance rates can vary and your credit score will impact your insurance rate. Also if the home has a history with certain insurance claims, there could potentially be issues that are better to be aware of early in the process.
Step 8: Loan is processed. Once we have a signed around agreement, your loan is processed and various services are ordered or set up. This is also the time to review you lock options to determine whether you want to commit to an interest rate or float (not lock).
Step 9: Loan is approved. The loan approval may come back with conditions. This happens after the underwriter reviews what has been submitted to them during the processing period.
Step 10: Do the final walk through.
Step 11: Go to settlement. Prior to your escrow appointment, I recommend that you obtain a copy of your estimated HUD-1 Settlement Statement 1-2 days in advance so that you have time to review the final figures. Be sure to let your mortgage professional and escrow officer/settlement agent know that you expect this as the lender will need to provide your loan documents to the closing company a few days earlier than "the norm". The same is true if you want a complete copy of your loan documents to review prior to your signing appointment.
Step 12: Move in! Yay–this can be such an exciting time! Typically there may be a few days between signing your closing documents and moving into your new home.
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