FHA Minimum Down Payment Increasing January 1, 2009

August 13, 2008 by 4 Comments

With the passage of HR 3221, the minimum required investment of a home buyer utilizing a FHA insured mortgage is increasing from roughly 3% to 3.5% effective January 1, 2009.  You may think this sounds like small change, but with larger loan amounts, this adds up.

For example, if a home buyer is utilizing a FHA Jumbo and they are buying a home priced at $500,000.   Their current minimum required down payment of 3% is $15,000.  Effective January 1, 2009, the minimum required down payment of 3.5% is $17,500; a difference of $2,500 for the amount required to invest into the transaction.   With a home priced at $300,000; the current required investment from the buyer would be $9,000.  As of January 1, 2009, the new amount required will be $10,500.

What does this mean to you?

If you are planning to buy a home utilizing a FHA insured mortgage, be aware of the changes to the minimum down payment requirements.   After December 31, 2008, you'll be required to come up with additional funds towards your down payment which may be a gift or loan from family members.

If you are wanting to take advantage of the lower down payment requirement, meet with a Mortgage Professional who is qualified to provide FHA loans (not all loan originators are, you can check HUD's site to verify).

If you would like me to provide la rate quote for a FHA mortgage on a home located anywhere in Washington, please click here.

Editors Note: this post wass been modified to correct the effective date.

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

Conforming/FHA Jumbo Limit to Decrease January 1, 2009

August 12, 2008 by Leave a Comment

November 7, 2008 Update: FHFA has announced the new conforming jumbo loan limits for 2009 which are based on a lower median home price than used here (which was 2008’s limits).  Based on these figures, a single family unit will be $506,000 for King, Pierce and Snohomish Counties.  Read more here.

Recent legislation, HR 3221 included what the new conforming loan limits will be.  Our conforming-jumbo limits will be rolled back slightly to the following effective for all mortgage loans not closed December 31, 2008.   Here’s what the new limits will be effective January 1, 2009 (based on HUD’s current median home prices at the time of this post):

King, Pierce and Snohomish Counties:

Single Family:  $506,000 $522,100 ($567,500 until 12/31/2008)

Two Family:  $668,350 ($726,500 until 12/31/2008)

Three Family: $807,850 ($878,150 until 12/31/2008)

Four Family: $1,004,000 ($1,091,350 until 12/31/2008)

Kitsap County:

Single Family:  $437,000 ($475,000 until 12/31/2008)

Two Family:  $559,450 ($608,100 until 12/31/2008)

Three Family:  $676,250 ($735,050 until 12/31/2008)

Four Family:  $840,350 ($913,450 until 12/31/2008)

San Juan County:

Single Family:  $546,250 ($593,750 until 12/31/2008)

Two Family:  $699,250 ($760,100 until 12/31/2008)

Three Family:  $845,250 ($918,800 until 12/31/2008)

Four Family: $1,050,500 ($1,141,850 until 12/31/2008)

Clark and Skamania Counties:

Single Family: $417,000 ($418,750 until 12/31/2008)

Two Family:  $533,850 ($536,050 until 12/31/2008)

Three Family:  $645,300 ($648,000 until 12/31/2008)

Four Family:  $801,950 ($805,300 until 12/31/2008)

Jefferson County:

Single Family:  $417,000 ($437,500 until 12/31/2008)

Two Family:  $533,850 ($560,050 until 12/31/2008)

Three Family:  $645,300 ($677,000 until 12/31/2008)

Four Family:  $801,950 ($841,350 until 12/31/2008)

Watch for my follow up post on what this means to you.

Read my related articles on HR 3221:

First Time Home Buyers Tax Credit

Down Payment Assistance Programs Days are Numbered

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

Down Payment Assistance Programs Days are Numbered

August 11, 2008 by 6 Comments

With the passing of HR 3221, Down Payment Assistance Programs will no longer be allowed with FHA mortgages as of October 1, 2008.    DPA’s such as Nehemiah, have been popular for helping home buyers come up with their down payment.  FHA allows Sellers to pay for closing costs and prepaids as long as the buyer has met their minimum required investment (which has also changed with the passing of HR 3221–another post will follow on this subject).   With DPAs, the seller contributes funds to the DPA (like Nehemiah) which is a "charity" (they collect a small fee from the seller which is used for charitable causes).   The DPA then contributes the funds towards the down payment for the buyer.

Section 2113 of HR 3221 states that down payments for FHA insured mortgages may not come from "the seller or any other person or entity that financially benefits from the transaction" or "any third party or entity that is reimbursed directly or indirectly".  This applies for new loan applications on or after October 1, 2008.

Family members can still contribute towards the down payment on FHA insured mortgages.  In fact, Section 2113 of HR 3221 allows family members to loan up to "100% of the appraised value of the property plus any initial service charges, appraisal, inspection and other fees in connection with the mortgage".   The borrower must qualify for both mortgage payments (the first mortgage-FHA insured at 96.5% of the appraised value and the second mortgage from the Bank of Mom and Dad for the remainder).   This may make family members more comfortable with helping out with down payments as it will not be treated as a gift and the loan is documented, terms would be clear and recorded as well as secured against the property as collateral.  (Hopefully the Bank of Mom and Dad never have to foreclose).

What does this mean to you?

If you’re considering buying a home with minimum down payment, your family can gift or finance the 3.5% required investment of the buyer for FHA insured financing.  However, if you’re family not in the position to do so or if you don’t want to ask the Bank of Mom and Dad, then you have limited time to take advantage of the Down Payment Assistance Programs.

If you’re hoping to use a down payment assistance program to purchase your next home, you have just over a month to do so.  Meet as soon as possible with a qualified Mortgage Professional who can help you become preapproved with an FHA insured mortgage (NOTE:  not all lenders are approved to do FHA loans).  You must be credit approved prior to October 1, 2008 (and the closer we approach that date, the busier FHA approved lenders will be trying to beat the deadline).

Of course, DPAs are going down kicking and screaming to stay alive.  At this point, the countdown to the demise of DPAs is clicking away.

Update: 9:30 am August 11, 2008.   I’ve just received notice from one of the banks that we work with are no longer allowing DPAs.   This serves as a good reminder that lenders may have their guidelines that overlay government requirements.

Related posts on HR 3221:

First Time Home Buyer Tax Credit

Filed Under: FHA, Legislation, Residential Purchase

First Time Home Buyer Tax Credit

August 6, 2008 by 41 Comments

Update February 17, 2009:  The American Recovery and Reinvestment Act has modified this tax credit posted here.  If you're a first time home buyer who purchased January 1, 2009 – December 31, 2009; click here.  If you purchased from April 9, 2008 – December 31, 2008; this post still applies to you. 

Please check with your CPA or tax advisor to see how this impacts you.

With the recent passage of HR 3221, people who have not owned a home for the lastUnclesam  3 years may qualify for an interest free loan from Uncle Sam of up to $7,500. Here's a quick skinny on how this works:

First time home buyers may receive a tax credit of up to 10% of the purchase price of the home (not to exceed $7500).   This is a "tax credit" meaning that you receive the credit (if you want it) after you file your income taxes.   For example, this means that when you file your taxes in 2009 and you owe $5,000 to Uncle Sam and you qualify to have a tax credit in the amount of $7,500; you would receive a refund of $2,500.   However, this is a refundable credit (aka interest free loan) that must be paid back each year to the IRS (when you file your taxes) over the next 15 years.

If you sell your home before the tax credit is repaid to Uncle Sam, then the full amount is due or if your property that you received the tax credit for is no longer your primary residence (i.e. you convert your home to a rental).

This credit does not apply if the first time home buyer is buying a home from a relative.

This tax credit is only available for purchases made between April 9, 2008 and July 1, 2009 for adjusted gross incomes of up to $75,000 ($150,000, if married, filed jointly) and phases out up to $95,000 ($170,000, if married, filed jointly).

Should you take advantage of this opportunity? 

Sure!  Who wouldn't want a $7,500 interest free loan?  Two things I would consider using this credit for if I were a first time home buyer:

  • investing into an interest bearing savings account to build my "emergency fund".
  • pay off a nasty high interest credit card (freeing up a monthly cash flow).
  • fund your IRA.

Just understand that this is essentially an interest free loan.  This is not "down payment assistance".  You will be paying this back over the next 15 years (or sooner if you sell, rent out the property or convert it a second home)…but you just can't beat "interest free".

For more information, click here.

Friendly reminder:  I am not a tax professional, I am a Mortgage Planner assisting families who need mortgages in beautiful Washington State.   Always consult with your CPA, financial or tax advisor.

Watch for more posts on the effects of HR 3221.

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

How Much Home Can You Buy with $17,550 Down

July 22, 2008 by 1 Comment

I’m taking a brief blogging break.  This is a reprint from Rain City Guide.  To read the original post and 100 plus comments, click here.

My purpose for this post is to hit it home what a great window of opportunity we have with FHA Jumbo windowmortgages which are only around until December 31, 2008 unless Congress passes an extension of some sort (which is a possibility-but not guaranteed).

For the remainder of this year, you can use $17,550 to buy a home priced at $585,000 using FHA Jumbo with 3% down.    FHA requires the buyer to invest 3% into the transaction (which can be a qualified gift).  3% of $585,000 = $17,550.  (With roughly 5% down, utilizing FHA Jumbo, you can puchase a home for $600,000).  The Seller can contribute up to 6% towards closing costs and prepaids as long as the buyers 3% required investment is met.  With this scenario, the Seller is contributing around $14,000.   The loan amount is just under the maximum allowed FHA Jumbo for King, Snohomish and Pierce County of $567,500.   

With FHA there are no income limitations and much easier on credit scoring than conventional mortgages which ding you if your score is 719 or lower.   Effective January 1, 2008 2009 (as things currently stand) the FHA loan limit will be reduced to their actual loan limit of $362,790 for King, Snohomish and Pierce Counties. 

Of course, you’re not limited to FHA if you only have around $17,550.  There’s also Fannie Mae Flex (someone please knock on wood fast before Fannie shelves decides to put this product on the shelf) which allows lower down payment–currently as low as 97%.  However the highest loan amount allowed is the true conforming of $417,000.   Utilizing a Fannie Flex program, you could purchase a home priced around $434,000 with the seller contributing about $12,000 towards your closing costs and prepaids.

So we’re talking $585,000 sales price using FHA Jumbo (while supplies last!) or $434,000 with Fannie Flex97 (while this product is still available) if you have $17,550 for a down payment.   Can you see why I’m so crazy about FHA Jumbo?  This is a window of opportunity for those who qualify for the payment but may be shy on the down payment that’s scheduled to close on December 31, 2008

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

Now is the time to buy a Seattle home

June 8, 2008 by Leave a Comment

Or at least haggle according to Aubrey Cohen’s front page article in Friday’s Seattle P-I.  Would I buy a home right now in Seattle if I were in the market?  Quite possibly…especially if it’s a home that I desire and if it’s priced fairly.   The article states these factors for reasons home buyers interested in Seattle (I would include Bellevue/Redmond as well) should get into the market now:

  • Gas Prices.  Homes located near where jobs are will have stronger values.  Fewer people are going to want to commute thanks to how much it is to fill the tank.   
  • Mortgage interest rates are rising.   Glenn Crellin, director of the Washington Center for Real Estate Research at WSU states "waiting for the prices to get to their absolute lowest point while interest rates are rising doesn’t mean that the purchasers are going to be saving much of anything on the monthly payments". 
  • High inventory.  There are a lot of homes to chose from at lower prices.

According to this article, home prices in Seattle are only down 2.7% from a year ago; King County is down 6.2%.  The further away from "the city" you look for homes, the more the values have been impacted.   

Here are some additional reasons (not in the article) to consider "getting into the market" as a home buyer. 

  • The Conforming-Jumbo and FHA jumbo loan limits are only effective through the end of this year.   On January 1, 2009, the conforming limit will roll back to $417,000 and FHA (for King County) will be $362,950.  (Unless Congress passes an extension to the loan limits, which they may do at a reduced amount.  The fact is, at this time, we only know that the current loan limits are valid until December 31, 2008).   If you want a "non-jumbo" rate and your loan amount is $417,001-$567,500…your time is limited.
  • Underwriting guidelines continue to get tougher with lenders and private mortgage insurance companies.   Plus, the possibility of having your area declared a declining market will make financing even more challenging.
  • If you’re sitting on the fence, you are not alone.  There are many home buyers who are getting preapproved waiting for prices to reach their "price point".  As prices lower, more and more will be hopping off the fence and jumping into the market which will also prevent in-city home prices from declining as much as other areas.
  • Sellers are contributing towards closing costs.  I’m seeing more offers with sellers contributing towards closing costs for the buyer.  Buyers can use the funds to buy down their rate are reduce their closing costs.

If you are considering buying a home within the next 6 months, I strongly encourage you to begin the preapproval process now.  The more time you have to prepare, the better position you’ll be in to make an offer.   Plus, I’ve heard that some in-city homes, when priced right, are having multiple offers–buyers should be armed with a preapproval letter to present a stronger offer. 

It’s also very important to work with an experienced real estate agent who will look out for your best interest (I do not recommend going directly to the listing agent for any home you wish to buy…they represent the sellers interest–not yours).   If you need a referral to a real estate agent in King, Pierce or Snohomish counties, contact me, I’m happy to help.

PS:  I help Washington State home buyers with preapprovals and mortgage planning, too!  (My husband thinks I should remind my readers of this point more often…and I like to keep him happy).

Just for grins, here is a lesson in how to haggle (if you work with a professional real estate agent, you can leave the haggling to them), compliments of Monty Python, The Life of Brian.

Filed Under: First Time Home Buyer, Mortgage Insurance, Residential Purchase

Is 5% Down Available for Homes Priced from up to $600,000?

June 3, 2008 by 6 Comments

EDITORS NOTE – August 30, 2009: Mortgage guidelines are constantly changing–please make sure to get updated guidelines from a local mortgage professional.  This post was written under DU 7.0 and at this time, we are utilizing Fannie Mae/DU Version 7.1.

In King, Snohomish and Pierce County, FHA Jumbo will allow you to put 3% down as long as your loan amount is $567,500 or below.   The buyer's required investment is 3% of the sales price (which can be gifted from a family member) and the seller can contribute up to 6%.   Utilizing a FHA Jumbo, one could by $585,000 with as little as 3% down or up to around $595,000 with 5% down and still be within the FHA loan limits.  The debt to income ratios are typically around 43%.   Click here for more information on FHA Jumbo.

At 5% down with a sales price of $585,000, the FHA scenario would look like this:

Principal and interest @ 6.375% (APR 7.140%): $3,514.50 plus monthly mortgage insurance of $231.56 for a sub-total (not including taxes and home owners insurance) of: $3,746.06.

Amount needed to close estimated at $43,000.  Buyer required investment = $17,550 (3% which can be gifted from a family member).

A conforming-jumbo will allow a 90% loan to value but good luck finding a second mortgage that will accommodate that–most second mortgages are limiting their total loan to value of 85%.  Private mortgage insurance is an option up to 90% loan to value with a loan amount of $567,500.  With a sales price of $600,000, 10% down would provide a loan amount of $540,000.   At 10% down, the seller can contribute up to 6% as long as the buyer has invested a minimum of 5% of their own funds into the transaction. 

Principal and interest @ 6.125% (APR 6.373%): $4,555.10 $3,281.10 plus monthly mortgage insurance in the amount of $316.85 for a sub-total (not including taxes and home owners insurance) of: $4,871.95 $3,597.95.

Amount needed to close estimated at $73,000.  Buyers required investment: $30,000 (5% which must be their own funds–gifts from family not included in the 5% down).

Fannie Mae just released DU 7.0 which promises to provide fewer loan approvals and more "expanded approvals".  Before 7.0, 45% was the maximum debt to income ratio. This new version was released on May 31, 2008.

Note:  Both scenarios are assuming mid-credit scores of 720 or better.  A 719 will cause the rate to be 0.125% higher for the jumbo-conforming example or to cost 0.500% more in fee.   For FHA, the rate would remain the same with a 719 score (and down to a 620 mid score).

I think you'll agree that we'll be seeing more FHA approved buyers than before…this is why Sellers and Real Estate Agents should learn more about FHA and be open to FHA buyers…it's not the FHA of yesteryear in fact, FHA is the future.

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

Gimme Five! Comparing Today’s 5 Year ARM to a 30 Year Fixed

May 24, 2008 by Leave a Comment

Highfive

There is currently about a 0.75% difference in rate between the conforming 30 year fixed and 5/1 ARM and 0.625% in rate with conforming-jumbo loans.  Is that enough for you to opt for an adjustable rate mortgage?

Beyond the obvious question: "how long do you plan on retaining the mortgage or staying in your home?"   Here are some other stats to consider based on rates I quoted Friday morning using a purchase of $500,000 with a loan amount of $400,000.   The closing costs on both loans are identical.

30 year fixed at 5.75% (APR 5.902%) has a principal and interest payment of $2,334.

5/1 ARM at 5.000% (APR 6.759%) has a principal and interest payment of $2,147.  This is a monthly savings of $187.

The 5/1 ARM is fixed for 60 months and will then the rate is re-calculated.   The 5/1 used in this scenario is a 5/1 LIBOR with a margin of 2.25% and caps of 5/2/5.   For now, lets review your savings over the 60 month period.

The 5/1 ARM will save $11,220 over the 30 year in five years in payment alone. 

30 year fixed at 5 years has paid $28,951 towards principal and has an estimated balance of $371,049.   $111,106 has been paid towards interest (no benefit towards your prinicpal, however it may be a tax benefit).

5/1 ARM at 60 months has paid $32,663 towards principal and has an estimated remaining balance of $367,337.   $96,228 has been paid towards interest.

Over a five year period, the net (interest) savings of the 5/1 ARM over the 30 year fixed assuming you do not make any additional payments towards principal is $14,878.

So what happens if someone decides to select a 5/1 ARM and 60 months later, they’re keeping the home?  They can refinance or not based on what the current market and what their finacial plans are.  The monthly savings over 60 months is plenty to cover the typical cost of a refinance ($2000-$2500) assuming rates are not favorable enough to opt for a "no cost refi".

If you decide to retain the mortgage, you will add the margin of 2.25% to the current 1 Year LIBOR rate when your mortgage is adusting.  (As of today, the 1 Year LIBOR is around 3.067%).   Your mortgage is reamortized based on the remaining term (25 years at the first adjustment).   The caps with this particular ARM are 5/2/5 meaning that the highest your rate can adjust is to a steep 10% and the lowest your rate will be at the first adjustment is 2.25%.   That’s a huge range and whatever your rate will be depends entirely on LIBOR.   Some 5 year ARMS offer caps of 2/2/6 which would limit the first adjustment to 2%–the initial rate is typically slightly higher.   Do learn exactly what your cap, margin and index are before you accept any adjustable rate mortgage.

I suggest considering the following:

What is your risk tolerance?  Will having a mortgage with the potential to adjust in 5 years give you a rash or cause you to lose sleep at night? 

How long do you plan on staying in the home or retaining the mortgage?  If you have a tendancy to refinance when rates improve or if this is a home (such as a starter home) where you may not keep it for 5 years, you may want to consider the ARM. 

Picture your life and where you and your family may be five years from now.   Is your income stable or growing?  Do you have retirement in your sights?

How disiplined are you?  $187 per month could make an impact on paying off non-tax preferred debt, paying down principal or building your savings.  Pay yourself the $187 per month in an interest bearing account at 3% and you’ll have $12,000 more in 60 months in addition to the other savings.

Regardless of what program you select for your mortgage…the choice is yours and it is your responsibility to learn as much as you can about the program–ask questions! 

Do you have an existing mortgage you’re unsure of?  Has your loan originator left the mortgage industry?  I’m happy to help Washington State home owners with their mortgage needs–including reviewing your existing financing, such as ARMS.  My mortgage adoption program does not require any refinancing or new mortgage.

Filed Under: Adjustable Rate Mortgage (ARM), Financial Planning, Mortgage, Residential Purchase
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