FHA Purchase Loan Options

This topic will explain for you about:

• Creating and Empowering Home Owners
• Educating you about the FHA purchase options available to you in today’s market
• Empowering you with the ability to make educated decisions about your home financing options
• Encouraging you to ask questions and get informed about the home buying process

There are some new changes in 2009, and these are some of them, you can see and get more useful information for yourself:

• The 2009 FHA Loan Limits

• Results in slightly higher interest rates
• Down Payment Requirement
• Increased from 3% to 3.5%
• Private Mortgage Insurance - PMI
• Upfront PMI increased from 1.5% to 1.75%
• Monthly PMI increased from .50% to .55%

To become a borrower, you need to be eligible with the conditions of the bank:

• Credit Score Requirements

– 580 Minimum Credit Score as a guideline

– Can go lower on exception basis

– 620 Minimum Credit Score – “FHA Jumbo”

• Loan amount over $417,000
• Non traditional credit lines temporarily suspended as of 4th quarter 2008

– Lack of credit score or depth of credit supplemented by alternative sources

• Phone bills, utility bills, auto insurance…etc.
• Investors not accepting – Market Conditions
• Employment Requirements

– Must have 2 year history of employment

• If in school or military provide transcripts or discharge papers

– Self Employed must have minimum 2 year history

• Business license and tax returns

– Gaps in employment must be explained

• Must be at new job for at least 6 months
• Income Qualifying Guidelines

– Automated underwriting approve/eligible

• Debt to income ratios approved

– FHA Total Scorecard – Manual Underwriting

• Much more restrictive debt to income ratios

– Non Occupying Co-Mortgagors

• Can use income of Co-Signer to help qualify

– All FHA Loans require full income documentation

• Tax returns, W2’s, Pay Stubs
• Income Qualifying Guidelines

– Converting Existing Homes into Rentals

• Bad Apples - Effective September 19th, 2008
• Temporary exclusion of rental income from vacated property
• Must qualify for full PITI payments on both homes.
• Exception – Relocation with new employer or transferred by the current employer
• Must have executed 1 year lease
• Copy of deposit check
• 75% Equity – Appraisal or balance vs. price

And your property is also eligibile:

• 1-4 Units ok – Owner occupied only
• Loan limits increased for 2,3,4 units

– Limits determined by MSA – See site for link

– No asset requirements for 1-2 unit homes

– 3 months PITI required for 3-4 units

– Can buy any eligible property including short sales and foreclosures

– Typically must be owned minimum of 90 days

– Foreclosures are the exception

• Appraisal requirements are much more strict than conventional lender guidelines

– Inspection is significantly more thorough

– Property must be in “livable condition”

• Toilets work
• Sinks work
• Heating, electrical
• Light switches, outlets

– Be cognizant of damage – especially to bank owned foreclosures

Down Payment and Closing Costs

• 3.5% Down payment required

– 100% of down payment may be a gift

• Gift funds can be from relative, employer, government grant

– No expectations of repayment

– No liens against property

• Can use community seconds

– City, State, Federal down payment assistance programs ok

– Will allow up to 100% of purchase price with approved secondary financing

Down Payment and Closing Costs

• May receive up to 6% of purchase price from seller

– Can be used to cover closing costs

– Can be used to “buy down” interest rate

– Can not be used for down payment

– Buying down the interest rate

– Ability to pay upfront fees to permanently reduce interest rate

– Significant long term savings

• May have challenges asking for max in competitive offer environments

Mortgage Insurance

• FHA Loans require 2 types of Mortgage Insurance Premiums - MIP

– Upfront Mortgage Insurance Premium

• 1.75% of Loan Amount
• Can be financed into loan amount

– Monthly Mortgage Insurance Premium

• .55% of Loan Amount
• Included in monthly payment
• Included on mortgage statement
• Calculating your UFMIP Payment - Example

– $200,000 Purchase Price x 96.5%

• $193,000 base loan amount

– $193,000 x 1.75% = $3,377.50 add to base

• $196,377.50 is financed loan amount
• Calculating your MIP Payment - Example

– $200,000 Loan amount x .55% = $1,100

Divided by 12 = $91.67 MIP

Only use an FHA Approved lender!

• Many illegal “Branch” companies that are not approved to originate FHA loans
• Check official HUD website for approval status of lender - will provide link on site
• “Red Flags” include – a different company name and/or address on page 3 of loan application.

$7,500 Federal Tax Credit

• No-interest loan paid back over 15 years
• Must purchase on or before July 1st, 2009

– Between April 8th, 2008 and July 1st , 2009

– Must be first time home buyer

– Can not have owned in past 3 years

– 10% of purchase price up $7,500

• $7,500 - Married filing joint or Single taxpayer
• Married filing separate $3,750
• Home bought in 2008 can be claimed on 2008 returns
• Home bought in 2009 can be claimed on 2008 (or amended 2008) return
• Income limit is $150,000 for married couple

– Phase out maximum is $170,000

– Income limit is $75,000 for single taxpayer

– Phase out maximum is $95,000

– Loan is paid back in 15 equal installments

– First payment paid in the 2010 tax year

• You would be ineligible for Tax Credit if:

– Your income exceed the phase-out range

– You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild

– You stop using your home as your main home

– You sell your home before the end of the year

– You are a nonresident alien

– Your home financing comes from tax-exempt mortgage revenue bonds - CalHFA

– You owned another main at any time during the three years prior to the date of purchase

Wrap up and Take Aways

– We are a direct Lender that specializes in FHA Refinance, Streamline and Purchase loans.

– We are a direct Lender that specializes in CalSTRS, CalPERS, CalHFA, VA, Conventional and Jumbo Loans

– We are more than happy to be your “second opinion” if you are already working with someone

– We are committed to educating and empowering homeowners - Join us for future classes

– You will receive a “Thank you” email with links to the information we’ve talked about here today

– Copy of power point presentation

– Link to search HUD approved lenders

– Link to search MSA Loan Limits

– Dream Home Finder request

– Secure on-line FHA loan application

– Links to tools and resources we talk about in all of our classes

– A schedule of all upcoming classes

Upcoming Home Buyer Classes

• A Complete Guide to Buying Foreclosures and Short Sales
• A Complete Guide to Closing Costs and the Good Faith Estimate
• A Complete Guide to the CalSTRS 80/17 Home Purchase Program
• A First Time Home buyer’s Complete Guide to Credit and Qualifying
• A Complete Guide to the CalPERS Home Loan Program – No down option