Over the last few weeks I’ve had a few sellers balk at receiving an FHA contract and a VA contract. In both instances I had to reassure the agents to communicate to the sellers that the borrowers were strong and that there is basically little difference in an FHA or VA loan compared to a conventional loan as far as speed and difficulty. Below I break down the 3 different types of loans in terms of processing times and the appraisals.
Processing and closing times: Basically, there is little to no difference in how long it takes to process and close a conventional loan compared to an FHA or VA loan. All 3 types of loans are underwritten and closed by the lender and do not have to go to FHA or VA to be processed or underwritten. When sellers complain that they do not want to accept an FHA or VA loan because it takes longer to close, let them know it is just not true. Also, all 3 loans use computerized underwriting modules. Once the loan is approved by the underwriting module then it is up to the lender to gather the conditions. The FHA and VA conditions are no harder to obtain than the conventional conditions. If the processing and closing time are taking forever then blame the lender, not the program.
Appraisals: As far as value, all 3 programs use basically the same criteria to obtain their values. It will be based on past sales that are similar to the actual home being sold. The same appraiser will get the same value under all 3 programs. Different appraisers might get different values on the same home but not because it was an FHA or VA compared to a conventional. It will be because one appraiser used a different comparable or used a different adjustment than the other appraiser used. The only real difference you will see in the appraisals under the 3 different programs will be that FHA is a bit more strict when it comes to detail. FHA has to check to see that all the mechanicals and kitchen appliances are working and has to inspect the attic and crawl spaces. Plus for homes built prior to 1978 they need to check for chipping and peeling paint. That doesn’t mean that a conventional appraiser will not point these items out but an FHA appraiser has to.
So to recap. If you are an agent then let your sellers know that there is little to no difference in an FHA or VA loan compared to a conventional loan. And if you are selling a home don’t be concerned about the type of loan in the contract, be concerned about what mortgage lender the borrowers are using. The lender is much more important to the speed of the transaction and getting to the closing table than the program being used.
Starting January 27th, FHA will lower their monthly mortgage insurance to .6% from .85%. On a $200,000 mortgage that would be a reduction of approximately $41 a month. It looks like we are starting to see the housing and mortgage market remove the roadblocks of first time home buyers. Although FHA is not solely a first time home buyer program, it does help first time home buyers get into the housing market by offering a 3.5% down payment option.
This is the 2nd sign we’ve seen this year that the powers that be look like they are all in for kick starting the housing market and getting the economy moving. Yesterday I posted a blog about Freddie Mac offering a new 1% down program and now FHA reduces their monthly mortgage insurance. These both look like positives signs. I will continue to keep you abreast of any new changes that occur in the mortgage and housing markets.
Freddie Mac has come out with a new program designed to help more borrowers obtain financing with lower down payments. Since the real estate crash of 2008 Fannie Mae and Freddie Mac have increased their down payment rules. It now looks like it’s starting to soften a bit. Under this new program the borrower only has to contribute 1% down payment which can come from their own funds or a gift. Below are some of the parameters of the program:
- Minimum 700 credit score.
- Maximum debt-to-income ratio of 43%.
- 3% seller concessions for closing cost and pre-paids.
- Program available with or without monthly mortgage insurance.
- Borrower can not make more than 100% of area median income (roughly $77,000 in Albemarle County).
This should help open up the first time buyer market. While FHA has been consistent with the 3.5% down program and Rural Development is available in rural areas with 0% down payment, it is now nice to get Freddie back in the ball game!
President Obama is expected to announce a reduction in the mortgage insurance premiums for new FHA mortgage loans tomorrow.
From Bloomberg News:
As part of an effort to expand homeownership among entry-level buyers, President Barack Obamawill announce a cut in Federal Housing Administration mortgage-insurance premiums during a speech in Phoenix tomorrow, according to three people with direct knowledge of his plans.
The annual fees the agency charges to guarantee mortgages will be cut by 0.5 percentage points, said two of the people, who asked not to be identified because the White House hasn’t yet made the announcement.
This reduction will bring the annual mortgage insurance premium down from 1.35% to 0.85% on a minimum down FHA loan. The annual FHA mortgage insurance premium is part of the borrower’s monthly mortgage payment. On a $400,000 loan amount, a borrower currently pays a whopping $450 a month in just mortgage insurance premiums (400,000 x 1.35% = 5,000, divided by 12 months). With the proposed mortgage drop, the monthly premium would be reduced to $283 (400,000 x 0.85% = 3,400, divided by 12 months), a savings of $167 per month.
This is great news for those who need FHA mortgages as the mortgage insurance premiums have become increasingly expensive over the last few years. A reduction in FHA mortgage insurance premiums will help borrowers who need an FHA loan qualify for a mortgage. This is especially helpful for borrowers who have had a short sale or foreclosure in recent years as FHA has more forgiving guidelines than conventional, allowing one to buy a home again after 3 years since the distressed sale.
It took awhile but Fannie Mae will roll out it’s new 3% down program on Monday. Since FHA increased their monthly mortgage insurance premiums last year to 1.35% there has been a large demand for a good low down payment loan. I’ve said on my blog for the past year that in order for the housing market to really get going there needed to be an affordable program that allowed low down payments to credit worthy borrowers. Now it’s here!
Below are a few parameters you need to be aware of with Fannie’s 3% down program .
* At least one borrower has to be a first time home buyer (can not have owned a home in the past 3 years).
* Where the program is especially strong is if the borrower can qualify for the My Community Mortgage (MCM). In our area that means that the income of the borrowers on the loan can not exceed $82,600. If the borrower qualifies for the 3% down Fannie My Community then the mortgage insurance is discounted which will help dramatically with the monthly payment. Note that if the borrower makes more than $82,600 then they can still do Fannie’s 3% down program but the mortgage insurance will be more expensive.
* Only fixed rate loans, no adjustables.
So, how good is the program? Lets take a $200,000 purchase price and see what the differences are between the Fannie 3% down My Community compared to FHA:
1) Down payment. Fannie 3% down = $6000. FHA 3.5% down = $7000.
2) Monthly payment for Fannie 3% down My Community = $1225. FHA = $1350.
3) Equity in property with Fannie 3% down = $6000. FHA $3623 (FHA has an up front mortgage insurance of 1.75% added to the loan which reduces the borrower’s equity).
I applaud Fannie for stepping up. Hopefully FHA will wake up and start being competitive and get back in the game by lowering their mortgage insurance. We will see. I believe this program will be successful and if all goes well the next step will be a zero down payment Fannie loan to borrowers that have strong incomes and great credit but lack the down payment money. But for now, good job Fannie!
What is HARP? It’s the Home Affordable Refinance Program. It lets you refinance your mortgage even if you owe more than the home is worth. Your current loan has to be owned (not serviced so don’t get that confused with owned) by Fannie or Freddie and it had to be originated before June of 2009. Clink on the link below to see all the mortgages in the State of Virginia that are still HARP eligible.
That’s just an amazing stat! over 18,000 loans in the state of Virginia that are still HARP eligible. And according to the web-site all these loans have a rate of at least 5.61%!
The government started a major campaign yesterday in Chicago to get the word out about HARP and encourage eligible borrowers to take advantage of the program. Although I applaud the idea, it is puzzling that the government hasn’t expanded the program to include more borrowers. One of the parameters is that your loan had to be originated prior to June of 2009. Another parameter is that you can use the program only once. Why? I don’t get the logic here. Expand the program to include all mortgages owned by Fannie or Freddie regardless of origination date. Also, make it so you can use the program as many times as you wish assuming it makes financial sense. I’ve been hoping that the government would make this change but it looks like it will not happen.
In any event, if you are eligible then take advantage!
I’ve been saying in my blogs for months and months how FHA (Federal Housing Administration) and FHFA (Federal Housing Finance Agency) are out of touch with the housing market and that they both need to concentrate on getting the first time homebuyers back into the market. Well, it looks like they finally are starting to listen to me!
First, FHA has come up with HAWK (Homeowners Armed with Knowledge). Basically, this will be a pilot program that if the borrower completes a housing counselling class they will be able to reduce the monthly mortgage insurance 50 basis points. Currently, FHA’s monthly mortgage insurance rate is 1.35% a month (ridiculously high, it was .50% in 2009). So, the borrower will have an opportunity to get the mortgage insurance down to .85% a month (it’s a start but .85% should be the maximum, not the minimum). There are a few other advantages to the HAWK program but the reduced monthly mortgage insurance is the big draw. It looks like this will be rolled out in the fall (why not right now?) The program also states that the class needs to be taken BEFORE the real estate contract is signed. I’m hoping FHA will amend this to say that the class can be taken AFTER the contract is signed but has to be completed before closing.
The second indicator that the mortgage guidelines might be loosening a bit is that on Tuesday FHFA director Mel Watt stated that maintaining credit availability is one of his main goals. He stated that Fannie Mae and Freddie Mac should direct their focus toward making more credit available to homeowners. My prediction is that within the next 6 months Fannie and Freddie will come out with lower down payment loans to get the first time homebuyers back in the market. Looks like FHA and FHFA see the signs and are moving in the right direction. Baby steps!