The Regan Team - Petaluma Homes & Mortgage Blog - PetalumaLending.com: May 2010

Fannie Mae regularly updates their guidelines and in the upcoming release there are changes to when a borrower can purchase a home after short selling or letting their home go into foreclosure.  Below are the changes:

Deed-in-lieu of Foreclosure:

2yrs from completion date with max loan to value of 80%

4yrs from completion with max loan to value of 90%

7yrs from completion standard guidelines will apply

Short Sale:

2yrs from completion date with max loan to value of 80%

4yrs from completion with max loan to value of 90%

7yrs from completion standard guidelines will apply

Bankruptcy chapter 7 or 11:

4yrs from discharge or dismissal date for conventional

12 months after discharge or dismissal with extenuating circumstances for FHA

2 years after discharge or dismissal for FHA without extenuating circumstances

(with either option you must have reestablished credit)

Chapter 13:

2yrs from discharge or 4yrs from dismissal

Bankruptcy with extenuating circumstances:

2yrs from discharge or dismissal date (no exceptions)

Foreclosure:

7yrs from completion date effective December 2010

FHA is still has a 3yr waiting period after a foreclosure/short sale.

That’s a phrase every agent and loan officer needs tell their clients in the process of buying a home.

Fannie Mae’s new “loan quality initiative” starts June 1^st and will require lenders to pull a 2^nd credit report immediately before closing.  If there are any new debts or hard credit inquires, the closing could be put on hold. 

Fannie Mae is implementing this to reduce mortgage fraud and make sure buyers haven’t added any new debt from the time of application.  Some examples of what this aims to stop are:

-investor buys two properties concurrently using different lenders and fails to disclose this fact and would not qualify with both new homes. 

-new home buyer opens a new credit card from a furniture store and spends $15,000.  That additional monthly payment pushes their debt to income ratio over guidelines.

The simplest way to avoid any closing issues is for new home buyer to abstain from any new or additional credit during the home buying process.

Homepath properties are Fannie Mae foreclosures that have the option of special financing.  A buyer can use any financing they wish, but if they’re putting less than 20% down, Homepath might be the best option. 

So what makes Homepath special?

-Owner occupant buyers only need to put 3% down, and that 3% can be a gift, grant, or loan.

-No appraisal.  This is a big one.  Because no appraisal is required, the loan can close quickly due to the buyer only needing to qualify based on credit.  Property approval is also not an issue.  Where this can be very helpful is for condos.  Currently condo financing is very strict and if there are any issues with HOA delinquency, litigation, high rental concentration, etc, and normal financing wouldn’t be possible, with Homepath it’s possible.

-Investors can purchase a Homepath property with 15% down.

-No mortgage insurance…period.  It doesn’t matter if you’re an owner occupant or an investor; there's no mortgage insurance at any loan to value. 

-Minimum 660 FICO

-Up to 6% seller concessions on LTV's over 75%

-High balance loan amounts.  For Homepath properties over $417,000, Fannie Mae will allow up to 90% financing on owner occupied properties.

How do I find the properties?

-Visit www.Homepath.com for the list, and make sure you get pre-approved through The Regan Team. 

How many Homepath properties are available?

-This changes daily, but as of May 17, 2010 there are 77 Homepath properties in Sonoma County, 16 Homepath properties in Napa County, and 9 Homepath properties in Marin County.  These properties range from single family to condos and duplexes.

The City of Santa Rosa, in beautiful Sonoma county, has a down payment assistance program for 1^st time home buyers up to $10,000 dollars.  It’s a 15yr deferred loan, meaning the borrower doesn’t have to make any payments on it for 15 years, and the interest rate is only 3%.   

Details:

The American Dream Down payment Initiative (ADDI) is a federally funded down payment assistance program available through the City of Santa Rosa's Department of Economic Development and Housing. The ADDI program offers up to $10,000 to eligible first time homebuyers for down payment assistance on a property located within the Santa Rosa City limits. The assistance is in the form of a 15 year deferred loan with a 3% interest rate.

Who is eligible?

First time homebuyers, including those who have not owned a home in the last three years. The HUD definition of a first time homebuyer also includes individuals who are displaced homemakers or single parents. The homebuyer's total household income must fall below the following amounts:

What type of house can I buy?

The home must be located within the Santa Rosa City limits and must be one of the following unit types:  single family home or PUD, condominium, cooperative unit or manufactured home (must be located on land that is owned by the manufactured unit owner or be leased for a period of at least 15 years).

What is the maximum purchase price?

The current maximum purchase price is $344,650. The purchase price is set by HUD mortgage limits and is subject to change.

What is the loan amount?
The minimum loan amount is $1,000.
The maximum loan amount is $10,000.

Does the use of ADDI funds place any restrictions on the property? Yes, the use of ADDI funds will require owner-occupancy. Owner-occupancy is a minimum of 10 years, or until the loan is outstanding, whichever first occurs.

For more information contact The Regan Team at 415-672-2499 or 707-508-8473. 

The City of Napa has one of the best 1^st time home buyer programs I’ve run into.  The basics are 1^st time home buyers defined as having not owned a home in the last 3 years and that meet the income requirements can get up to a 30% down payment for their new home.  The purchase price can go to a healthy $532,000 too. 

Another great aspect of the program is that the home buyer only needs 3% of their own funds which can be gifted and the down payment assistance loan is deferred for 30 years.  That means the home owner does not have to make a payment on the loan for 30 years.

This is for owner occupied properties only and the buyer needs to be approved with the City of Napa before starting their home search.   

Here are the program details:

This program is funded through grant funds the City of Napa receives from the State of California HOME Investment Partnership Program. The program assists families who are first time homebuyers (cannot have owned a home in the last three years) and whose income is at or below 80% of the area median income level for Napa County.

DOWN PAYMENT ASSISTANCE PROGRAM

The Down Payment Assistance Program is funded through grant funds from the State of California HOME Investment Partnership Program.

Program assists families who are first time homebuyers who intend to occupy the property.

Gross annual income below 80% of median income.

City will loan up to 30% of purchase price.

30 year loan, deferred payments for the 30 years.

Appreciation share paid at time of payoff or sale of home.

Purchase any home, condo, townhouse, or mobile home in city limits.

Purchase price limit, $532,000.

Program requires that the first mortgage must be a minimum 30 yr, fixed rate, fully amortized mortgage loan. A loan pre-approval letter is required with application.

Buyer must have 3% of purchase price as down payment (cannot include seller credits)

Work with local realtor to find property.

The property must be owner-occupied or vacant at the time of the purchase agreement is presented.

Home must pass Housing Quality Standards inspection.

Attend homeownership counseling.

For additional information on the City of Napa first time home buyer down payment assistance program call The Regan Team at 415-672-2499 or 707-508-8473.

We hear this phrase all the time, “I don’t want to pay any points!” 

So what are points, why is there so much confusion surrounding them, and why would you want to pay them?

Points are 1% of the loan amount.  If you’re purchasing a $500,000 home and putting 20% down, your loan amount is $400,000.  In this situation a point = $4,000.  Points are prepaid interest that may be tax deductable (ask your CPA) and allow you to buy a lower interest rate.  In this example a “no point” loan will cost you a rate of 5.5%, if you pay a point your interest rate will be 5.125%. 

So why is there so much confusion?  First off there is no such thing as a no point loan, no matter where you go you’re going to pay; you just may not see it.  In the above example the 5.5% rate is giving the loan officer one point in rebate.  At 5.125 the rate is at par meaning there is no rebate being paid to the loan officer so he/she will charge you a point upfront.  A loan officer or for that matter a bank will not give you a free loan.  The point is what the loan officer/bank is paid from.  (BTW the loan officer doesn’t make the full point; he/she has to split it with the company they work for.) 

The new trend I’ve been seeing more often is that a client who doesn’t want to pay points is told they’re not being charged any, but they are being charged an origination fee (sometimes they are told this, most of the time not, they find out about it on the good faith estimate).  On a $400,000 loan if one point = $4,000 and on that same loan with another lender the origination fee is $4,000...isn’t it the same thing?  Be careful, it’s just semantics.

So why would you want to pay points?  Well first off you’re always paying points, or an origination fee, or whatever else you want to call it.  Secondly paying points, also known as buying down your rate can benefit you long term. 

$400,000 loan at 5.5% with “no points” = $660,000 in interest paid over the life of the loan.

$400,000 loan at 5.125 paying 1 point = $615,000 in interest paid over the life of the loan.

So by paying $4000 upfront, you saved yourself $45,000 in interest over the life of the loan.  The choice is yours but I rather not throw $45,000 down the drain if I don’t have to.    

If you’re going to keep the loan long term, pay the point to get the lower rate.  If you’re only in it for the short term then it may not be the best option.  In this example it’ll take you about 43 months to recoup the cost of the point, after that you’re saving money. 

So when you hear no points, first realize there’s at least 1 point in that rate, secondly don’t assume that paying no points is giving you the best deal; in most cases it’s not. 

There’s a great home loan program for those looking to live in “rural areas” called the USDA home loan.  It’s a government insured loan for owner occupied single family homes and there are no limits on loan amount or purchase price.  The program offers a 30 year fixed loan at a rate that runs about a quarter over the day’s FHA rate.

Income and Asset Limits:

In Sonoma County, the household income is limited to $92,450 for a family of 4.  In a household of 5-8 that can increase to $121,450.  Assets are also limited to 20% of the purchase price.  So a buyer with $60,000 in assets (savings, investments) is eligible to buy up to a $300,000 home in Sonoma County.

For more on income limits in other counties click HERE

Eligible Sonoma County Locations:

A large area of Sonoma County is eligible for this 100% USDA Rural home loan.  Excluding Santa Rosa up to Larkfield, Rohnert Park/Cotati, City of Sonoma and Petaluma, the rest of Sonoma County is eligible.  Included are communities like Healdsburg, Sebastopol, Cloverdale, Windsor, all Russian River area, Graton, and Sonoma Valley along Hwy 12.

To find out if a property is in a USDA eligible area click HERE

Details:

-up to a 6% seller credit

-no reserves required

-credit scores can be as low as 620, but under 660 requires a special waiver

-appraisal is done by a HUD certified appraiser and all section one items need to be cleared

-single family homes only

-upfront guarantee fee is 2% and can be financed as part of the loan

-.3% monthly mortgage insurance

-property taxes and home owners insurance impounded in payment

A USDA home loan example:

$300k purchase price at 4.5%:

$300k base loan amount + $6,000 (2% upfront funding fee) = $306,000 total loan

Principal and Interest payment = $1550.46 + $76.50 monthly mortgage insurance = $1626.96 + $60 home owners insurance + $312.50 property taxes = $1999.46 total house payment.

Expect 60 day escrows.

A FHA 203k rehab loan is a hybrid loan that combines regular FHA financing with a construction loan.  A buyer can purchase a home in need of repairs and/or one that needs updating/remodeling.  The best thing about the 203k is that you’re able to buy a home and pay for the construction costs all in one loan that only requires 3.5% down.  You’re also able to include up to six months of mortgage payments in the new loan so you can live in your current residence until the construction is completed.

In this example buyer X purchases a home for $400,000 that needs $75,000 in repairs.

-Down payment is based on the sales price PLUS the final cost of the repairs.

Sales price is $400,000 PLUS $75,000 in repairs/costs (475,000 x 3.5%).  Down payment is $16,625 (closing costs are additional)

-Buyer will hire a HUD approved 203k consultant to go to the property with them to determine the required repairs along with any upgrades they wish to do.  The consultant’s fees vary, but generally are $600-$1500 for most projects.  The consultant will go over these costs before being hired.  It’s customary for the buyer to pay half the fees upfront and the rest can be paid through the loan. 

-Buyer will then obtain an estimate from a licensed contractor.  This is where the HUD consultant is so useful.  They can estimate what they think the job will cost to make sure the bids you’re getting are within reason.  I recommend getting several bids, but it’s not a requirement.  The buyer can act as their own general contractor only if they’re licensed.  The contractor will need to provide documentation to be approved by the lender prior to loan approval.

So what kind of repairs can you do with a 203k loan?

Eligible Repairs

1. Structural alterations and additions
2. Garage (attached /detached/new)
3. Remodel kitchen or bathroom
4. Install appliances
5. Changes to eliminate deterioration and reduce maintenance
6. Repair swimming pool (up to $1500)
7. Modernize plumbing/heating/air conditioning/electrical systems
8. Install or repair roofing /gutters/downspout
9. Install flooring /title /carpet
10. Energy conversation improvements
11. Major landscaping /decks/fencing
12. Improvements for accessibility ( e.g. handicapped ramp)
13. Interior and exterior painting
14. Improvements that are a permanent part of the real estate

Ineligible Repairs

1. Generally anything considered a luxury addition such as spas, new swimming pools, outdoor BBQ, etc.

One thing to be cautious of is to not over improve the property so it won't appraise.  The 203k allows the loan amount up to 110% of the appraised price.  Be cognizant of the surrounding neighborhood and the values it'll support. 

-Once the consultant completes a report of required and optional repairs, the lender will forward it to the appraiser for an after improved value.  

-The file is then submitted to underwriting, approved, and closes like any other loan.  In most cases anticipate 60 days escrows.  Once the loan closes work begins within 30 days.

-For a listing or buyers agent your work is done once the loan funds.  The home is now buyer X’s.  So the $400,000 house has been purchased and the remaining $75,000 is placed into an escrow account.  Disbursements are made throughout the following 6 months; normally 4 draws with one final inspection as the work is completed.

If there is any money left over in the escrow account after the work has been completed, that balance is applied to the loan amount. 

The rates on 203k’s are about a quarter to a half more than traditional FHA loans.  This program is underutilized but the more you know about it, the more you realize what a great deal it is.  

Here are a few other blogs on the FHA 203k rehab loan:

Streamline FHA 203k Rehab Loan

Things to watch out for with 203k's