FHA and The Salt Lake Real Estate Market 

I have been talking about FHA loans since last summer and the role FHA will have now that the market has shifted. FHA is not as sensitive to FICO scores. This does not mean you can have bad credit and still get a loan. Some people have lower FICO scores not because of a less than desirable payment history. Believe it or not there are still people that do not use credit to buy things other than a house.

FHA only requires a 3% down payment and it can be a gift, a grant or Down Payment Assistant Program aka DPA.

Some people interpret this as a Government bailout and the Government is making bad loans. FHA DOES NOT LOAN MONEY, FHA is an insured loan that is funded by the mortgage insurance premiums of the borrower.  The reason FHA works is very simple, it is what is called a full doc loan. Meaning full documentation, all things must be verified. You know trivial things like employment, rental history…

FHA has loosened up in the past few years on some physical requirements. They used to be so stringent that it didn’t make sense. Things like a handrail going to a basement could not be raw wood or a small crack in a window of a detached garage. The purpose of the requirements is to assure people were buying safe homes.

The latest is the increase in the loan limits. This one is huge, there are a lot of people that have homes that were considered a jumbo and therefore the loans had higher interest rates. Even with mortgage insurance FHA loan will be better than most conventional products that have 10% or less down. After all why shouldn’t someone with a good credit history good income minimal debt and a fair down payment get a good interest rate?

I have written quite a few pieces on FHA and still say when choosing a mortgage company make sure they are an FHA approved lender. For more read 8 Reasons Why You Should…

FHA Raises It’s Loan Limits Along with

Fannie Mae and Freddie Mac

Yesterday the limit on conforming loans were raised from $417,000 to $729,750. This can help the housing market for sure and help reduce the debt service of those that currently have loans from $417,000 to 700,000. Before anything over $417,000 was considered a jumbo loan and jumbo loans usually carry a higher interest rate.

One of the problems that came from the sub-prime debacle is the secondary market for jumbo loans, it is rapidly disappearing. Normally a jumbo loan is more risky, but $417,000 in some markets is not jumbo it is a starter home. Also what about the guy that bought a $630,000 home and put down 20%, that is $126,000 cash and a $504,000 loan. I don’t see the risk there, but because it was above the conforming limit it was. 

FHA released it’s limits today. Here is a list of the Utah FHA Limits by County

FHA has announced to keep their loan limits in place for the coming year 2008. The FHA maximum loan amount is 87% of the conventional loan limit of $417,000.  Salt County falls into the 87% making the total loan amount for Salt Lake $362,790

There had been a lot of talking about raising the limits on the conventional amounts to adjust to the recent rise in home prices. Based on some articles by Peter G. Miller (Good Site) over at FHA Mortgage Guide, he talks about if loan limits go up when prices go up, then they should go down when prices go down. So in essence keeping them the same while in some markets prices are going down some is good for the housing market.

Click for a table of FHA Loan Limits for Utah Metro Areas.

Below is an update on the Down Payment Assistance Front. Recently HUD stated that they were going to do away with the DPA. A DPA is where a seller contributes 3% of the purchase price plus an administration fee to the DPA and the DPA will gift the buyer the down payment.

This program works for FHA loans and that is why HUD is in the middle of it.

A buyer’s down payment can be a gift, however the gift cannot be directly from the seller. So this clever little money laundering technique has benefited many of homeowners get a 100% loan but instead of it being a sub-prime adjustable type thing or an interest only for two years and kaboom. The buyer would have a nice 30 year fixed rate with low monthly mortgage insurance.

So here is the deal in action. Billy Buyer makes an offer on Sally Seller’s home. The offer has an addendum that says that Sally will contribute 2.5% of the purchase price to pay for the buyer’s closing cost. Then Billy Buyer will ask Sally Seller to contribute 3% of the purchase price + a $500 processing fee. So depending on the price of the home, the seller will contribute approximately 6% of the sales price on behalf of the buyer.

Usually the difference is split, meaning the sales price is increased by 3%. The seller agrees to the full 6% concession. SO the buyer gets 100% loan and finances the closing cost.

October 31, 2007

UPDATE

Gaithersburg, MD – United States Federal District Court Judge Paul L. Friedman today ruled in the case of AmeriDream v. Jackson that the Department of Housing and Urban Development cannot implement its regulation on downpayment assistance, which had been scheduled to go into effect today. AmeriDream, Incorporated, a 501(c)(3) charitable entity dedicated to helping low and moderate income families purchase their own homes through the provision of downpayment assistance and other services, had brought suit against HUD Secretary Alphonso Jackson challenging the regulation, which would have reversed prior HUD policies regarding downpayment assistance.

Judge Friedman agreed with AmeriDream’s position that there was a “substantial likelihood” that the regulation violated applicable law. Judge Friedman further stated that the regulation lacked a “reasoned analysis” and was based on “flimsy” support. Judge Friedman also questioned whether HUD acted appropriately in issuing the regulation in view of a published report that Secretary Jackson was committed to that course of action regardless of whatever public comments HUD would later receive. In view of those shortcomings and other considerations, Judge Friedman issued an injunction, effective immediately, preventing the regulation from taking effect.

As the Gold Standard for down payment assistance, AmeriDream remains committed to continue to fight the HUD Rule and to continue its mission to help individuals and families that are in need of a DPA program. Please check http://www.ameridream.org/ for the latest information regarding the HUD Rule.

AmeriDream is fully prepared to meet your DPA needs and to assist you with any transition issues as a result of the HUD Rule. Please contact your Outreach Representative or Customer Service
(or call 1-866-263-7437) for timely and professional service.

Again, thank you for your valuable support through this process.

8 Reasons Why You Should Use An FHA Approved Lender

• 1. FHA Approved Lender Can Offer You Conventional Products, But A Non FHA Approved Lender Cannot Offer You FHA
• 2. FHA Approved Lender Has To Have A $250,000 Net Worth, 20% Has To Be Liquid
• 3. FHA Approved Lender Has To Have A Written Quality Control Plan.
• 4. FHA Approved Lender Has To Go Through Annual Audits Of Their Files
• 5. FHA Does Not Use FICO Score*
• 6. FHA Allows The Seller To Contribute Up To Six Percent For The Buyer*
• 7. FHA Allows The Down Payment To A Be Gift*
• 8. FHA Allows Co-Signers

I only refer FHA Approved lenders to buyers. FHA is not always the best loan out there. However when it is the right one, conventional won’t touch it. Referring to item number one, a lender that is FHA Approved has all the products of the non FHA lenders, but the non FHA lenders don’t have FHA. That fact alone is enough to only refer FHA approved lenders.

Does that mean those lenders that are not FHA approved are not as good? Absolutely NOT. There are plenty of great non FHA approved lenders, they just have less to offer.

In the recent past the Salt Lake City Real Estate market was very strong (Salt Lake 3^rd Quarter Report) and conventional loans were lax, so FHA was not used to often but is coming back read FHA Roaring Back To Life In Salt Lake

*(Restrictions apply)

Yep it’s true.

FHA is NOT based on your FICO Score.

Before you decide to stop paying all your bills and then apply for an FHA loan, that’s not what it meant.

FHA is still based on credit history just not the way the credit bureaus report it. Typically a low score is based on one of two reasons. One because you don’t pay your bills plain and simple, Two because you lack Traditional Credit History like a credit card…

The first one can prevent you from getting an FHA loan but the second will not. You can alternate trade lines such as utility bills and other forms trade lines that can be verified.

But it is a full document loan. Meaning all the other items need to be verified, such as income.

So if lack credit you can still buy a home.

Tags: FHA, Salt+Lake

For the past few years home buyers have been getting non-government, (it is hard to call some of the past loans conventional) to finance their homes. During this time FHA loans became almost non- existent! In fact, most lenders and agents in the business today have never done an FHA loan. Two thirds of the UT Real Estate Agents have entered the industry in the last five years. Over the past five years the lending business has changed dramatically. Loan officers are now required to be licenced. However, this has only been a requirement for a short amount of time. So with that said most real estate agents and most loan officers don’t have experience with FHA loans.

Because of the loose underwriting guidelines (subprime loans; no document loans) that we have had in the past few years, why would people do an FHA loan? With FHA more documentation is needed, such as: bank statements, pay stubs, tax returns, and verification of income. Imagine some bank asking DO YOU HAVE A JOB? Who has time to find that stuff?

What is an FHA loan? An FHA loans is normal loan except it is “Insured” by the Federal Government. The federal government DOES NOT loan the money. Typically when you have less than 20% down you pay what is called a mortgage insurance. It is an amount that is added to the payment and it goes to the Mortgage Insurer and it insures the lender in the event of a default.

To be an FHA approved Mortgage Company there are requirements. They must have assets, a $250,000 net worth which 20% must be liquid. Credit Report on all Senior Officers or anyone with 25% or more ownership, minimum 3 years experience and a quality control plan. Hmm knowing that Utah has had the distinct honor for leading the nation in loan fraud, choosing an FHA approved company might not be a bad place to start.

In the past FHA Loan amounts were not in line with the markets and physical requirements for a home were a little nitpicky and were not realistic. Some examples were a minor crack in an insignificant basement window or a handrail going to the basement that wasn’t varnished. “You have to love that the Federal Government, Corporate Raiders were fleecing pensioners of their life savings and they’re measuring varnish millage on a handrail of an 85 year old house.”

Because of these antiquated requirements most veteran agents stayed away from them and for very good reason.

Over the past few years FHA has been aggressively getting up to speed with the market place. They’re loan amounts are rising to meet market demands and there is legislation going through the system right now that will put FHA in line with FANNIE MAE and FREDDIE MAC guidelines. They are more realistic in their physical nitpicking. They’re minimum safety standards are good just not silly anymore.

In the last few years while a lot of mortgage companies were setting themselves up for bankruptcy, FHA has been polishing it’s armour to be the shinning knight that it is.

So if you are talking to a loan officer mention FHA, if you get responses like. They’re no good. We can get get you a better loan than that. TRANSLATION, they are not an FHA approved lender, read the above requirements again.

When confronting a non FHA lender you will hear tired old augments like, FHA requires mortgage insurance. The sub prime lender will tell you they have an 80/20 loan with no MI. Let’s see a 80% first mortgage at 7% interest rate and a 20% second mortgage at 10% interest rate. Hmm if you can’t see where the MI in that scenario is they might offer to sell you swamp land in Florida. Then one of their old trump cards is MI is not tax deductible. As of January 1st, 2007 those households whose adjusted gross income is $100,000 or less their MI premium will be 100% tax deductible.

So here are some basic physical guidelines for FHA: (that still apply)