Mortgage Guidelines

FHA, VA and USDA Make Changes to Support Homeownership

The winds of change in residential financing has taken full force effective today. Every year just like the change in weather, the new fiscal year begins on October 1st for the US Department of Housing and Urban Development (FHA), Department of Veterans Affairs (VA) and USDA Guaranteed Rural Housing Loan Program (USDA).

With a new year of funding, changes for FHA, VA and USDA are mandatory in order to sustain their individual and collective role in the US housing industry.

Let’s get started with the major changes for each organization. When we talk about the biggest advocate in the housing industry, FHA is always top of mind awareness. Although FHA implements guideline changes throughout the year October 1st rolls out changes to the FHA Mortgage Limits for both forward and reverse mortgages.

For the past several years, FHA Mortgage Limits had been raised to help the housing market. This year the maximum FHA Mortgage Limit for the greater Joliet-Naperville-Gary Metropolitan Statistical Area (aka Chicago land) is being reduced from $410,000 down to $365,700 for a single-family home on a forward mortgage. The maximum principal FHA Mortgage Limit for a Home Equity Conversion Mortgage (aka. reverse mortgage) is $625,500.

With the reduction in the FHA Mortgage Limit, this will be good news for the FHA Insurance fund as they will have less exposure to large losses from higher priced homes and strategic defaults.

The US Department of Veterans Affairs (VA) will also be making changes that benefit both 1st time home buyers and repeat users of VA Guaranteed home loans. Across the board, VA has reduced their upfront loan fee for VA Guaranteed Loans on a graduated scale from today until 2013. These reduced fees will benefit both veterans and reservists/national guardsman alike.

Similar to VA, the USDA Guaranteed Rural Housing Loan Program has also reduced their upfront Guarantee fee from 3.50% down to 2.00% for purchase transactions. Unlike VA though, USDA will now be requiring an annual fee (aka mortgage insurance) of 0.30% on the outstanding principal balance.

While some would applaud these changes, others will voice their opposition. Either way, if you would like to learn more about the changes that FHA, VA and USDA have made to support homeownership just speak to a qualified mortgage professional on the team at GVC Mortgage, Inc.

If you or someone you know is thinking about buying a home, the combination of low home loan rates and affordable home prices make this an ideal time to buy a home. Want to know if you can afford a new home? Call or text me at 512-522-7284 to discuss your personal situation and your home loan options!

 

How Long Is The Wait to Buy a Home After Derogatory Credit

With the down turn in the economy over the past several years coupled with high unemployment, many good borrowers have been forced to make difficult decisions on which bills to pay. Generically speaking, paying the mortgage should alwys take number one priority. That is not always feasible unfortunately.

For those homeowners who were foreclosed, walked away and/or had to file bankruptcy there is life after major derogatory credit. Depending on the nature and circumstances in which you had to default on your previous home, the waiting period can be sooner than you think.

Below you will find a matrix that illustrates the governed waiting periods required for derogatory credit events.

It may not happen as soon as you would like, but there is hope. Just remember that real estate and the mortgage industry is no longer in their glory days when these type of major derogatory credit events were simple ant hills on the super highway to home ownership.

Bad things happen to good people. If you would like to speak about your specific situation and how you could get back on the fast track to home ownership, contact me today to schedule free credit review and consultation.

FHA Increases Annual Mortgage Insurance Premiums Again

In case you missed the big event on April 18th, FHA administered an increase to the Annual Mortgage Insurance Premiums for all forward mortgage terms as instructed in Mortgagee Letter 11-10. You may be wondering why FHA would increase their fees again considering they raised fees last fall.

Per a legislative mandate in section 202 of the National Housing Act to ensure that FHA’s Mutual Mortgage Insurance Fund remains financially stable, an increase in the Annual Mortgage Insurance Premiums was required due to growing utilization of the FHA home loan in real estate transactions especially in Northwest Indiana and the surrounding Chicago suburbs. 

The increase by FHA to the Annual Mortgage Insurance Premiums is only 25 basis points (bps) and it should be noted that the Upfront Mortgage Insurance Premium remains unchanged at one percent of the loan amount. In the chart below you can see the actual increase that transpired on April 18th.

Although FHA calculates mortgage insurance premiums on an annual basis, a borrower actually pays mortgage insurance premiums back on a monthly basis. What kind of impact could this have on your monthly FHA home loan payment in Northwest Indiana and the surrounding Chicago suburbs?

Even though FHA has slightly increased their fees yet again, the FHA home loan is still a great value for home buyers and homeowners looking to refinance. If you are ready to begin your discussion on how an FHA home loan could still benefit you, complete your secured online FHA home loan application today!

Higher Home Loan Fees from Fannie Mae and Freddie Mac

Do you have less than 25 percent as a down payment for your next home purchase in Northwest Indiana?

Do you need a home loan term longer than fifteen years?

Is your FICO credit score less than exceptional?

If you answered yes to these questions, you will soon be paying even more to get a home loan for purchase or refinance.

Fannie Mae and Freddie Mac are raising credit risk fees that are charged to lenders for the first time since 2009. These increases will affect a vast majority of home loans sold to Fannie Mae (since April1, 2011) and Freddie Mac (beginning March 1, 2011).

Here is an example of the impact of the higher home loan fees from Fannie Mae and Freddie Mac.

Say you are purchasing a nice home in Valparaiso Indiana for $250,000. You have a 20 percent down payment. Your FICO credit score is 720. Your credit risk fee will now be $1,000. If your FICO credit score is 680, the credit risk fee will now be $3,500.

If you want to find out what these fees could mean to your home buying situation, contact us today. Home loan rates are still at historically low levels and if you are looking to purchase a home or refinance your existing home, now is the perfect time to plan accordingly.

2011 FHA Maximum Loan Limits – Why You Need to Know

Every year around this time, lenders receive confirmation of the coming year’s Fannie Mae and FHA maximum loan limits. Prior to the real estate bubble it was always a forgone conclusion that the Fannie Mae and FHA maximum loan limits would increase as this was a natural function of increasing home prices.

In the past several years however there has been a fear that the Fannie Mae and FHA maximum loan limits would be decreased as home prices have plunged and stagnated throughout country and even right here in Northwest Indiana.

Surprisingly, both 2011 Fannie Mae and FHA maximum loan limits remained unchanged from 2010. More attention historically speaking would have been given to the Fannie Mae maximum loan limits.

In 2011 much of the talk will be about FHA insured home loans as the home loan pendulum has swung from conventional loans to FHA loans. To illustrate this fact here is a look at the latest trends.

“FHA loans were the most common type of loan, with 43 percent of buyers choosing this option… More than half of first-time buyers (56 percent) chose FHA loans…”

*Profile of Home Buyers and Sellers 2010 – National Association of Realtors

If FHA loans are becoming such a large piece of real estate finance options, you might want to know how it could affect you as a home buyer, a homeowner who wants to refinance or as a homeowner who desires to sell their home.

Understanding how much the FHA maximum loan limit is not as simple as you might think unfortunately. There is not just one FHA maximum loan limit. Besides the maximum loan limit variance between a single family home and a four-family home, property location is the most important criteria.

FHA maximum loan limits are geographically based and whether or not that region is declared as a standard FHA Forward area, a low cost area (floor), a high cost area (ceiling) or a special exception area (i.e. Alaska, Hawaii, Guam and Virgin Islands). Different FHA maximum loan limits also apply to Home Equity Conversion Mortgages (aka. reverse mortgage) and the HOPE for Homeowners program.

Not only do FHA maximum loan limits vary by region, but more importantly they will vary by county. For instance, the FHA maximum loan limit for a single family home in Porter County Indiana is $410,000. Meanwhile in the adjacent county of La Porte County Indiana the FHA maximum loan limit for the same home is only $271,050.

If you are in the process of buying a home, selling a home or refinancing your home in Northwest Indiana, please contact us to learn how the 2011 FHA maximum loan limits could impact your next real estate decision.

Homeowner Tips for Dealing with Frozen or Reduced HELOC

One result of the credit crunch and the economic recession has been the freezing or reduction of home equity lines of credit (HELOC) by banks. A HELOC is a form of revolving credit in which the borrower’s home serves as collateral. And while this is not a surprising move by banks looking to be more conservative with their lending policies during tough times, many homeowners counting on this credit will face some challenges if their HELOC is reduced or frozen.

To help you deal with these challenges, the US Treasury Department and the Federal Reserve each released some helpful tips for homeowners in this situation. The following is a summary of these tips.

Read Everything to the Letter – Your HELOC lender must provide you with a written notice if it has frozen or reduced your HELOC no later than 3 business days after the freeze or reduction. Information about any other changes to your HELOC must be included as well, so read everything mailed to you from your lender.

Pick Up the Phone – Your lender has the right to freeze or reduce your HELOC, even if you have a good payment record. Some common reasons for the action are a decline in the value of your home, a negative change in your financial situation, or a negative change in your credit score. Contact your lender if you have questions or concerns about a freeze or reduction.

Communication is Key – The required notice to freeze or reduce your HELOC will likely contain specific reasons for the action. Find out the reason, and see if you can take any steps to reinstate your HELOC.  The bank might not know about home improvements you made that might affect the value of your home. It might not be aware that you or your spouse got a new job, took a second job, or made some substantial investments that affect your finances. If your credit took a hit, investigate ways to improve your credit and communicate your efforts to your bank.

Don’t Be Afraid to Ask – Your lender must reinstate your credit privileges when the conditions permitting the freeze or reduction no longer exist. You may need to request in writing to have your line of credit reinstated, so be sure to find out why your HELOC was frozen or reduced. Once your lender receives your written request, they must promptly investigate and determine whether your HELOC can be reinstated.

Be Prepared for Fees – There may be some fees involved to cover the costs for an appraisal and/or credit report when a bank considers your request for reinstating your HELOC. However, you cannot be charged a fee to reinstate your HELOC once the condition that caused the freeze or reduction no longer exists.

If you or someone you know has questions about HELOCs, credit repair, purchasing or refinancing a home in Northwest Indiana, please contact us to review your needs.

New FHA Mortgage Insurance Premiums Start October 4th

For the second time this year, the FHA is modifying their guidelines on mortgage insurance premiums.

Beginning with FHA case numbers issued on or after October 4, 2010, the FHA is changing its upfront and annual mortgage insurance premium structure.

Under the new terms, assuming a 30-year fixed rate FHA mortgage with at least 5 percent equity:

• Upfront MIP drops to 1.000% of the amount borrowed from 2.250%
• Annual MIP increases to 0.850% of the amount borrowed from 0.500%

For homeowners in Valparaiso Indiana and everywhere else, this switch in MIP decreases the upfront cost of an FHA-insured mortgage, but increases the loan’s long-term costs.

Using a $100,000 mortgage as an example, upfront MIP falls to $1,000 from $2,250; monthly MIP jumps to $70.83 from $41.67. The FHA expects the change will yield an additional $300 million in premiums monthly.

The update is a huge win for the FHA whose reserve funds are self-proclaimed to be “perilously low”.  The extra monies should help recapitalize and stabilize the government group.

The FHA is on pace to back 1.7 million loans this year.

For the majority of refinancing FHA homeowners and home buyers in Valparaiso Indiana, the MIP change is neither good nor bad — the borrowing landscape will just looks a bit different.  Yes, FHA home loans will cost more to carry each month, but also they’ll be less expensive to procure. It’s a trade-off and you can apply math formulas to solve for the best time to apply FHA. 

It may be wise to get your FHA case number before October 4, for example, depending on your time frame in the home and the expected life of the mortgage. Or, it may be better to wait until after October 4 to apply.

If you’re unsure of how the new FHA mortgage premiums will impact your application for an FHA insured mortgage, be sure to call or email me for help.

NOTE : The FHA originally announced an implementation date of September 7, 2010. It was subsequently amended to October 4, 2010.

6 Things You Need to Know About New FHA Home Loans

With the passing of H.R. 5981 and the resulting Public Law 111-229, FHA was given authority to change the amount charged to borrowers for both the Up Front and the Annual insurance premiums it requires to insure home loans.

These FHA Mortgage Insurance Premium changes are outlined in Mortgagee Letter 2010-28 and become effective for all FHA case numbers assigned on or after October 4th, 2010.

Here are the 6 things that every home buyer or homeowner refinancing needs to know about changes to FHA Mortgage Insurance Premiums:

1. The Up Front premium is now 1.0 % for all standard FHA programs (purchase money mortgages, full credit-qualifying refinances, streamline refinances)
2. The Annual premium is now .90% for LTVs GREATER than 95% on 30 year loans
3. The Annual premium is now .85% for LTVs EQUAL to or LESS than 95% on 30 year loans
4. The Annual premium is now .25% for LTVs GREATER than 90% on 15 year loans
5. The Annual premium is now .00% for LTVs EQUAL to or LESS than 90% on 15 year loans
6. These premiums apply to purchases, regular refinances and streamlines

Please note that this new law also gives FHA the authority to raise the Annual premium at will up to 1.5% for LTVs at or below 95% and 1.55% for LTVs more than 95%.

Change is inevitable – except from a vending machine. - Robert C Gallagher

If you’re uncertain as to how the new law and changes to FHA Mortgage Insurance Premiums could affect your ability to buy a home or refinance your existing home, contact me for a free mortgage consultation.

Why Is Your Mortgage Approval Contingent On Form 4506-T

If you are in need of a mortgage, there is one document that could stop you in your tracks. It is IRS Form 4506-T.

What exactly is Form 4506-T?

Form 4506-T, aka. Request for Transcript of Tax Return, allows lending institutions to validate your income by confirming with the Internal Revenue Service (IRS) that you are a lawful tax payer.

For decades, prospective home buyers in Portage Indiana only had to provide their pay stubs, W-2′s and tax returns as proof of their income. Today the aforementioned documentation is just the minimum.

Uncle Sam due to his large role in residential financing (i.e. Fannie Mae, Freddie Mac and FHA) now wants to make sure that you have paid and will continue to pay your taxes.

So what’s the problem you ask?

The problem arises from the very safeguard that Congress mandated. Banks are required and forced to use Form 4506-T in order to validate every one’s income.

The form itself has not changed much over the years. How it is completed to the satisfactory nature of the IRS has though. They even go so far as to put the following disclaimer at the top of the form:

“Request may be rejected if the form is incomplete or illegible.”

Requests for transcripts are rejected by the IRS on a daily basis. The most common errors are illegible handwriting and non-compliant signature dates. A simple typographical error could cause a rejection and the IRS is not required to tell you the source of the rejection.

Most consumers and real estate professionals are not aware of the significance of Form 4506-T as it was used sparingly for loan audits in years past. Now that every loan requires it to be executed, the IRS themselves have become a bottle neck.

Even if you have electronically filed and made an electronic payment of outstanding taxes, the IRS may not be able to validate your tax returns.

How could that be?

Unfortunately, the processing side doesn’t know what the validation side is doing. The two systems are not fully integrated. This is how your mortgage approval and home loan transaction could be delayed.

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