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NEW FHA GUIDELINES | See the major changes that can affect your purchase loan

NEW FHA GUIDELINES | See the major changes that can affect your purchase loan

New FHA Guidelines

On September 14 FHA issued a new handbook for FHA mortgages. You can download the new guidelines here.

Some of the major changes are listed here below:

Tax Liens ( Improvement): 

Tax liens may remain unpaid if the borrower has entered into a valid repayment agreement and has made at least 3 months of timely payments (formerly it was 6).

Payments may not be “pre-paid” and the tax authority must agree to subordinate the lien to the 1st TD.

Commissions Income ( Improvement):

Commissions can be used to qualify with just a 1 year history (formerly 2 years).

Voluntary Alimony or Child Support Payments (Good News):

They can now be counted if there is a 6-12 month history of receipts.

Multiple FHA loans:

Borrower may now ONLY obtain second FHA loan for new principal residence when relocating for employment and their current residence is more than 100 miles from new residence area.

Mixed Use Condos (Improvement):

Formerly: No more than 25% of the total floor space could be devoted to commercial use, now 51% can be commercial.

Satisfactory Credit -this has been more clearly defined to include:

  • No 90 day  late payments for revolving, installment debt payments accounts in the last 12 months.
  • The borrower has made all housing payments on time for the previous 12 months – no 30 day late payments.
  • no more than (2) 30 day mortgage late in the last 24 months

New FHA Guidelines

 

Looking to buy real estate in Orange County, CA? email Jesse Madison now and get started!

 

 

NEW FHA Guideline Changes by category:

FHA Changes affecting credit:

  • IRS Tax Liens- tax liens are allowed to remain open with repayment plan, three months payments and subordination agreement are required. MORE RESTRICTIVE
  • judgments are allowed to remain open with repayment plan and three-month payments. MORE RESTRICTIVE
  • Deferred debt must be included in debt ratio MORE RESTRICTIVE
  • Authorized user accounts must always be included in debt ratios. MORE RESTRICTIVE
  • For all revolving accounts and deferred installment loans, including student loans when no payment exists on the credit report, we will use the greater of $10 or 2% on student loans; greater of $10 or 5% on all other debt. IMPROVEMENT
  • When an installment loan in repayment, including student loans in repayment, shows no monthly payment on the credit report, a statement is required. MORE RESTRICTIVE
  • On re-established credit, we will allow one collection account with a maximum of $500. Account must be dated more than 12 months prior to application. IMPROVEMENT
  • When an account is paid by a business, we must show the business related debt on the tax return. Now, we must also show that the debt was considered in the cash flow analysis of the borrower’s business. MORE RESTRICTIVE
  • Cumulative outstanding collection account balances of $2,000 or greater must be paid off at or prior to settlement or verify borrower has made payment arrangements and hit the DTI, or, use 5% of the balance in the DTI. MORE RESTRICTIVE
    • See Hud handbook for additional guidance if borrower’s reside in a community property state.
  • For a short sale borrower if they were current at the time of the short sale, we can finance before 3 years if the loan is manually downgraded with no mortgage or installment lates in the 12 months prior to short sale date AND 12 months prior to application date. MORE RESTRICTIVE
  • 30 day accounts must now have 0x30 in the past 12 months AND must document they have funds to pay the account in full. If the credit report reflects any late payments in the last 12 months, the Mortgagee must utilize 5% of the outstanding balance as the Borrower’s monthly debt to be included in the DTI. In addition to the 5% the borrower must have the assets to cover the outstanding balance. MORE RESTRICTIVE

FHA Changes for Income Requirements:Via-Cartama-opt

  • Balance sheet is not required for schedule C self- employed borrowers .IMPROVEMENT
  • If the borrower has more than 3 jobs in 12 months, we need to show required schooling or consistent increase in pay to qualify.MORE RESTRICTIVE

-transcripts of training and education demonstration qualification for a new position; or

-employment documentation evidencing continual increases in income and/or benefits.

  • In addition to a copy of the VA Award Letter, a copy of VA Form 26-8937 (Verification of VA Benefits) is required to prove income. MORE RESTRICTIVE
  • Capital gains or losses generally occur only one time, and should not be considered when determining Effective Income. However if a consistent gain or loss, 3 years tax returns are required to evaluate. CLARIFICATION
  • Future income no longer requires a paystub. The loan can close with an offer letter, provided that employment begins prior to close. IMPROVEMENT
  • Non-taxable income gross-up rate is capped at 15% instead of 25%. MORE RESTRICTIVE
  • When qualifying a borrower receiving commission income, a 1-year history receiving commission with the same employer is required. IMPROVEMENT
  • For borrowers serving in our military, the active duty expiration date on their LES must be at least 12 months out, OR we must have a LOX from the borrower stating their intention to re-enlist. CLARIFICATION
  • When a rental property is not listed on the Schedule E, we must obtain a 12 month lease agreement, verify 25% equity in the property, and date of acquisition. MORE RESTRICTIVE
  • We must obtain documentation from the private disability insurance provider showing the amount of the assistance with the expiration date of the benefits, if any, and the Federal tax return OR the most recent bank statement to evidence receipt of income . MORE RESTRICTIVE
  • Expected income from a family-owned business is not allowed. CLARIFICATION

FHA Changes regarding Assets:

  • Large deposits are defined as 1% of adjusted purchase price or appraised value. MORE RESTRICTIVE
  • For borrowers using joint bank statements; all non- Borrower parties (even spouses) on the account must provide a written statement that the Borrower has full access to use of the funds. CLARIFICATION
  • A salary advance cannot be used for funds to close. CLARIFICATION

FHA Changes regarding Property

  • Max age of appraisal is 240 days with an update (update extends appraisal, instead of update good for 120). IMPROVEMENT
  • Veterans on active duty are allowed to finance their home as a primary residence, provided we can document the home is occupied by the Veteran’s spouse . IMPROVEMENT
  • There are a number of site considerations. Refer to FHA 4000.1 handbook for guidance. CLARIFICATION
  • All common areas/common elements for condominium properties are to be included. This included, but are not limited to lobby/foyer, hallways, laundry facilities, storage areas, recreation facilities. CLARIFICATION
  • Comparable photos taken by the appraiser are to be shot at an angle, such that one of the sides is available . CLARIFICATION

FHA Changes regarding Purchase specific Changes:

  • Letter from homeowner is required if borrower is living rent free. CLARIFICATION
  • When a borrower is relocating, the new home must be at least 100 miles away from their current residence. MORE RESTRICTIVE
  • If a borrower is converting their primary residence to an investment property, it must be 100 miles away, they must have a security deposit, one year lease, AND 25% equity in the converted property. MORE RESTRICTIVE
  • There are no more HOC vacancy factors – 25% vacancy rate across the board. MORE RESTRICTIVE
  • Any EMD greater than 1% of the value of the home must be documented . MORE RESTRICTIVE
  • Any gift funds used toward an EMD must be documented, even if it is less than 1% of the value of the home.  CLARIFICATION
  • Gifts of equity always require a gift letter. Purchase Agreement is not acceptable . MORE RESTRICTIVE
  • On a Purchase transaction, a second lien from a HUD-approved nonprofit cannot cover a borrower’s minimum required investment . MORE RESTRICTIVE

Juan and Gloria smallMiscellaneous Changes:

  • If subordinate financing exists, the total of both mortgages may not exceed the national mortgage limit. IMPROVEMENT
  • For a non-permanent resident alien, an Employment Authorization Document (EAD) is required. MORE RESTRICTIVE

 

For more information on purchasing Orange County Real Estate with just 3.5% dow using new FHA guidelines please call Jesse Madison at 949-306-8416

Fannie Mae announces 97% LTV Options!

Fannie Mae announces 97% LTV Options!

Fannie Mae announces 97% LTV Options

For First-Time Home Buyers and Limited Cash-Out Refinance of Fannie Mae Loans

 

Only 1 buyer needs to be a first time homebuyer. Release of the program is December 13, 2014.

 

According to consumer research conducted by Fannie Mae, the primary barrier to homeownership for first-time home buyers is saving money for the down payment and closing costs. In support of ongoing efforts to expand access to credit and support sustainable homeownership, Fannie Mae is offering 97% LTV /CLTV/HCLTV financing to help home buyers who would otherwise qualify for a mortgage but may not have the resources for a larger down payment, and a refinance option for Fannie Mae loans. These options are designed to help lenders serve creditworthy borrowers and expand business opportunities. Refer to Selling Guide Announcement SEL-2014-15 for details. 

Key Features (apply to all options)

  • Desktop Underwriter® (DU®) underwriting required
  • 1-unit principal residence (including condos and PUDs; manufactured housing is not eligible)
  • Fixed-rate mortgage with maximum term of 30 years
  • Reserves (if required per DU) may be gifted

fannie mae

 

Definitions

First-time home buyer (FTHB): At least one buyer must not have owned any residential property in the past three years
(full definition).
Home-buyer education and counseling: As defined in the Selling Guide, Subpart B2-2-06: Home-buyer Education and Counseling

Selling Guide Announcement SEL-2014-15 | DU Version 9.2 Release Notes (updated December 8, 2014) |

3% Down Mortgages
3% Down Mortgages

Fannie Mae announced in Selling Guide Announcement SEL-2014-15 an increase in the maximum LTV, CLTV, and HCLTV ratios for certain principal residence transactions. Fannie Mae will allow LTV ratios greater than 95% up to a maximum of 97% for:

  • MyCommunityMortgage® (MCM®) purchase transactions if at least one borrower is a first-time home buyer and pre-purchase home-buyer education and counseling is completed,
  • standard purchase transactions (non-MCM) if at least one borrower is a first-time home buyer, or
  • standard limited cash-out refinances (non-MCM) of existing Fannie Mae loans.

All loans must be fixed-rate and secured by a one-unit principal residence. Manufactured housing is not

permitted. All loans must be underwritten with Desktop Underwriter® (DU®).

 

For more info please click here: FAQs

 

 

New Rules for Qualified Mortgages Arrive

New Rules for Qualified Mortgages Arrive

New rules for qualified mortgages took effect last week.

Many lawmakers and mortgage industry leaders are showing concern that these rules could greatly restrict mortgage credit and negatively impact the housing recovery.

New rules for qualified mortgagesThese new rules for qualified mortgages are commonly referred to as QM rules. These are mortgages that meet the ability to repay rule whereas borrowers spend no more than 43% of their income on debt. The purpose is to protect consumers so that they aren’t placed into mortgages they are unable to pay. But the overall effect could reduce access to credit for homebuyers. There will be fewer loan programs available for home buyers.

 QMs cannot have the following loan features:

  • An “interest-only” period, when a consumer pays only the interest without paying down the principal.
  • “Negative amortization,” when the loan principal increases over time, even though the borrower is making payments.
  • Loan terms that are longer than 30 years.
  • “Balloon payments,” which are larger-than-usual payments at the end of the loan term. However, loans with balloon payments are allowed by small creditors in certain circumstances.

The new QM rules will eliminate some forty-year mortgages because they exceed the New QM rulesmaximum loan term for  qualified mortgages. Forty-year mortgages have been useful to many buyers in reducing their monthly payment and in many cases they will no longer be available.

Cap on how much income can go towards debt

QMs will generally require that the borrower’s monthly debt, including the mortgage, isn’t more than 43 percent of the borrower’s monthly pre-tax income. (This limit does not apply to the temporarily authorized QMs, eligible for Fannie Mae, Freddie Mac, or certain government agencies, described above. It also does not apply to QMs made by certain small lenders that hold on to the loans.

No excess upfront points and fees

QMs have limits on the amount of upfront points and fees that the consumer can be charged. The limits will depend upon the size of the loan. Many third-party charges, such as the cost of a credit report, are not included in the limit. QMs also have limits on discount points, which a consumer pays in return for a reduced interest rate.

This new rule stems from the modifications made to regulation Z under the truth in lending act.  The Consumer Financial Protection Bureau recently amended regulation Z.  the changes became effective January 10, 2014.

What to do if your lender doesn’t follow the new rules for qualified mortgages

If you think your lender is not following the Ability-to-Replay/Qualified Mortgage rule, the Consumer Financial Protection Bureau wants to know. You can get in touch with us these ways:

Online: www.consumerfinance.gov/complaint By telephone (in 187 languages):

(855) 411-CFPB (2372) Español (855) 411-CFPB (2372) TTY/TDD (855) 729-CFPB (2372)

8 a.m. to 8 p.m. Eastern, Monday–Friday:

By mail: Consumer Financial Protection Bureau

P.O. Box 4503

Iowa City, Iowa 52244 By fax: (855) 237-2392

 

Read more about what the new ability to repay rule means for consumers here: http://files.consumerfinance.gov/f/201309_cfpb_ability-to-repay-rule_what-it-means-for-consumers.pdf

Reverse Mortgage | How will it affect me?

Reverse Mortgage | How will it affect me?

Reverse mortgage? How will it affect me?

Those are the question that are unclear to many borrowers. There is a clear lack of understanding due to deceptive marketing practices.

reverse mortgagesThe Consumer Finance Protection Bureau has reported that there is confusion in the reverse mortgage market. Their report has identified mass confusion due to the following factors:

  • Lack of Understanding: few completely understand reverse mortgages. Many consumers struggle to understand how their loan balance will be impacted. They also do not understand that they need to continue to pay taxes and insurance on their home.
  • Younger Borrowers: The report found the most common age for a new borrower is 62—the first year in which a consumer becomes eligible or qualifies for a reverse mortgage.
  • Lump Sum Payments: Seventy percent of borrowers are taking out the full amount of proceeds as a lump sum rather than as an income stream or line of credit. This could lead to fewer resources available later in life and risk losing their home.
  • Deceptive Marketing: There is an abundance of deceptive and misleading marketing materials about reverse mortgages. Borrowers need to understand this is not a government benefit or entitlement program like Medicare. Government seals may appear on mailers in order to entice consumers to sign up.This can be misleading.
  • Housing Counseling: Counselors need to improve their understanding of thi sloan product to help consumers make informed decisions when contemplating reverse mortgages.

reverse mortgageSo…what is a Reverse Mortgage? Here is an explanation from the CFPB website.

A reverse mortgage is a special type of loan that allows homeowners 62 and older to borrow against the equity in their homes. It is called “reverse” because you receive money from the lender, instead of making payments to the lender. The money you receive, and the interest charged on the loan, increase the balance of your loan each month. Over time, the equity you have in your home decreases as the amount you owe increases.

When you take out a reverse mortgage loan, you can receive your money as a line of credit available when you need it, in regular monthly installments, or up-front as a lump sum. You do not have to pay back the loan as long as you continue to live in the home, maintain your home, and stay current on expenses such as homeowner’s insurance and property taxes. If you move or die, the loan becomes due and must be paid off. In most cases the home will need to be sold in order to repay the loan.

Most reverse-mortgage loans are insured by the Federal Housing Administration (FHA). Some lenders may also offer proprietary (non-government insured) reverse mortgages, which are typically designed for homeowners with high home values.

TIP: If you or your parents are considering a reverse mortgage, make sure you get all the facts first:

FHA Back to Work Lending Program: Now you can buy a home 1 year after Short Sale

FHA Back to Work Lending Program: Now you can buy a home 1 year after Short Sale

The FHA Back to Work Lending Program brings Good News for those who recently experienced a Short Sale, Foreclosure or Deed-in-Lieu on their home.

The waiting period reduction affects people that lost their homes from either:

  • Short Sales
  • Foreclosure
  • Bankruptcy
  • Deed in Lieu of Foreclosure
FHA Back to Work Program
FHA Back to Work Program

They used to have to wait several years before they could obtain a new loan for the purchase of another home. FHA Changes now state that those that suffered these hardships can buy again 12 months after the hardship.

FHA Back to Work Lending Program guidelines state that borrowers will be considered if they have experienced and Economic Event and that:

  • certain credit impairments were the result of a loss of employment or a significant loss of household income beyond the borrowers control.
  • The borrower has demonstrated full recovery from the event; and,
  • The borrower has completed housing counseling

Borrowers that may be otherwise ineligible for an FHA-insured mortgage due to FHA’s waiting period for bankruptcies, foreclosures, deeds-in-lieu and short sales, as well as delinquencies and/or indications of derogatory credit, including collections and judgments, may be eligible for  a FHA-insured mortgage,” according to Mortgagee Letter 2013-26 dated Aug 15.

But lenders may find the documentation and other requirements will take a lot of work and leave them open to second guessing by auditors.

Lenders will responsible for meeting the guidelines and all other HUD requirements before making the loan under FHA Back to Work.

Want to begin shopping for a new home? Please visit http://Jesse.MadisonRealtyHomes.com today and lets get started!

Learn about Buying a HUD Home at Chase Irvine Branch Aug 16

Learn about Buying a HUD Home at Chase Irvine Branch Aug 16

Learn about Buying a HUD Home at our next Quarterly Buyer Outreach Event.

Buying a HUD Home
Buying a HUD Home

Where: Chase Bank 

Culver and Deerfield Branch

15275 Culver Dr.

Irvine, CA 92604

When: Aug 16,  9:30am – 2pm

PLEASE VISIT US! We will be at the bank speaking to attendees about HUD Home-buying opportunities!

We offer “HUD Homebuyer Education” for buyers interested on puchasing HUD Homes. Please attend one of our workshops to learn how to buy a HUD-owned property in California.

HUD Homebuyer Education presents an amazing opportunity for those looking to  SAVE MONEY when buying a home in Southern California.  Learn the benefits of buying a HUD home:

  • Appraisals are completed on HUD homes before they are listed for sale.  Often times, the homes are listed for sale at or below the appraised value!
  • If you utilize FHA financing, you can use the appraisal completed by HUD saving you hundreds of dollars!
  • Termite reports are provided and section 1 repairs are completed by the seller when using FHA loans.
  • Property Condition Reports (which are similar to a home inspection) are provided to you by HUD at no cost saving you hundreds of dollars!
  • HUD will pay up to $4000 towards lead based paint remediation when the buyer uses FHA financing!
  • Only owner occupants can make offers on HUD owned homes for the first 30 days the home is listed!

Please join us to learn more about the process and benefits of buying a HUD home. We will show you a list of HUD properties available in Southern California communities. This event is completely free of charge.

Learn How to save Thousands and Enjoy the Benefits of owning a HUD home at our HUD Homebuyer Education events.

You may qualify for:

  • FREE Appraisals
  • FREE Termite Reports
  • FREE Lead Based Paint remediation
  • FREE 15 day Escrow Extensions if needed

LEARN how Owner Occupants get priority!

 

 

We will provide you with information on How to By HUD Homes and what incentives are available for FHA buyers!

Call Jesse Madison for more information at 949-306-8416

 

For more information, please call Jesse at (949) 306-8416

Please contact me at JMadison.Realtor@gmail.com to register for one of our “HUD Homebuyer Education Workshops” near you.

Record Low interest Rates! Save Thousands – See How

Record Low interest Rates! Save Thousands – See How

With record low interest rates…now is the time to buy!

Do not wait too long to buy a home as right now there are record low interest rates. you can save thousands on your payments over the course of the year.

See how in the chart below:

Record low interest rates not only will help you on purchasing a new home. But if you refinance your existing loan you can also have substantial savings on your mortgage payments. You can save thousands of dollars!

If you need help taking advantage of Record low interest rates and you would like to purchase a home in Orange County please call us right away at 949-306-8416!

Dontwaittobuy_carrie.edits_1.9.13

 

This graph shows the payments on a 30 year mortgage but you can also obtain a 15 year mortgage and save even more with just a slightly higher monthly payment. Buyers that can afford to should consider converting their 30 year mortgage to a 15 year mortgage so that they can save substantially during the life of the loan. Call Jesse today to find out just how much you can save by switching to a 15 year mortgage when you buy a home.

Search for Homes FREE Orange County Home Search Here!

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