Beginning next year FHA mortgage appraisals will become portable.

At first this may not seem like a profound idea, but it’s actually a big advance for borrowers.

The FHA requires full-blown appraisals for all new and refinanced loans, except when there’s a streamline refinance of an existing FHA mortgage. Because FHA appraisals require a licensed appraiser to physically examine the inside and outside of the property, such valuations are expensive, typically a few hundred dollars.

Traditionally it has been very difficult to get an appraisal and then decide to get a better loan with another lender. Lenders have no incentive to encourage such thinking even though borrowers have no obligation to use a given loan source. So, to lock in borrowers, lenders typically have charged “application fees” and made it difficult or impossible to transfer appraisals from one lender to another.
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Imagine that you have an FHA loan and would like to get a loan modification. You’re nearby happy lender offers you a rate which is less than what you are paying today, so your monthly costs will go down and that sounds pretty good.However, the problem here is that while monthly costs go down, they may not go down as much as they could given current loan rates. In other words, the lender is selling a loan at an above-market price.
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In the heyday of the real estate bubble, FHA loans accounted for about 3 percent of residential mortgage loans. Now, they’re about 15 percent of the market. The demise of sub prime lending, Tight credit standards, and cash challenged homebuyers and homeowners contribute to the recent surge in FHA mortgage loans.

FHA Mortgage Provides Flexible Guidelines

• Low down payment: Conventional lenders rarely approve financing for homebuyers with less than a 10 percent down payment; FHA insures mortgage loans of up to 96.5 percent of home value. Borrowers should be aware that FHA loans come with a price in the form of mortgage insurance premiums. If you want to take advantage of current low mortgage rates, but don’t have enough cash to cover 10 percent down, an FHA mortgage loan can help.
• No specific income requirements: If you’re self employed, work seasonally, or cannot otherwise qualify for conventional mortgage loans due to your income, an FHA loan may be the mortgage loan for you. FHA places no dollar limits on qualifying income, which means that you can potentially qualify with any amount of income as long as you can document your ability to make mortgage payments.
• FHA loan limits accommodate many housing markets: FHA loan limits vary according to regional market conditions, with maximum loan limits ranging from $271,050 to $729,750.
• Thorough appraisal requirements = homebuyer protection: Although FHA has loosened some standards for minor cosmetic repairs, its appraisal guidelines require sellers to make recommended repairs prior to closing. Although this can seem troublesome for homebuyers anxious to close, it can save money and help prevent home repairs later.
• No income requirements (either high or low): Unlike convential lending requirements, FHA guidelines are based on a borrower’s ability to pay instead of arbitrary income requirements. There is no minimum or maximum income requirements for qualifying for an FHA mortgage. FHA lenders will verify income and employment.
• Flexible guidelines for source of down payment: Your down payment may come from a family member or friend, your employer, or a government and/or non-profit agency. (State and local first time homebuyer programs may provide down payment assistance for first time buyers.) If any part of your down payment is financed, you’ll have to demonstrate the ability to make payments on your FHA mortgage and the down payment financing.

Assessing FHA Loan Cost

You may have heard that FHA loans are expensive; this is a criticism of the mortgage insurance premiums charged to borrowers. 1.75 percent of your mortgage loan amount is paid up front, with .50 percent of your mortgage balance paid each year for up to five years, and/or or until your loan to value ratio (LTV) reaches 78 percent of its appraised value. Conventional mortgage loans also require mortgage insurance and many require down payments of 10 percent of your home’s value. Don’t let affordable homeonwership slip by before home prices and mortgage rates start rising.

FHA offers a simplified refinance program for homeowners wishing to refinance their existing FHA mortgages. This refinance program provides easy qualifying requirements, and quick closing, but changing FHA guidlines reflect tighter credit requirements across the mortgage lending industry.For all streamline refinance transactions with FHA case numbers issued on or after November 17, 2009  changes in FHA’s streamline refinance program include:

At the time of application, borrowers must demonstrate a satisfactory payment history:Applicants for streamline refinancing must have made at least six payments on the mortgage being refinanced. For mortgage loans less than 12 months old, all payments must have been made within 30 days of their due dates. For mortgage loans greater than 12 months old, borrowers must have no more than one payment more than 30 days late, and must have made the immediately preceding three payments on time.

Tangible net benefit to borrowers: The new mortgage under the streamline refinance program must provide a “tangible net benefit” to the homeowners. FHA defines “tangible net benefit” as:

• Reduction in the total mortgage payment (principle, interest, taxes and insurance, HOA dues, etc ) by five percent or more. If your total payment for your existing mortgage is $1200, your streamline refinance must have a total monthly payment of $1140 or less.
• Refinancing from an adjustable rate mortgage (ARM) to a fixed rate mortgage (FRM)
• Reducing the repayment term of the mortgage; converting from a 30 year FRM to a 15 year FRM isa typical example. Cash-out refinancing is not permitted when refinancing to a shorter repayment term.

Verification of income and assets: Mortgage lenders must verify employment, income, and the source of assets needed to close your streamline refinance.

Credit scores: All borrower credit scores are required.

Maximum Loan-to-Value (LTV): Fore refinance mortgages with subordinate financing remaining in place, the maximum combined LTV is 125 percent. The original appraised value of the home will be used for determining LTV in streamline refinances where no appraisal is required.

These are highlights of changes in the streamline refinance program,; FHA mortage lenders can provide full details. Shopping online for FHA approved mortgage lenders can help you find streamline refinancing terms matching your needs, and these lenders can also provide additional information about the FHA streamline refinance program and FHA guidelines in general. Knowing what to expect when applying for your streamline refinance can help you get approved and complete your refinance faster.

The government is out with its latest home price statistics and there’s both good news and bad: The Federal Housing Finance Agency says home prices in July rose 0.3 percent when compared to June — but values remain 10.5 percent below the highs seen during April 2007.

Combine lower home values with rising unemployment rates and the result for any organization that insures home mortgages is fairly obvious — there will be losses. Thus it hardly comes as a shock that FHA reserves are falling and might dip below 2 percent.
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Since May there’s been a debate within the real estate industry regarding whether or not it’s okay to pressure lenders to come up with the “right” appraisal number — you known, the magic number that will make the deal work, assure lender fees and not mess too much with loan officer profits. And if that means a buyer overpays for a property, well, is that really such a big deal….

Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct last May and the real estate industry has been mooing since then. It will take longer to do appraissals, they claim, but they never quite say why many people need to close a real estate transaction in just a few days. There are not as many qualified appraisers, they say, not mentioning that under HVCC apprasiers must actually be state licensed or certified under the program.
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The Wall Street Journal reports that the FHA’s reserves could fall below the amount mandated by Congress, and cites mortgage related losses as the cause of this problem. The looming potential of another taxpayer bailout is alarming, but FHA provides essential services for  first time buyers and low and middle income Americans unable to qualify for conventional mortgage loans or refinancing. 

In recent months FHA, which is an agency of the US Department of Housing and Urban Development, has upped its market share of single family mortgage loans due to the demise of sub-prime lenders and ”exotic mortgage loans that contributed to last year’s mortgage crisis. FHA’s market share was approximately 23 percent as of the second quarter of this year, compared to a paltry 2.7 percent in 2006; this demonstrates how FHA is filling the niche vacated by sub-prime and “easy credit” lenders.

FHA Dilemma: How to Boost Reserves?

FHA administrators state that they’re only required to report any shortfall, and don’t have to take further action. Edward Pinto, a former chief credit officer at Fannie Mae, may speak from experience: “…I’ve never seen an entity successfully outrun a situation like this.” Mr. Pinto also notes FHA’s added risk due its “making loans in a riskier environment.”  Riskier indeed. FHA reports mortgage defaults of 90 days or more at 7.8 percent during the second quarter of 2009;  year ago, the default rate for loans 90 or more days delinquent was 5.4 percent.

Meeting America’s Housing Needs Without Another Bailout

The financial industry has promoted homeownership as the “American Dream,” and many of us have a sense of entitlement when it comes to owning a home; we see it as a true mark of success. FHA mortgage loans provide fixed rate financing  with low down payments at reasonable rates; their main drawback is the mortgage insurance premiums that must be paid up front and annually. Borrowers typically add the up-front mortgage insurance premium (UFMIP) to their loan amounts, and then pay an annual premium of approxomately one half percent of their mortgage balance annually until their loan to value ratio reaches 78 percent or less. Increasing mortgage insurance premiums would likely discourage buyers from FHA mortgages and decrease its market share.

Although FHA administrators appear confident that they can avoid a shortfall of reserves, it also seems likely that they may have to make some changes to reduce risk. Higher down payments? Tighter credit standards? Requiring  larger down payments could help reduce the FHA’s exposure due to declining home values; and tightening credit requirements and mandating homebuyer education programs could help reduce mortgage defaults.

Taxpayers aren’t likely to support another bailout, and FHA provides an essential role in expanding accessibility to homeownership, and in the recovery of US housing markets. So what’s next?

Have you accumulated home equity and find that you could use some cash for remodeling, educational expenses, or debt consolidation? You may qualify for an FHA  cash-out refinance if you can meet the following eligibility requirements:

• The refinance mortgage amount, including the cash out amount, doesn’t exceed 85 percent of your home’s appraised value. For example, if your home’s appraised value is $250,000 your FHA refinance loan could not exceed $212,500 plus allowable costs and the up front mortgage insurance premium (UFMIP).
• In order to qualify for the maximum refinancing at 85 percent of home value, your home must have been your principal residence for the prior 12 months or more. If you’ve occupied your home for less than 12 months prior to refinancing, your loan amount will be limited to the lesser of 85% of the new appraised value, or 85 percent of your home’s sale price when you purchased it. If you inherited your home, its original sales price does not have to be considered.
• All borrowers must occupy the property securing the refinance loan. (Although FHA guidelines do permit non-occupant borrowers for other loan programs, this is not allowed for cash-out refinancing.)
• Your mortgage payments must be current.
• You do not need to have an existing mortgage to qualify for cash-out refinancing. Examples of this situation include  inheriting a home that is owned free and clear, or requesting a cash-out refinance after you’ve paying off your original mortgage.

FHA Guidelines for Cash-out Refinancing and Subordinate Liens

A subordinate lien is any type of mortgage loan, home equity loan, line of credit, or other lien against your home that will continue after refinancing is completed.

• Subordination of existing liens: Any existing liens must be subordinated to the new FHA refinance mortgage. The combined loan-to-value for the refinance mortgage and subordinate lien(s) may exceed 85 percent, provided the borrowers can qualify to make all payments.
• New subordinate financing is permitted provided the CLTV for the new subordinate lien and the refinance mortgage does not exceed 85 percent. Here’s an example: Your home is worth $250,0000. You want to refinance for $200,000 and have an existing  home equity loan with a balance of  $10,000. the total of both loans is $210,000, or 84 percent.
• FHA Cash-out Refinancing: Using it Wisely

Converting home equity to cash can be a useful financial tool under certain circumstances; it can provide funding for remodeling your home (and potentially increasing its value). If you’re carrying thousands of dollars in high cost credit card debt, a cash-out refinance can help you consolidate debt. Before taking on a cash-out refinance, it’s a good idea to contact a HUD approved housing counselor or other advisor for learning all of your options and making the best decision for your situation.

Earlier this year, after some confusion, it was finally determined that the $8,000 tax credit for first-time home buyers could be used for an FHA mortgage down payment. Since the house purchase would come before the credit, there had to be some mechanism which would allow the buyer to borrow that money. Ultimately HUD determined that a loan against the $8,000 tax credit would be okay if it came from a state agency or a non-profit group. However, if the money came from a private source then it could be used to reduce the loan amount — but the borrower would still need to come up with down payment money.
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Although reports of the economy improving are great news, many of us will suffer the after affects of tight credit, increasing finance charges, and long term unemployment for the foreseeable future. If you want to transition from renting to buying a home without much cash, an FHA mortgage may provide the financial flexibility and credit terms that can make the difference between buying a home or not.

Benefits of FHA Mortgage Loans for First Time and/or Credit Challenged Buyers

• No minimum credit score required
• Down payment payment may come from a relative, employer, government or non-profit agency
• Non-occupant co-borrowers allowed: Although at least one borrower must occupy the property being mortgaged, FHA loan requirements permit a parent or other co-borrower who won’t live in the home. This is helpful for anyone with limited income who needs a “co-signer,” but please be careful about selecting a co-borrower, as all borrowers are liable for repaying the mortgage loan.

FHA Loan Requirements: What About Mortgage Insurance?

iI’s true that FHA charges borrowers an up front mortgage insurance premium (UFMIP) due at closing. This amount averages about 2 percent of your mortgage loan amount, and is typically added to your loan.  If you’re borrowing 200,000 and your UFMIP is $4,000, your mortgage amount would be $204,000.

In addition, you’ll be charged about one-half percent (.50) of your mortgage balance before adding the UFMIP as an annual mortgage insurance premium. For a $200,000 mortgage, this would amount to $1000 yearly. Mortgage insurance protects your lender in the event of mortgage default; FHA would reimburse your lender for losses caused by foreclosure. FHA makes homeownership accessible to borrowers with marginal credit, but expects borrowers to share the risk by paying for mortgage insurance. Here are a couple of things to consider when weighing the cost of FHA mortgage insurance:

• FHA’s expanded qualifying ratios help compensate for the additional cost of mortgage insurance; your housing payment can be up to 31% of your monthly gross income, and your housing payment plus all other debts (credit cards, car payments, student loans) can be up to 43% of your gross income.
• Conventional mortgage financing requires private mortgage insurance (PMI) for any mortgage amount of more than 80% of home value. If you’re considering an FHA loan, it’s likely that you don’t have a 20% down payment. As with FHA mortgage insurance, borrowers pick up the tab for PMI premiums.
• FHA allows up to 96.5 percent loan-to-value ratio. This helps to accommodate the extra amount added to your mortgage for UFMIP.
• FHA approves borrowers who have filed bankruptcy at least two years ago and who have had a foreclosure at least three years ago.
• Non-traditional credit accepted (You can prove credit worthiness with rent receipts, utility payments, etc.)

Getting an FHA mortgage can help you buy a home at today’s low interest rates and home prices; the combination of low prices and mortgage rates makes more homes affordable.

FHA mortgage loans provide low down payment options (as low as 3.5 percent) and lenient credit requirements. This can be very helpful to people with bad credit or no credit; you can qualify if you’ve had a bankruptcy completed for at least two years or a foreclosure completed for at least three years. Refinancing to an FHA mortgage may be your only option for getting a lower mortgage rate If your home value has declined, and your mortgage amount is close to the amount your home is currently worth. 

One way that FHA can risk insuring mortgage loans with small down payments and mortgage loans for people with bad credit or little credit is requiring borrowers to pay for mortgage insurance.

FHA Mortgage Insurance Protects Lender

The FHA doesn’t make loans, but it does offer certain protections to mortgage lenders making FHA loans. FHA reimburses lenders for losses resulting from mortgage default and foreclosure. Although FHA suspended risk-based pricing for mortgage insurance for one year beginning October 1, 2008, it seems likely that the practice will continue as of October 1, 2009. If this is the case, borrowers would be required to pay a mortgage insurance premium determined by their loan-to-value ratio (LTV) and credit score. A percentage of the  mortgage insurance premium is due up front (UFMIP) when your mortgage or refinance closes, and the balance is an annual amount pro-rated and added to your monthly P&I payment. Here are some terms you’ll need to know:

• Loan-to-value ratio: Calculate your LTV by dividing the amount of your mortgage loan or refinance by the current value of your home as determined by sales price or current appraised value. If your home is worth $250,000, and your mortgage loan or refinance amount is $225,000, your LTV is 90%. (LTV is calculated using loan amount before UFMIP is added.)
• Mutual mortgage insurance (MMI): This is FHA’s mortgage insurance program.
• Up Front Mortgage Insurance Premium (UFMIP) This is the amount of MMI due when your mortgage or refinance closes; most borrowers have the UFMIP added to their mortgage loan amount. The UFMIP amount is determined by your LTV and credit score, and is calculated at 1.75 percent of your mortgage amount.  For a loan amount of $225,000, the UFMIP would be $3938; adding this amount to the loan balance would increase the mortgage loan amount to 228,938..
• Annual MMI premium: This is an annual amount you’ll pay for FHA mortgage insurance. If risk based MMI pricing resumes, it will be determined by your LTV and credit score. it can vary between between .50 and .55 basis points of your loan amount (not including the UFMIP amount) ; using our example of 90% LTV with a loan amount of $225,000,  50 basis points totals $1125 annually.

FHA loans are available at competitive mortgage rates,  and can offer solutions to difficult credit situations or in cases where home values have declined significantly. If you have bad credit, an FHA insured loan may provide access to the funds you need for buying a home or refinancing your current mortgage loan.

Why are private lenders insisting on FICO credit scores when the FHA program does not require them? That’s essentially the question raised by Nathan Reynolds who writes:

“I have been a mortgage broker for 10 years and have survived the mortgage crisis by successfully adapting to current lending practices and becoming an FHA Approved Lender (still a broker “Lender” is the title given to those authorized to provide FHA loans). I would like to once again state that in March of 2008 Banks unilaterally began implementing FICO score of 580. This Fico requirement has since risen to 620 by the top three Banks and as high as 660 from most 2nd Tier lenders who sell to these Banks. I spoke with a representative from FHA at a Foreclosure Prevention Seminar that I spoke at and flat out asked the FHA representative what gives? The representative informed me it wasn’t FHA it was the Banks and she wouldn’t be surprised if we don’t see 680 minimum Fico scores by years end. FHA has strict underwriting guidelines requiring full documentation and debt ratios that support the affordability of the loan. Defaults have nothing to do with a Fico score, painfully proven through the whole “Sub-Prime” saga. The borrowers ability to afford the loan they are applying for determines the risk of default. FHA could in fact be the very vehicle to solve the housing crisis if FICO scores were eliminated from qualification. FHA in its purist form as you wrote does not require a FICO score. I ask you why are banks implementing a score when it is not required? Please don’t tell me because of the default risk, it has already been established that it is the borrowers DTI that determines the risk not their inability to pay a bank credit card at 29.9%.”
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The Federal Housing Administration (FHA) is offering a streamline refinance option to homeowners who have FHA mortgage loans. In order to be eligible for streamline refinancing, you must meet these criteria:

• Your existing mortgage is insured by FHA (you have an “FHA loan.”)
• Mortgage payments on existing mortgage loan are current (defined as not more than 30 days past due on mortgage payments)
• The streamline refinancing program is limited to refinancing intended to lower monthly mortgage payments. You may not refinance for additional cash with a streamline refinance. 

Mortgage lenders offer three options for paying closing costs on streamline refinance transactions:

• “No closing costs:” Actually, you’ll pay closing costs with a higher mortgage rate. Your lender absorbs the closing costs, and you repay them over time with a higher mortgage rate.
• Roll closing costs into refinance amount: This means that your new mortgage amount will include the closing costs. As a general example, if you’re refinancing for $275,000 and your closing costs are $3000, your new mortgage amount would be $278,000. This option is only available if you have enough home equity as documented by a residential real estate appraisal. If you don’t have an appraisal, you can refinance for no more than your existing mortgage balance.
• Pay closing costs “up front”:  This is the traditional method of paying closing costs; you contribute enough cash to pay closing costs when your refinancing is completed, or “closed.”

Who Can Benefit From an FHA Refinance?

• Homeowners struggling with monthly payments:FHA refinancing provides an opportunity for reducing higher than market mortgage rates. By lowering the interest rate of your mortgage loan, your monthly P& I payments will also decrease. This provides financial flexibility, and can make pre-paying your mortgage loan easier.
• Homeowners with credit issues:  As long as you can qualify under streamline refinancing program requirements, it won’t matter if you’ve had credit problems including bankruptcy.

Why Stay with FHA?

Of course it’s prudent to shop FHA mortgage rates and terms, but lenders may offer non-FHA mortgage refinance options. Here are some benefits of staying with an FHA loan:

• No pre-payment penalty: FHA loans have no pre-payment penalties This means that if you choose to pay your mortgage off early, or sell your home , you won’t be charged a penalty.
• FHA mortage loans are fully assumable:  If you sell your home, and the buyers can qualify under FHA mortgage guidelines, they may assume your mortgage loan. This can be a big plus for attracting buyers, as i allows them to take over your mortgage payments with minimal mortgage underwriting.
• FHA provides homeowner assistance programs: FHA offers troubled homeowners a variety of loss mitigation and foreclosure prevention options through their mortgage loan servicers. If you ever have problems making payments, FHA programs can help save your home from foreclosure.

Refinancing your mortgage loan with FHA’s streamline refinance program can help you stabilize your finances, save money on mortgage rates, and offers flexibility not always available with other mortgage loans.

How can you refinance under today’s tighter mortgage credit standards if have bad credit? The answer is refinancing with an FHA mortgage loan. Even if you’ve filed bankruptcy, FHA loans for people with bad credit may provide a refinancing solution.

FHA Guidelines: More Lenient Than Conventional Refinancing

Refinancing to an FHA mortgage loan makes sense if you’re short of cash or have bad credit. Here’s how FHA guidelines for approving a mortgage can help you:

• Low down payment/home equity requirement: Down payments or home equity of as little as 3.5% of your home’s value reduces the amount of home equity and/or cash you must provide.
• No minimum credit score required: Increasingly strict credit requirements are making it difficult for many homeowners to qualify for traditional refinancing. FHA guidelines don’t require a minimum credit score.
• Cash gifts as source of down payment: You can use cash gifts from family members, employers, or charitable organizations for down payment funds if needed. If you need to supply a down payment in addition to your current home equity toward qualifying for a refinance mortgage, this can help.
• Non-occupant co-signer allowed:If you’re refinancing due to divorce or other situation that’s caused a loss of income, you can have a parent or other non-occupant co-borrower take out a refinance mortgage with you. FHA guidelines require at least one borrower to maintain full-time occupancy in the home you’re refinancing. Before using this option, please choose a co-signer with careful consideration.

Ongoing Benefits of Your FHA Refinance Mortgage

Once your FHA refinance is complete, you may benefit from FHA’s policies on home loans:

• Fully assumable: If you must sell your home, your FHA mortgage is fully assumable provided that the buyer meets FHA’s lenient credit requirements.
• No prepayment penalty: Some mortgage loans require a prepayment penalty for mortgage loans paid off before a certain date. FHA mortgage loans have no prepayment penalty.
• Mortgage foreclosure prevention: FHA provides lenders and homeowners with support and assistance designed to prevent foreclosure. If you become unemployed or otherwise cannot make mortgage payments, FHA programs can help.

FHA refinancing provides competitive interest rates and longstanding support for homeowners in a variety of circumstances.

FHA Experienced in Assisting Lenders and Borrowers

FHA originated in 1934, and has a long history of advocacy for mortgage lending and America’s homeowners. FHA mortgage loans are compatible with a variety of housing needs including:

• Rural housing
• Native American housing
• Funding for buying and rehabilitating substandard housing
• Installing accessibility features for disabled under Americans with Disabilities Act (ADA) guidelines.

Speak with an FHA approved lender to learn more about FHA’s home mortgage products and programs, and to get started with your FHA refinancing.

Lenders across the country has begun to gear up for new FHA condo standards which will begin October 1st.

The revised FHA mortgage rules were announced in a June letter to lenders from HUD. The bottom line is that if you now have a condo and want to finance or refinance with an FHA-backed loan, the process will now be more difficult. Here are some of the standards that HUD is requiring.
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