Dan Hartman

I got this message from a reader here on Activerain, and thought I'd share the answer.

Subject: FHA Gift Money (Sent via Activerain)

Dan, My wife and I are in the process of buying a house. During the FHA preapproval process we noticed that we possibly were going to need a little help monitarily. Mywife's parents were more than happy to help us out. The only catch and this is my problem, is that the money that they gave us was cash and is considered "matress money," as it was never in the bank. We have filled out a gift letter, but our lender is stating that we are going to need more proof of the origionation of the funds. It is only $2400. Is there anything that you can suggest that may help us?

Thank you,

A reader

Here is my response:

Hi, reader,

Thanks for your email.

There are 3 basic requirements of gifts for FHA loans:

1. Giver must verify ability to give funds (bank statement, etc.)
2. Gift letter must show money is given as gift
3. Receiver must verify receipt of funds (bank statement)

It sounds like you’re getting tripped up on #1, but the rest are ok. It’s not necessary that the actual money given be money in a bank, if the givers have other funds in the bank they’d be able to show as available to give. For example, if her parents have $2400 in the bank and $2400 in mattress money, they could show the bank money as proof of the source of funds. Whether they give you the money from the bank, or the money from the mattress makes no difference. Is that a possibility?

Alternately, you might look to have someone else act as the giver if they are able to show those funds available, and are willing to sign the gift form. Take a moment to consider if you have other relatives or friends who may be able to act in that capacity.

If you have questions for Dan Hartman, please contact me through my profile page, or leave a comment here. Thanks again for reading!

I know that FHA, and other government products, have been all the rage lately due to difficulty in getting conventional loans and conventional mortgage insurance, but I think that a lot of mortgage originators have forgotten that there are still good conventional loans available without the high down payments frequently associated with them. For cost conscious borrowers, this can be especially important, as conventional loans do not require the high upfront mortgage insurance or guarantee premiums associated with government programs.

In most areas, well qualified first time homeowners can get financing at as high as 97% of the purchase price of their new home. While monthly mortgage insurance with this option is a little bit more expensive than FHA monthly mortgage insurance, the savings of 1.75% of the loan amount in upfront mortgage insurance premium is significant. For areas that don’t allow 97% financing, 95% financing is still available with conventional loans.

Interest rates for conventional loans like this are comparable to FHA for most situations, especially when making a down payment of 5% or more. The big difference is credit requirements. FHA requires only a 620 credit score, while getting the best rate on a conventional loan requires a score of 740 or higher. There are some differences in appraisal and income requirements, so make sure you know your score and that you’re getting all the options available.

If you would like a second opinion on your financing, you can reach me any time at (401) 263-8655.

It's been about 3 weeks now since Fannie Mae and Freddie Mac rolled out their "streamline" refinance programs they had first discussed at the beginning of February. These programs are intended to make refinancing to today's rates easier for homeowners by lowering documentation and credit requirements, and by allowing refinancing at higher loan-to-value ratios than are permitted under normal guidelines. Some key benefits of this program for current homeowners include:

• Refinance at up to 95% (soon to be 105%) without PMI

This is big for those who originally had 20% equity as they are practically guaranteed no PMI

• Reduced appraisal requirements

Drive-by appraisals and Automated Valuations (AVMs) are very common

• Many rates under 5%

Actual rates depend on exact qualifications, but there are some truly low rates out there

These benefits help open up the possibility of a refinance that makes sense for many borrowers who have been on the sidelines, tantalized by low rates, but frustrated with declining home values. Unfortunately, there are many borrowers who are not yet eligible for this program; fortunately, there are new options being opened up shortly that may increase the usefullness of this program, including:

• Options to port a homeowner's existing (usually lower-cost) PMI certificate to a new loan

PMI has become very expensive in 2009 due to risks faced by issuers, but keeping old PMI saves big

• 105% options

For those who can't refinance at 95%, a few banks are already offering 105% and more will follow

This program is limited, though. First, to even qualify for consideration, a borrower's loan has to be securitized or owned by Fannie Mae and Freddie Mac. There are simple websites established by these government-sponsored entities that allow borrowers to look up their loans; alternately this can also be accomplished by their mortgage advisor.

The Office of Federal Housing Entity Oversight (OFHEO) which is operating Fannie and Freddie right now made a significant error in allowing its charges to design their own programs. This has led to significant discrepancies in the two programs, most notably that Fannie loans can close anywhere, while Freddie loans may only close at the existing loan servicer. This can lead to a lot of confusion for borrowers trying to make their situations a little easier in these difficult times.

In spite of the promise of this program, this option does not approach the elegent simplicity of the FHA streamline refinance. Under that program, FHA assumes that since it is already going to be paying out on insurance in the event of default, why not make it easier for borrowers to make their payments by giving them access to lower rates without having to go through an appraisal, or document income. This can even work for borrowers who have lost income and might not otherwise qualify; when income is recduced to an unemployment check, saving a couple hundred dollars per month on the mortgage goes a long way.

From what I've seen in new applications so far, it's looking a little better than the infamous "HOPE for Homeowners" program (which is still working on funding its 2nd loan), but not much. Many borrowers who haven't already refinanced owe significantly more than 95% on their homes due to recent depreciation. Hopefully the upcoming changes will allow this program to truly accomplish its goals, but if not, it may be back to the drawing board at OFHEO.

Dan Hartman is a Senior Mortage Advisor at Province Mortgage Associates, and serves as an Adjunct Professor of Finance at Roger Williams University and the University of New Haven. You can reach Dan by commenting on this article, or by phone at (401) 263-8655.

Yesterday, I took part in Rhode Island Junior Achievement's 25th Annual Achieve-A-Bowl, a fund-raising event that has collected over $80,000 this year to support Junior Achievement's in-school education programs. I think this is a very important charity to support right now due to the obvious deficit of Finance and Economics education in our school systems. Considering that 34% of respondents to a survey conducted by Bankrate.com didn't know what type of mortgage they had, I fell it is very important to support anything that will increase financial literacy.

Participating in the event was a blast. I bowled on a team consisting of several members of my BNI chapter, CitiBiz BNI, along with 9 other members. In spite of the beautiful weather outside, we stayed on for three strings. I was a little disappointed with my results in the first string, as I finished at a very unexciting 93. In the second string, however, I turned up the heat a little

(I know it's a bit tough to read, but that does say 175) and produced my best game ever at 175. In the 3rd game, I proved that it hadn't been a fluke, rolling another 175.

I think I also proved that cell phone pictures, in general, are bad. As if to further highlight that, I also shot some video of the event, yes, also on the cell phone.

In all, it was a great event in support of a fantastic cause. If you haven't already contributed and you're interested, I think my online donation page will be live for a little while longer. Thanks again to all who sponsored me for this event. It was a blast participating, and I look forward to doing it again.

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and also serves as an adjunct Professor of Finance with Roger Williams University and the University of New Haven. He can be reached by commenting on this article, or by phone at (401) 263-8655.

Good morning!

It’s been a little while since I had the opportunity to write, and I wanted to pass along a bit of information about what is going on in the financing market. There have been some changes recently that need to be considered, so I’d like to take a few minutes to run through them. If you have questions about any of these in particular, please don’t hesitate to call me.

FICO Updates

Over the past two months, many individual lenders have set credit score requirements that differ significantly from traditionally accepted criteria. At present, a 620 credit score is required for all loans, and, although very limited opportunities exist for borrowers with no credit whatsoever, additional loan charges related to those situations can be prohibitive. FHA, USDA, Fannie Mae, and Freddie Mac loan programs now require a 620 credit score for all borrowers and coborrowers, and most borrowers with scores below 720 are finding that FHA is the most attractive program due to Fannie Mae and Freddie Mac surcharges for lower scores.

Condo Updates

If you haven’t run into a condo in a while, be thankful, because risk aversion from banks has made the process quite a bit more challenging than it used to be. There are a limited number of projects that are already approved by Fannie, Freddie, or FHA which, fortunately, allow exemption to the majority of new stipulations. Other projects will require full review of recorded copies of all condo documentation. If you have a listing, I’d be happy to review it for you to ensure a reasonable process experience for the buyers. I recently had to decline a borrower with a 790 credit score putting 50% down because the condo didn’t conform, so please make sure upfront to save later challenges. For additional information about condo financing, see part I and part II of my earlier article about the process of condominium financing.

Converting current primary residence into investment

Because of the current market environment, many buyers are acting to take advantage of low prices available to buyers, while holding onto their existing homes to wait for a better opportunity to sell. This can backfire if the buyer isn’t able to carry both mortgage payments, as banks will not accept rental income on the newly rented property without an appraisal showing the client has 25% or more equity in the property that will be rented. There are some exceptions to this, though, so don't hesitate to call to see if a particular scenario might qualify.

Super-conforming limits

Many lenders have adopted HUD guidelines for homes in “High-cost” counties which allow loans in excess of $417,000, sometimes up to $729,750, to be considered conforming loans instead of jumbo. This can represent a significant savings for buyers in this category. Call me to check your listings to see if they are eligible.

Modification and Streamline Refinance enhancements

Fannie Mae and Freddie Mac have announced updates to guidelines for loan modification or streamline refinancing that should be a great help to stabilizing homeownership. These guidelines will make refinancing more feasible for borrwers whose homes have declined in value, as borrowers not currently paying PMI will be able to avoid PMI on new loans aswell. Additionally, borrwers who are struggling with their existing loans may qualify for super-sized savings through special loan modification programs requiring lenders to reduce payments to 31% of a borrower's gross monthly income.

FHA 90-day rule: doesn’t apply to VA

In what should be a big help to flippers, we’ve discovered that the FHA 90-day rule that requires non-bank sellers to hold properties a minimum of 90 days does not apply to buyers using VA financing. Flippers should offer incentives to attract military veterans for quickest sale to take advantage of this.

I hope these updates help! Please give me a call if you have a question on any of these changes, or any other challenges you’re encountering. Lastly, I did want to share that I will be participating in Rhode Island Junior Achievement’s 25th Annual Achieve-a-Bowl next weekend. Junior Achievement provides economic, financial, and business education in schools. If you’d like to support this, I would appreciate your help. You may also contact me directly to assist, and thank you!

Thanks again for the opportunity to serve your financing needs. I look forward to speaking with you soon!

Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and also serves as an Adjunct Professor of Finance with Roger Williams University and the University of New Haven. He can be reached by phone at (401) 263-8655, or by commenting on this blog entry.