Joshua Lerette St. Petersburg Florida FHA/VA Mortgage Specialist

With mortgage interest rates plummeting to record levels, and home sales plummeting as well, many people have a renewed interest in refinancing for lower interest rates and sometimes shorter mortgage terms.

The FHA streamline refinance is a great option for quite a few of them. Here are the rules which are currently in effect since January 1, 2009 for calculating FHA streamline refinances.

In order to qualify for an FHA streamline refinance you must be a homeowner who currently has an FHA-insured mortgage.

An FHA streamline refinance does not require any proof of income or any verification of funds to close. No repairs are required unless the house has lead paint. FHA does not require a credit report, but most lenders require one for loan pricing purposes and have new overlaying guidelines not allowing for streamline refinances if you have a score below 620. FHA guidelines require only a verification of the mortgage payment history for the last 12 months (or the length of time the mortgage has been held). HUD’s Credit Alert Interactive Voice Response System (CAIVRS) need not be checked, but a check of HUD’s Limited Denial of Participation (LDP) and General Services Administration (GSA) exclusion lists is still required for all borrowers.

FHA does not require a termite inspection letter for streamline refinances, however lenders are allowed to require one and some do. No mortgage credit underwriting is required. Individuals may be added to the property title without verification of credit worthiness. If any borrower is removed from the title and loan the remaining borrower must go through the full credit qualifying process unless the property was transferred without triggering the due on sale clause due to a divorce decree or inheritance more than 6 months ago and the borrower can prove (canceled checks) that they have been making the payments themselves.

At closing the borrower can receive no more than $500 or the loan must be sent back to the underwriter. This makes it extremely important for the loan originator/processor to verify all attorney/title fees, payoffs and lender fees prior to underwriting.

If there is a second mortgage or equity line, it may be subordinated (legally placed in second position again in spite of a new first mortgage) without regard for the total loan to value. Keep in mind that many second lien holders today are surprisingly difficult to negotiate with.

There are two types of streamline refinance - with an appraisal or without an appraisal. Several different factors will affect which version you choose.

If you purchased your home less than 12 months prior to applying for the refinance, no appraiser in his right mind is going to appraise it for much more than the purchase price in today’s market. Thus if you have reason to believe that the appraised value will be lower than your original sales price, then you would obviously try, if possible, to use the no appraisal FHA streamline refinance. Sometimes this is difficult unless there was a substantial down payment made at the time of purchase. HUD has made a nice accommodation in this area. If the appraisal has been done, but the value is such that it makes more sense for the borrower to proceed as if no appraisal has been done, the underwriter is allowed to ignore the appraisal.

For streamline refinances without an appraisal, the maximum loan amount is the lower of:

• The original principal balance including the FHA upfront mortgage insurance premium from the original closing. (This can be obtained from the Refinance Authorization screen in the FHA Connection) minus any refund from the original upfront mortgage insurance premium, plus the new upfront mortgage insurance premium (1.5%) or

• The total of the principal balance on the existing first lien plus up to one month of the monthly mortgage insurance premium plus the mortgage payment (PITI) that was due on the first of the month of closing (if not already paid), plus up to 30 days interest for the current month, plus any late charges or escrow shortages, plus borrower-paid closing costs plus prepaid expenses (per diem interest to end of month on new loan plus hazard insurance deposits plus real estate tax deposits plus reasonable discount points), minus the upfront MIP refund (if applicable) plus the new upfront mortgage insurance premium (1.5% of the base loan amount).

The mortgage insurance refund for all loans originated after December 8, 2004 is only paid when refinancing to another FHA loan and not when any FHA loan is paid off as it used to be. The following chart shows the percentage of the original upfront mortgage insurance which will be refunded:

MIP Refund Chart

For an FHA streamline refinance with an appraisal, – with NO credit qualifying, the maximum loan amount will be the lower of the two calculations below:

• The total of the principal balance on the existing first mortgage plus up to one month monthly MIP plus the mortgage payment (PITI) that was due on the first of the month of closing (if not already paid), plus up to 30 days interest for the current month, plus any late charges or escrow shortages, plus borrower-paid closing costs plus prepaid expenses (per diem interest to the end of the month on the new loan plus hazard insurance deposits plus real estate tax deposits plus reasonable discount points), minus the upfront MIP refund (if applicable) plus the new upfront mortgage insurance premium (1.5% of the base loan amount).
• Multiply the appraised value of the property by 97.75%

Note: This article has been revised due to HUD guideline changes. The Housing and Economic Recovery Act of 2008 eliminated the variable loan to value requirements that had been in place for different states and also limited the amount of the mortgage plus upfront mortgage insurance payment to 100% of the appraised value. In Mortgagee Letter 2008-23, HUD originally used this 100% of appraised value standard and eliminated the 97.75% loan to value limitation. However, to simplify things Mortgagee Letter 2008-40 changed the standard back to 97.75% of the appraised value. A matrix outlining the new FHA refinance requirements is available here.

If you have questions about streamline refinancing which are specific to your own loan such as interest rates, whether refinancing is worth it, or closing cost questions, please contact me directly by clicking the link or by calling me at 727-488-7355.

The Federal Housing Administration (FHA) program first began in 1934 in an effort to encourage home ownership despite the difficult economic times of the era. Just like todays economic times, options for borrowers with less than perfect credit is critical to substain an economy as the housing market plays a large factor in the economy in general. The FHA program enables consumers who may not qualify for a standard loan to obtain the financing they need to purchase a home without income limitations.

FHA loans differ from typical loans in that they are insured by the Federal Housing Administration, which is a part of the Department of Housing and Urban Development (HUD). Because this insurance, both up-front mortgage insurance of 1.75% for purchase transactions, and .55% per year divided into monthly payments, reduces the lender's risk on the loan giving lenders a greater flexibility with regard to approving loans.

For example, FHA loans are not credit-score driven, so a client may be able to obtain a loan despite having had credit problems or even a bankruptcy in the past. Although FHA does not require a borrower to have a minimum credit score, lenders have developed underwriting overlays where a borrower needs at least a 620 score while conventional requires at least a 660 to even obtain a loan over 80% and forget about 96.5%. A bankruptcy with FHA loans are far more lenient than conventional loans with guidelines specifying that a bankruptcy must be discharged at least 2 years ago with some exceptions made for borrowers having a bankruptcy discharged 1 year ago under certain circumstances.

Unlike conventional loans, which have large loan level pricing hits for less than perfect credit, FHA loans have minimal loan level pricing hits for lower credit scores. For example, a borrower with 680 credit scores trying to purchase a home with 10% down would have a loan level price hit of approximately .75% which would be either paid in the form of points or by taking an increase in rate. Alternatively, an FHA loan would have no loan level price hits at all in the same scenario.

For consumers that do not have a traditional credit history, it is still possible to obtain financing by documenting payment histories on items such as rent and utilities. Alternative credit history can not make up for a poor credit history meaning if you have credit history with missed payments and collections with a score less than 620, you can not provide alternative trade lines such as rent history, cable, electric, etc with a good payment history to make up for the poor trade lines.

FHA loans also provide added flexibility when it comes to closing costs and the down payment. FHA allows for the seller to pay up to 6% of the purchase price towards your closing cost opposed to conventional loans only allowing 3%. The minimum down payment for FHA loans is only 3.5% while conventional loans require at least 5%.

The FHA down payment is extremely flexible and may be obtained through many different facets. To list a few, a gift from a family member, down-payment assistance programs, collaterilized loans, and employee assistance plans. You may contact me for a complete list of down payments acceptable by FHA. FHA loans are processed just like any other loan, opposed to the old way where there were FHA inspections and god forbid if there is a stain on the carpet! Over all FHA loans provide a wonderful opportunity for consumers who are seeking to achieve home ownership!

Joshua Lerette - The Tampa Bay Mortgage Pro
Innovative Mortgage Services, Inc.
www.TheTBMortgagePro.com
Josh@TheTBMortgagePro.com
727-488-7355

Joshua Lerette, The Tampa Bay Mortgage Pro, is a mortgage specialist in St. Petersburg, Florida providing financing solutions for homeowners and homebuyers alike. The Tampa Bay Mortgage Pro specializes in First Time Homebuyer programs utilizing FHA, VA, and the USDA Rural Housing Loan.

This may come as a shock to many borrowers, but it's absolutely true. Mortgage interest rates are not set by the Federal Reserve and, contrary to popular belief, mortgage rates are not directly tied to the yields of US Treasury bills, bonds, or notes – including the 10-year Treasury Note. That's right. Despite what you might hear in the media, mortgage interest rates are actually set by lending institutions, and are based solely on the performance of mortgage-backed securities.

For years now, the media and inexperienced loan officers everywhere have suggested that the 10-year Treasury Note, a government-backed security, is directly tied to mortgage interest rates, that the two are separated by a specific interval – which is simply not true. The graph on this page, which shows interest rates for 30-year fixed-rate mortgages and the yield for the 10-year Treasury Note for 13 months, clearly demonstrates this fact.

At a quick glance, yes, it's easy to see why the mistake is made. As you can see, for 11 out of the 13 months recorded in the graph, the yield of the 10-year Treasury Note and interest rates for 30-year fixed-rate mortgages did follow a somewhat similar long-term path, despite obvious short-term divergences. However, take a closer look at the drastic change that occurs from January through March 2008. What's interesting about this graph is that, during this period, the Federal Reserve had cut interest rates six times, from September 2007, to March 2008, and yet mortgage rates were actually higher in March 2008 than they were a year before. Not only does this demonstrate that the yield of the 10-year Treasury Note is not pegged to mortgage interest rates, it also reveals that mortgage interest rates are not set by the Fed either.

Stop being misled. If you or someone you know is thinking about buying or refinancing a home, give us a call. We'll give the facts you need to make a truly informed decision.

Joshua Lerette - The Tampa Bay Mortgage Pro
Innovative Mortgage Services, Inc.
(P) 727-488-7355
josh@TheTBMortgagePro.com
www.TheTBMortgagePro.com

Joshua Lerette, The Tampa Bay Mortgage Pro, is a mortgage specialist in St. Petersburg, Florida providing financing solutions for homeowners and homebuyers alike. The Tampa Bay Mortgage Pro specializes in First Time Homebuyer programs utilizing FHA, VA, and the USDA Rural Housing Loan.

On May 29th, 2009 HUD/FHA announced the terms of the first time homebuyer tax credit and its use as a down payment assistance program. Read the entire HUD Mortgagee Letter 2009-15 by clicking on the HUD logo off to the right. Reader Beware, like many other ML's, you must be a lawer to dissect this information!

As we already know, Secretary Shaun Donovan released this information prematurely early this year at a National Association of Realtors summit. You may read this article for yourself. This Mortgagee Letter 2009-15 was quickly rescinded as Donovan did not check with the Offices of Management & Budget Officials prior to releasing the information. Ooops!

HUD finally has released the details of how a first time homebuyer may use their tax credit as a down payment!
Yay, jump for joy, right? Not so fast, like many of the other government programs, (cough) Hope for Homeowners, HUD's attempt to assist buyers has fell short once again.

There is two ways you may receive the first time homebuyer tax credit upfront and use it as part of your down payment on a FHA loan.

Option #1 Secondary Financing

This one is rocket science, HUD actually already allows eligible government agencies and instrumentalities of government to offer second lien's to be used as a down payment and closing cost. So what was the point of putting this in the letter? Considering if you read the last condition of the secondary financing, "The secondary financing may not require a balloon payment before ten years." So, if no balloon payment is allowed, then how would the agencies collect on the $8000 first time buyer tax credit. There is far too much risk for non-profit, government agency to issue a second mortgage based off the receipt of an $8000 tax credit that they can not require to be paid off right away.

Option #2 Purchase of Tax Credit

This options simply doesn't matter as ML 2009-15 clearly states that the funds derived from the sale of the tax credit can not be used as part of the 3.5% required minimum down payment on FHA loans. It may only cover an additional down payment, cost of buy down, and or closing cost. Now, if I'm a first time home buyer, why would I request my tax credit up front just to pay for my closing cost when I could ask the seller to pay up to 6% of the purchase price towards my closing cost on a FHA loan. I would rather keep that $8000 tax credit in my pocket and utilize the full benefits of FHA financing.

Summary: Another fantastic flop by HUD! Why announce that you will allow a tax credit to be used as down payment assistance when in fact it can not be used for your minimum contribution of 3.5%. The real funny part, government is trying to eliminate mortgage brokers through HR 1728 because there thoughts are that brokers were manipulative and misleading. Talk about the pot calling the kettle black!

Joshua Lerette - The Tampa Bay Mortgage Pro
Innovative Mortgage Services, Inc.
(P) 727-488-7355
josh@TheTBMortgagePro.com
www.TheTBMortgagePro.com

Joshua Lerette, The Tampa Bay Mortgage Pro, is a mortgage specialist in St. Petersburg, Florida providing financing solutions for homeowners and homebuyers alike. The Tampa Bay Mortgage Pro specializes in First Time Homebuyer programs utilizing FHA, VA, and the USDA Rural Housing Loan.

With today's combination of lower home prices, some of the lowest interestrates the industry has ever offered, and the $8000 tax incentive for first-time buyers, buying a home has never been so attractive. The only real hurdle left for many Americans is coming up with a down payment. With this in mind, I have put together some of the most frequently asked questions I get about down payments in today's market.

Q. Are there any no-down payment programs left?

Yes. While it's true that most of the popular no-down payment programs disappeared in the wake of the subprime mortgage collapse, there are still two longstanding government-backed programs that offer mortgages with no down payment: the USDA Rural Development Program and the VA Loan Program.

A USDA Guaranteed Loan is a government-insured, 100% purchase loan. This means there is no down payment required if you – and the house you intend to buy – qualify for the program. Not all areas qualify, but you'd be surprised at how many neighborhoods in your area do. If you intend to purchase in Florida and are intrested to see if your potential property qualifies for the USDA Guaranteed Loan, you may check for eligibility at the USDA website. There are income and other limitations, but if coming up with a down payment is challenging, you might want to consider this program.

If you or your spouse is a military veteran, you may qualify for a 100% financed loan from the US Department of Veterans Affairs. More than 29 million veterans and service personnel qualify for this service benefit. Give us a call to find out if you're one of them.

Q. Are there any other government-insured programs that can help someone struggling with a down payment?

Yes. In 1965, the federal government created the FHA loan programs to encourage homeownership throughout the country. FHA-insured mortgages offer many benefits, including a minimum down payment of 3.5%. FHA-insured loans have grown in popularity recently due to the seller's ability to pay closing costs up to 6% and a temporary increase in loan limits up to $729,750 in certain high-cost areas, which allows more potential buyers to utilize this program. If you are interested in a FHA mortgage in Florida, here are the latest Florida County Loan Limits.

Q. May I use a gift from family members as part of my down payment?

Yes. In many cases, immediate family can provide monetary gifts to be used as a down payment. There are restrictions of course, and strict documentation will be required, but we will gladly walk you through the finer details of this process. Be sure to mention this option when you're filling out an application with us.

Q. May I use funds from my IRA for my down payment?

Yes. First-time home buyers can use funds from an IRA under certain circumstances for a down payment. The rules regarding this option, however, can be complicated, especially with a Roth IRA, and it's important to understand any and all tax implications before tapping into these accounts. Please talk to your tax professional before making any decisions. If you don't have one, we'll gladly refer you to one we work with on a regular basis.

Q. May I use the $8,000 tax credit as my down payment?

No. At the time of the writing of this article, qualified first-time home buyers do not have direct access to the $8,000 credit to use as a down payment. In May, HUD officials made an announcement to the contrary, but statements backing the announcement were quickly withdrawn from the HUD website. This doesn't mean that HUD and lawmakers will not allow this in the future. For complete details you may read my blog about the $8,000 tax credit. We're following this issue closely and will let you know if anything changes.

Joshua Lerette - The Tampa Bay Mortgage Pro
Innovative Mortgage Services, Inc.
(P) 727-488-7355
josh@TheTBMortgagePro.com
www.TheTBMortgagePro.com
Joshua Lerette, The Tampa Bay Mortgage Pro, is a mortgage specialist in St. Petersburg, Florida providing financing solutions for homeowners and homebuyers alike. The Tampa Bay Mortgage Pro specializes in First Time Homebuyer programs utilizing FHA, VA, and the USDA Rural Housing Loan.