Orange County, CA condo buyers using FHA financing just got an extra month added to the upcoming deadline of the end of the Spot Approval program. Back on June 12, 2009, FHA Mortgagee Letter 2009-19 was released, detailing new FHA Condo project approval guidelines, and setting a date for the end of the Spot Approval program along with elimination of nearly all condo project approvals in Orange County.
New Deadline for Spot Approval Program is December 7, 2009
Initially, the deadline was to be October 1, 2009. Then, with a push from the National Association of Realtors, FHA relented and decided to delay implementation of the new policy until November 3. Now, the deadline has been delayed again until December 7, 2009.
What Will Happen When, Or if This New Policy Goes Into Effect?
FHA financing for condo's will be very difficult, at least in the near term. Currently, FHA has a list of approved condo projects. FHA financing is available for properties within those approved projects. For those projects not approved, FHA has offered the Spot Approval program. The Spot Approval program is a relatively streamlined process for allowing financing on an individual unit within a non-approved condo complex. But FHA is not comfortable with the Spot Approval program. As a matter of fact, FHA really isn't very comfortable with their Approved Condo list. So, now, effective December 7, the list will be effectively scraped clean. Any project that has not been approved in the last 2 years will need to be re-certified. This means the lender will need to submit a package to HUD proving there are no material changes to the project that would keep it from being approved again. Since very few, if any projects in Orange County, have been approved in the past two years, a bottleneck is expected once the new process becomes effective.
Does the Delay Mean FHA is Going to Ease their Stance?
Maybe. In the FHA notification from this week, they announced they will provide better guidance on the new policy, including 1) they will offer additional leniency's to address the "difficult market" conditions, and 2) they will augment some portions of the Mortgagee Letter 2009-19, providing additional information and clarification. FHA also made it very clear that the Spot Approval program is extended through December 7. It actually sounds like FHA is realizing this is no time to make it any more difficult on first time home buyers than it already is.
FHA is Alive and Well in Orange County!
FHA financing currently makes up more than 25% of the closed transactions in Orange County. This is because of the flexibility FHA offers, especially in regards to low down payment and FICO scores as low as 620. With FHA loan limits in Orange County at $729,750, the program has proved to be popular not only with first time home buyers, but also move up buyers. There are not been a better time to purchase a home in Orange County in years.
Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan. 877-786-4243 x 7.
Contact us for your Orange County FHA Mortgage:
Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.
877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com
* Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.
Too often, Orange County real estate transactions fall out of escrow just when they are supposed to be closing. Why? While there are no specific statistics to back an answer to this question, 2106 expenses would seem to be good answer to that question. We know that appraisal issues have also been common in 2009, but too often tranactions fall apart because of the borrower qualification, even after they were supposedly "PreApproved." What are 2106 Expenses and why do they become an issue, at times, late into escrow?
What are 2106 Expenses?
2106 Expenses are also called Unreimbursed Employee Expenses. These are expenses some employed workers will writeoff on the Schedule A of their Federal Tax Returns. Typically, these expenses are associated with people who have a sales or commission based job. For example, if the borrower is not reimbursed for mileage, meals, hotel stays, license fees, or even basic business supplies, they are able to claim these expenses on their tax returns. This can result in a nice tax writeoff, but will also have an effect on the amount of home they will qualify for.
What Types of Jobs Will Typically Result 2106 Expenses?
Besides people in sales positions, just about anyone may have expenses they can write off. Of course, it may also depend on how aggressive the CPA is in advising their clients. It is not unusual for teachers to have unreimbursed expenses, as they quite often pay for supplies out of their own pocket. Some borrowers will get a little carried away and show some questionable expenses on their Schdule A. Its all fine and dandy until its time to qualify for a mortgage.
Why is This an Issue Now More Than Ever?
In the past, lenders did not request full tax returns from every borrower, even on a Full Income Documentation loan. 2 paystubs and 2 years W2's was enough. If there were expenses being written off, the lender never knew it because the additional information was never requested. Times have changed. Technically, lenders still don't require full tax returns in Prequalifying or even PreApproving a borrower for a mortgage. But lenders do require that Tax Transcripts be pulled from the IRS ON EVERY DEAL. This is what the Form 4506-T is all about. It used to be that the 4506-T form was only used after the close of escrow, if ever, as more of a Quality Control measure, making sure the borrowers had given the lender the tax returns which had actually been filed with the IRS. Rarely did this ever cause a problem, especially since most tranactions did not require tax returns anyway.
Now, lenders need to review a full set of 2 years Federal Tax Returns to make sure there are no surprises that come up late in a transaction. Some lenders will request the 4506-T form on the first day of the loan application, but some do not request Tax Transcripts until after the file has been underwritten, or worse, just prior to funding. This can easily create a situation where a deal is declined just a week before the moving vans are scheduled.
How Much Can this Effect a the Amount of Mortgage a Borrowers Qualifies For?
Lets say a school teacher has an annual salary of $75,000 a year, 800 FICO scores, one car payment of $300 per month, and 20 years on the job. She has $15,000 saved for the down payment. She is looking for an FHA approved condo in Irvine. Pushing the debt to income ratios, and making some basic assumptions for PITI plus HOA dues, this teacher would qualify for a purchase price of approximately $380,000. That would be pushing the debt to income ratios near the limit. But now lets assume that the teacher spends $10,000 a year in the classroom, keeping her class supplied with paper, pencils, and updated learning aides. Maybe she also has spent money on keeping herself educated on the latest teaching methods. The $10,000 in expenses needs to be deducted from her gross salary of $75,000. This is not much different than how a self employed borrower qualifies for a loan based on their income after expenses, not before. Based on $65,000 net income, this same teacher now qualifies for an approximate purchase price of $325,000. (this is still assuming an FHA purchase with 3.5% down payment.) That is a $55,000 drop in purchase power. That will kill a lot of deals if not caught during the PreQual and PreApproval stage of the process.
Mortgage PreApproval Needs to be Thorough
To make sure, or at least greatly decrease the chances of an ugly surprise at the end of escrow, the lender should request a full set of 2 years Federal Tax Returns on Day 1. And of course, the tax returns need to be reviewed carefully before issuing a Prequalifcation or PreApproval. There is too much time and money at stake in a real estate transaction to do it any other way.
Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan. 877-786-4243 x 7.
Contact us for your Orange County FHA Mortgage:
Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.
877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com
*Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.
The FHA Spot Approval program for unapproved condominium projects is going away on October 1, 2009. But realistically, it's already gone. Most lenders are not about to begin the Spot Approval process when only a few weeks remain. According to the new guidelines announced in Mortgagee Letter 2009-19, effective October 1, not only is the Spot Approval process eliminated, but also all current project approvals will be invalid and projects will need to be re-approved before an FHA loan can be closed. The only exception to this is that any project that has been approved after October 1, 2008 will stay approved.
This will mean that virtually no condo projects in Orange County, CA will be approved for FHA financing. Over the past year, if a condo project was not approved, the quickest way to get the deal done was to use the Spot Approval process. But this process was only for individual units, not the whole project. Getting projects back on the approval list will be a long slow process.
Interesting side note. There is a separate Orange County, CA approval list for VA condo's. This will be a big advantage for VA home buyers searching for a condo to purchase. VA will be just about the only way to buy a condo in California with less than 20% down payment.
Get Those FHA Approved Condo Listing Sold Before October 1!
Realtors who have a listing in an FHA approved complex and are planning on accepting FHA offers should do anything they can to get their listing in escrow prior to October 1. After that, it will still be possible to get FHA financing, but expect a long escrow.
What Needs to Be Done In Order to Get a Condo Project Approved?
Your favorite Orange County, CA Direct FHA Lender will handle getting the project approved. Below are the project eligibility requirements.
•· Projects must consist of 2 units or more.
•· Projects must be covered by hazard and liability insurance, and flood insurance if applicable.
•· No more than 25% of the property's total floor area can be used for commercial purposes.
•· One investor may own no more than 10% of the units. This applies to developers/builders that rent vacant and unsold units.. For two and three unit projects, no single entity may own more than one unit;all units and common areas must be 100% complete; and only one unit can be conveyed to non-owner occupants.
•· No more than 15% of the units can be in arrears (more than 30% past due) of their HOA dues.
•· At least 50% of the total units must be sold prior to endorsement of any mortgage on a unit.
•· At least 50% of the units must be owner occupied or sold to owners who intend to occupy their units.
•· Projects of 3 or less units will have no more than one FHA insured unit.
•· Projects of four or more units will have no more than 30% of total units insured by FHA.
•· A current reserve study must be performed to assure that adequate funds are available for the funding of capital expenditures and maintenance. The reserve study must have been completed within the past 12 months.
There are a few additional considerations, but the items above cover the most important issues for the typical condo complex in Orange County. And then, of course, any current litigation against the condo complex may be a deal killer.
How Long Will it Take to Get a Complex Approved?
That's a tough one to answer. Lenders are not even allowed to get a jump on the approval process and submit a condo package until after October 1, 2009. The fear is that HUD will be buried with condo project approval requests. There are 2 processes lenders can go through to approve a complex, but, at least in the beginning, most approval request packages will be sent directly to the HUD office in Santa Ana, CA. It would be great if the process took two weeks (from the time of submission).
FHA is still just about the only way for a home buyer to purchase a property in Orange County with less than 20% down. It is very difficult to get PMI on a Conventional loan on a condo at even 85% loan to value, and that's assuming a 740 FICO score. FHA can generally go as low as a 620 FICO and up to 96.5% loan to value.
FHA is Not Going Away
None of this should scare anyone away from FHA financing for a condo. But it is a warning that the loan process will take a little longer than normal for Orange County home buyers purchasing a condo.
Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan. 877-786-4243 x 7.
Contact us for your Orange County FHA Mortgage:
Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.
877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com
* Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.
The FHA 203K Rehab loan program is a great loan for Orange County First Time Buyers. Currently there is a very tight supply of homes available in southern California, especially in the $250,000 to $500,000 price, which is a sweet spot for Orange County First Time Buyers. It has been frustrating for these new buyers to get an offer accepted. After going through the FHA Loan PreApproval process, they were ready to make an offer and close escrow 30 days later. So they thought. It's tough to compete against two or three other offers, let alone 20 or 30, especially when some of those offers are "all cash." New home buyers should keep their options open.
FHA 203K Streamline Program is the Solution
What does it take to separate from the crowd? How about a program that will allow even a buyer with only 3.5% down payment to purchase a home in need of repair. These homes will scare away most home buyers who either do not have the vision or do not want to take the time or deal with the expense in fixing up a home. The FHA 203K Streamline program will allow a home buyer to include up to $35,000 in improvement costs into the FHA purchase loan. One loan is used for the purchase and the cost to rehab the home. While this program is available to all FHA approved lenders, not all lenders want to deal with the extra work that goes into this loan program. But there are local lenders who do have experience closing Orange County FHA 203K Streamlines.
The buyer does not need to be a First Time buyer and there are no income limits. The property can be a single family home, or have as many as 4 units. The buyer does need move into the property since this loan is not available to investors.
FHA 203K Streamline is Available for Orange County FHA Approved Condo's
The condo must be within an FHA approved project. To check whether a condo is FHA approved, go to the HUD website. Rehab of a condo is limited to the interior of the unit. Also, only 25% of the total units can be undergoing rehab at any one time. The maximum mortgage amount amount cannot be more than 100% of the after approved value. (FHA allows 110% of value on non-condo loans.)
It will take a little longer to close a 203K loan. Once the escrow begins, it will take approximately 60 days to close escrow, provided the buyer moves quickly and works with a contractor who is experienced with the 203K loan product. Most delays in closing with the 203K loan have to do with borrower indecision when it comes to choosing a contractor and then staying within the predetermined budget. This is why it is important to work with 203K experienced lenders and contractors.
Eligible Repairs and Improvements Typical for an Orange County Home
Repairs or Improvement not Allowed
Orange County FHA 203K Loan Limit
For 2009 the FHA loan limit for Orange County is $729,750. The limit is the same for the 203K Streamline program. This means the max loan amount before adding the cost of improvements, assuming the borrower is going for the max of $35,000 in improvements, would be $694,750. With $35,000 added to the loan for improvement, the total loan amount would be at the Orange County limit of $729,750.
This is a great program for the right home buyer and the right property. The first step is to get prequalified and then PreApproved for an FHA loan. The PreApproval process for a FHA 203K loan is no different than for a normal FHA loan (FHA 203B).
Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan. 877-786-4243 x 7.
Contact us for your Orange County FHA Mortgage:
Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.
877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com
* Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.
The VA loan program is being heavily utilized by Orange County residents for the first time in several years. There are several reasons for this.
VA 100% Financing for Orange County, CA Homes to $737,500
The VA loan program is a great program for those that are eligible. Fannie Mae/Freddie Mac require a minimum of 10% down payment for a home in Orange County. Even FHA, which is a great program, requires a 3.5% down payment. To make the comparison even better, while FHA has Monthly Mortgage Insurance equal to .55% (essentially adding .55% to the interest rate) VA has no monthly mortgage insurance. This can save thousands of dollars a year for VA eligible home buyers.
How Do I Find Out if I am Eligible for a VA Loan in Orange County?
To obtain VA home loan veteran benefits you must have served on active duty in the Air Force, Army, Coast Guard Navy or Marine Corps and have been honorably discharged. You may still be entitled to benefits if you were discharged under other than honorable circumstances. This requires further research by the VA. In the end the VA makes the final determination.
The first thing you need to obtain in order to use your VA Entitlement is a VA Certificate of Eligibility. If you do not have one already we would be happy to assist you in getting one. The process is quick and easy. Just call our office and we will be glad to send out to you a VA Form 26-1880 or request for COE. Simply fill it out and return it to the VA and you should have your COE within a couple of weeks. If you are in a hurry, you may visit your local VA Office and have your COE in as little as one day.
If you are looking to purchase a condo, you must first check to make sure the condo project is on the VA Approved Condo List.
What is the First Step in Getting PreApproved for a VA Loan in Orange County?
VA loans, like FHA and Conventional Fannie Mae and Freddie Mac loans, require full income documentation to qualify. Really, all mortgage loans are full doc these days. This means that to qualify for a VA loan, besides having the property, VA Entitlements, and supplying a DD214 and then Certificate of Eligibility, the Veteran will need to provide the following items:
One of the best things about a VA loan for Orange County home buyers is the VA Streamline Refinance program, or IRRRL, which allows VA borrowers to quickly and easily take advantage of low rates with having to appraise the property or even provide all the income documentation that is needed during the initial purchase.
Who Actually Funds Orange County VA Loans?
You just need to find an Orange County VA Lender. A Direct VA Lender will process, underwrite, and fund your VA loan, rather than just originate and then "broker" to another lender. You will also want to find a loan officer who has experience with VA loans and can provide you with a loan scenario showing a complete break down of the purchase price, loan amount, payment, and closing costs involved with a VA loan. It is important to get as educated as you can on all that goes into getting a VA loan before you actually begin making offers on homes.
Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan. 877-786-4243 x 7. Ask for Tim Storm.
Contact us for your Orange County VA Mortgage:
Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.
877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com
* Licensed by California Dept. of Real Estate. Lic. # 01190897
Frost Mortgage is a division of PRMI. We are a Direct FHA, VA, and Conventional lender. We specialize in working with 1st Time buyers. We fund FHA, VA and Conventional loans.
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