If you’re curious to learn about Fannie Mae’s special Homepath loan product I have put together a quick summary of the program.  If you haven’t heard of the HomePath mortgage product it is a program put together by Fannie Mae to help unload some of the homes they have taken possession of through foreclosure.  It has a few nice features to make it easier for homebuyers to buy the homes.  Here are the pro’s and con’s of the program as I see them:

Pro’s

• Allows for a minimum of 3% down payment (although the closing costs are much higher compared to a 5% down payment)
• Allows the seller to pay all of the buyer’s closing costs
• No mortgage insurance even with less than 20% down payment (however, the interest rates are higher)
• No appraisal needed as a part of the underwriting process

Con’s

• The property must qualify as a HomePath eligible home. Only Fannie Mae foreclosed homes are included in this list so the supply of homes are limited. You can search homes HERE.
• Rates are about .50%-.75% higher than standard conventional mortgages

Other

• HomePath also offers a renovation loan similar to the FHA 203K product (you can read more about FHA 203K HERE).

Depending on the buyer’s financial qualifications a standard conventional mortgage can often be a better option.  If you’d like to evaluate your options please contact me today!

Now that Wall Street is beginning to see expansion in risk taking again this may result in lenders packaging up jumbo mortgages and selling them to investors.  If this happens I expect some more competition in the jumbo space which means the terms on these loans should improve and the underwriting requirements should ease from the current conservative levels.

Because Wells Fargo is a bellwether in our industry other lenders are expected to follow suit.

From the sounds of it the loan would work kind of like a reverse mortgage where the lender would make a loan collateralized by equity in a home.  But instead of collecting interest in the form of monthly payments or through negative amortization (interest accrued that is added to the loan amount) the lender would instead take a cut of the equity in the home when it is sold in the future.

I’m pretty skeptical of this one.  On the surface it sounds like another way for lenders to appeal to undisciplined consumers who like the idea of not having monthly payments much like the negative amortization loans did during 2004-2007.

There are legitimate applications for this type of loan but I would advise that consumers consult with a financial professional they can trust before signing the dotted line.

Additional links-

-WSJ.com article on “shared-appreciation” loans

Here is a link.

In 1934, the Federal Housing Administration (FHA) was formed as a part of the National Housing Act.  The objective of the FHA was to increase home construction, reduce unemployment, and operate various loan insurance programs.  (It’s important to note here that the FHA DOES NOT directly lend money for FHA loans.  They only provide the insurance that protects lenders against losses from making FHA loans.  The FHA’s insurance makes the origination of FHA loans more attractive for lenders and reduces the rate of interest which is charged on these loans.)

Since its inception the rules and regulations that guide FHA loans have been modified several times however the main purpose has remained relatively consistent- to enable low to moderate income Americans to buy homes that they would unlikely qualify for under conventional loan programs.

FHA loans have become more prominently used in the recent few months because of the various underwriting flexibilities that conventional loans do not have.  Many of these flexibilities used to be found in ALT-A & subprime mortgage programs but because of the credit collapse these loans are no longer available.  

FHA Loan Limits- (As of August 7, 2008 for Portland/ Metro area)

1-unit: $418,750

2-unit: $536,050

3-unit: $648,000

4-unit: $805,300

5-unit+: not available

*Loan amounts above $362,790 will likely carry interest rates that are .25%-.50% higher than FHA loan amounts below this level.

*Click here to be taken to the HUD webpage to see other areas.

Down Payments

Traditionally FHA loans have required a minimum down payment of 3% on the part of a home-buyer.  Here are a few facts about the down payment you would want to be aware of:

→2008 Housing Bill: As a part of the 2008 housing bill that recently passed into law FHA minimum down payment requirements will increase from 3.00% to 3.50% (effective January 1, 2009). 

→Gifts: The home-buyer may receive a gift from a relative or non-profit organization to satisfy their down payment requirement (most conventional programs require at least 5% to come from the borrower’s own funds).

→Seller Financed Down Payment Assistance:  Up until October 1, 2008 home buyers were able to have the seller indirectly “gift” the minimum 3% down payment to the buyer using a loophole in the FHA underwriting guidelines which effectively created 0% down financing (the “non-profit” organizations behind this loophole were Ameri-dream, Nehemiah, etc.).  However, do to the poor performance of these loans the 2008 housing bill eliminated this loophole.  (At the current time a group of congressman are trying to reinstate seller financed “DPA”s through HR Bill 6694 but according to my sources passage of this bill is doubtfull.)

FHA Modernization

Over the last year significant improvements have been made to the “usability” of FHA loans.  Here are a few of the highlights that real estate professionals should be aware of:

→Inspections: It used to be that bank underwriters would require pest & dry rot reports, well-flow tests (when applicable), and septic reports (when applicable) for ALL FHA loans.  However, these are no long needed UNLESS the earnest money agreement specifically states that these inspections will be done during the inspection process.

→Appraisals:  FHA loans used to have their own appraisal format which was much more detailed and cumbersome than conventional appraisal requirements.  For example, under the old appraisal guidelines plants and shrubs had to be trimmed back from the dwelling by 6 inches or more.  However, bank underwriters now only require the standard appraisal (AKA “1004” or “form 70”) with a little bit more information. 

→“Junk Fees”: It used to be that there were certain standard closing costs that the FHA deemed “junk fees” and would not allow the home buyer to pay.  These requirements have been eliminated however the loan originator may not charge more than 1% origination fee.

Miscellaneous Benefits & Features of FHA loans

→Seller concessions: With FHA loans the seller may pay up to 6% of the sales price towards the home-buyers settlement charges (conventional programs where the buyer is putting <10% down only allow for 3%).  The additional contribution can be used to by down the home-buyer’s interest rate among other items.

→Minimum down payment on multi-family:  FHA is one of the only programs I am aware of that will allow for up to 97% financing on 2,3, and 4 unit properties so long as the home-buyer is going to occupy one of the units as their primary residence.  (Conventional loan programs typically require 25% down on owner-occupied 3 & 4-unit properties.)

→Non-occupying co-borrower: Even with the relatively flexible underwriting guidelines that FHA allows many borrowers will not qualify.  In this case a home-buyer may call upon a “co-signer” to apply for the loan so long as the person is a relative.

→No credit history: Even borrowers with no credit history MAY still qualify for FHA financing through the creation of a “non-traditional” credit report.

Paperwork

Even though the FHA loan program has improved significantly over the past few months there is still an overwhelming amount of time-sensitive disclosure paperwork which needs to signed by various parties in the transaction.  It’s important that you work with an experienced loan originator who has a handle on all the disclosures and when they need to be signed to avoid any pesky delays in the funding of the loan.

The real estate professional really needs only to be aware of one FHA disclosure.  This is the Amendatory Clause & Real Estate Certification which MUST be signed by the buyer(s), seller(s), listing agent, and selling agent ON THE SAME DATE as the earnest money agreement is signed. 

For a copy of a blank Amendatory Clause & Real Estate Certification form email myself or google the term and you will likely find one.

Once that is gone what will be next? I may have found the answer with the ACCESS program we offer in conjunction with National Homebuyer Fund. This program will provide a 2nd mortgage for a homebuyer who meets the qualifications up to 100% of the purchase price (the website states 105% but we can’t get mortgage insurance beyond 100%). Here are a few key points of the program:

*The ACCESS 2nd mortgage cannot exceed 8% of the purchase price & cannot exceed 100% combined loan to value. The structure which creates the lowest monthly payment is a 95% primary mortgage and 5% combination mortgage.

*The ACCESS 2nd mortgage is a 20 yr. mortgage with a fixed interest rate which will be 2.00% higher than the rate on the primary mortgage. It has principal and interest payments.

*The ACCESS 2nd mortgage can be used in combination with a variety of 1st mortgage products including 30 year fixed rates with interest-only payments.

*The ACCESS 2nd mortgage carries no prepayment penalty.

*In order to qualify for this program the applicant cannot have income which exceeds 140% of the median household income (In the Portland area the limit would be $86,800).

Give me a call today if you’d like to see is this program will work for you!