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There’s a few major problems in the new FHA Short Payoff refinance that has been added to the “Making Home Affordable” family of solutions. I’ll later take the time to write the full details of this issue, but I need to get this message out over the next couple of days. The new FHA program includes new FHA guidelines that no longer allow an unlimited Combined-Loan-To-Value on FHA loans. This is a HUGE problem. Let me explain. Continue reading Problem with New FHA Short Refinance Program Many people who own investment properties don’t believe they can refinance their rentals due to equity (or lack thereof) . Since rental property loans require 25% equity on a traditional Fannie Mae or Freddie Mac loan, I understand why so many landlords do not attempt to refinance. Continue reading HARP Loans- Perfect for Investment Properties Many homeowners who have less equity in their home are confused about their options available improving their loan terms. Should they be asking for a HARP (Home Affordable Refinance Program) refinance or a HAMP (Home Affordable Modification Program) modification? What the homeowner doesn’t know is they better find out before they call their lender. If a homeowner calls about lowering their payments and the customer service representative perceives the request as a modification, they may submit an initial application for a HAMP modification without the homeowner knowing exactly what they’re applying for. That’s where the problem begins. HARP guidelines state that a homeowner who has applied for a modification CAN NOT refinance using HARP guidelines. Homeowners who qualify for a HARP refinance and do not qualify for a HAMP modification may be destroying their only chance to reduce their payments without knowing it. Once they submit their HAMP modification application, they disqualify themselves for a HARP refinance. It’s scary applying for a home loan. The commitment to buy a home is stressful enough. Adding the fear of being turned down for a home loan can be too much for a consumer. I find that most consumers who are concerned with their credit feel that a credit blemish from years ago will keep them from homeownership forever. That couldn’t be farther from the truth. Loan guidelines for a federally backed FHA mortgage only requires 3 years from a foreclosure, 2 years from a chapter 7 bankruptcy and 1 day on a chapter 13 bankruptcy discharge! What does that mean? It means that regardless of your credit past, you can probably qualify for a home loan in just a few years. Often consumers will qualify and not even know it. The key to building your credit after a financial catastrophe is creating credit activity immediately. The most common mistake I see people make is they never re-establish credit following their financial fallout. If your credit was horrible after a bankruptcy and you never opened a new credit account, it will remain horrible. Most consumers think that there is no way to build credit because they will not qualify for a loan, which makes sense. However, there is a way. Continue reading How Do I Fix My Credit So I Can Qualify for a Mortgage? The most difficult hurdles to overcome when helping HARP loan clients are typically placed by the homeowner’s existing lenders. Thankfully, the second mortgage companies have become much more lenient and willing to play ball. Companies are typically going to be okay with subordinating their loan if the homeowner is working on a HARP refinance on their first mortgage. I’ll explain what this means, but it hasn’t always been the case. Continue reading HARP Loans with a Second Mortgage- Not If Your Second Mortgage is with Key Bank In January, the Department of Housing and Urban Development (HUD) announced the first major changes to FHA financing for the year changing the maximum seller concessions from 6% to 3% early summer 2010.
The changes to seller concessions will have a large impact. Concessions include what the seller is contributing to the buyer in the transaction. A common concession is a credit from the seller to cover the buyer’s closing costs. A 3% limit on seller concessions is enough to cover closing costs on a purchase of around $250,000, but with a purchase price of anything less than $250,000 the buyer will be forced to pay some closing costs out-of-pocket. This will be a pain-point for many FHA borrowers in the months to come. Continue reading FHA Changes Guidelines for Seller Concessions It’s important that buyers cut the check for their earnest deposit from an account they can trace the funds from. I recently had a transaction where the buyer used a cash gift to buy a cashiers check that was later used for their earnest deposit. This will create problems during the underwriting of your loan, which triggered me to write this post. WHY DOES IT MATTER? There are many reasons why the underwriter’s care about proving the source of your deposit. Loan guidelines only allow a buyer’s down payment to come from certain parties. For example, FHA allows a buyer to receive a gifted down payment from a family member. If the earnest deposit check was a cash gift, we cannot tell if the gift was from a friend, which is not allowed. When a gift is given from a family member, lenders will require a bank statement from the buyers account to show the amount of the gift, a bank statement from the donor’s account to show it came from their account, a gift letter stating the deposit is a gift and a copy of the check. All of the amounts should match exactly. Another reason this is important is because the underwriter needs to make sure the funds did not come from a loan. All funds used towards the transaction should be accounted for. If you did take a loan for the down payment, that is fine for some mortgage programs but the underwriter must know the terms of that loan so they can make sure you qualify for your new loan and your new mortgage. It’s a small request that can seem petty at the time of request, but there are reasons for these guidelines.
Let me start off by saying that I do not have anything against 30 year fixed loans. They have a relatively low payment with little risk. However, I truly believe there is a better loan out there. It’s a loan that helps homeowners reach financial freedom faster. If it were the standard, more homeowners would be debt free, house values couldn’t be inflated too easily and we likely would not be in the recession we’re in. So, what is this magical loan that is so special? So special that I risk being ridiculed by every industry expert for going against the grain? Well, the answer is simpler than you may imagine…the 15 year fixed mortgage. Continue reading It’s Time to Rethink the 30 Year Fixed Loan The answer to this question varies depending on the loan program a buyer is looking at, but most buyers who have past credit problems rely on FHA loans as their fastest track back to homeownership. This is due to FHA’s lenient credit guidelines compared to conventional loan programs.
HUD (The Department of Housing and Urban Development) just released updated guidelines on the very topic on December 16th, 2009 in their Mortgagee Letter 09-52. This mortgagee letter specifically covers FHA guidelines for buyers who have sold their property for less than what they owed. Continue reading How Long Do I Have to Wait to Buy a House After a Short Sale?
This seems like the right time to give homeowners an extensive guide to HARP, including who it best benefits, how to give homeowners the best shot of getting approved as well as other options to low-equity refinancing. To clarify one fact about HARP that many homeowners do not know, YOU DO NOT NEED TO USE YOUR CURRENT LENDER TO GET A HARP LOAN. Shop your HARP loan like any other refinance. The only exception to that rule is if your current loan has PMI, which can only be refinanced through your current lender at the moment. Even then, a very small handful of lenders will do a HARP loan with PMI. Also, HARP is not limited to homeowners only. You can use HARP on 2nd homes and investment properties as long as the loans are owned by Fannie Mae or Freddie Mac. In fact, they are actually perfect for investment properties. You can read more on this topic here. This contradicts the Making Home Affordable website, which states you may be eligible for HARP if “Own a one- to four-unit home that is your primary residence.” I can tell you from first hand experience that you can use HARP on 2nd homes and rental properties. The HARP program was designed to help homeowners who are looking to refinance but have lost some to all of their equity in their home. It only applies to homeowners who currently have a Fannie Mae or Freddie Mac owned loan, but that does not mean HARP is a homeowners only choice. In fact, there’s surprisingly several opti0ns available to homeowners that may not have considered, nor did their lender give as an option. In this post, I will cover who qualifies for a HARP refinance, who best benefits from HARP guidelines, which customers do not qualify for HARP and some alternatives to consider. One EXTREMELY important detail to note is you cannot refinance under HARP if you have already applied for a modification (HAMP-Home Affordable Modification Program. If you haven’t decided which is better for you, apply for a HARP refinance first. If your HARP refinance application is turned down, you can proceed with a modification application. Attempting to modify your loan first will disqualify you from a HARP refinance. |
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