The FHA Expert

FHA financing -- The Understanding of.... Part 2 -- Creative Financing & no money down

The easily recognized HUD symbol shown on your right has given confidence, trust, and hope to first-time home buyers over many decades. HUD programs have enabled millions of people to fulfill their dreams of home ownership and enjoy a richer and fuller life. The HUD symbol signifies that discrimination based on race, color, religion, sex, family status, or disability is prohibited.

In my first blog,Creative FHA financing -- No money out of pocket from the buyer! Part 1, I talked about using non-profit companies to help a consumer get into a property with little or no money out of pocket. These programs came out in the mid 90's and are still used with today's financing options.  One issue though is since people are using none of their own money in the transaction, there have been studies that these type of loans have produce a higher number of foreclosures. But FHA is still a great program if you can't qualify conventionally.

 

Why are FHA loans such a vital force in home ownership?

• No credit score requirements
• Minimum down payment of 2.25% (this can slightly vary depending on your loan amount)
• If the loan doesn't get approved in the system, it can easily be manually underwritten.
• You don't need standard trade lines of credit on your report. You can have 3 to 4 pieces of non-traditional credit. ie. *if you could show 6 months worth of car insurance payments. *show utility payments *cell phone payments (anything that you can show 6 to 12 months worth of payments, but on time.Case by case, but closer to 12 months.
• The underwriter usually wants to see at least a 12 month clean credit history. You can still have isolated lates in less than a year, with good explanations.
• Monthly mortgage insurance. No matter how much you put down, it's a standard .5% monthly amount across the board. Conventional loans have different increments depending on your down payments.
• FHA has raised their cash-out LTV to 95% in the last year. Conventional will only go to 90% of your value.
• Higher qualifying ratios of 31/43. With compensating factors, they can be manually underwritten up to a 50% back end ratio. Conventional is typically 28/36. Unless approved within the system, sometimes higher.
• The rates are the same as conventional programs.

When using the Nehemiah program or any other non-profit companies in conjunction with FHA financing. Underwriters discretion -- they will usually want to see a little cleaner file because you usually won't be investing any of your money into the transaction. They usually want to see little better credit scores, closer to 600. Now, you can have lower credit scores, as long as your credit history has been in good status in the last 1 to 2 years. The reason for this is because there have been more foreclosures recorded who have used these types of programs. Here is an article that talks about foreclosures because of the Nehemiah loans and the History of Short Sales. But Nehemiah
did partner up with a company to help protect the home owner due to loss of job by covering their mortgage payments up to 6 months. Please read The Nehemiah Corporation Of America Launches Mortgage Payment ...

 

After reading all of this, you might ask, what's the catch. All of this sounds too good. One negative aspect of FHA financing is that there is a maximum loan amount allowed in each county. Those loan amounts can be found here. https://entp.hud.gov/idapp/html/hicostlook.cfm  HUD is looking to raise the limits. But it still needs to be voted in by the 110th Congress.

For some more reading on the Nehemiah program, please read : http://www.nehemiahcorp.org/pr/pr_040705.cfm   

And if you didn't read Part 1 yet: Creative FHA financing -- No money out of pocket from the buyer!!!  -- Part 1

      

 

FHA Down payment assiatnce programs -- What's the difference?

There have been a lot of concerns lately by HUD and many lenders allowing borrower's to go through these down payment assistance programs.  Why is this? Here is something taken out of my previous blog. "Statistics from the NAMB state that the foreclosure rate for these non-profit assistance programs was 6.4% in 2004 versus an overall FHA foreclosure rate of 3%. Just in 2006 alone, HUD reports that 33% of all FHA borrowers used these down-payment gifts from these non-profit organizations. The true meaning behind this is that most of these borrowers are not using any of their own funds to purchase a home."

Now, the argument by several is to ban these types of financing programs, because of its affects on the housing market. And many are stating that HUD should allow 100% financing as a new program. In all honesty, comparing apples to apples, what is the difference? The apple in this case would be that the borrower brings no money to the table.

FHA's down payment assistance program  Creative FHA financing -- Nehemiah -- No money out of pocket

Pros & Cons

• You still need a down payment of at least 2.25% -- This can come in a form of a gift from the seller through the DPA program. (Pro)
• You can still get up to 6% seller assistance (Pro)
• You can get up to 6% through the DPA programs, which is allowed by FHA. This is separate from the seller assistance. (Pro)
• Because of the foreclosure rates on these types of programs, the underwriters need to be a little more strict on their decision. (Con)

FHA's 100% financing program  This still needs to be voted in by the 110th Congress.

Pros & Cons

• The borrower doesn't need a down payment. (Pro)
• The borrower can get 6% seller assistance just for certain closing costs. (Pro) (Con)
• There is no equity in the property. (Con)
• Not sure if they would tighten the guidelines on this particular program. (Con)????  (Pro) If not...

We can also mention that some people, especially some builders, have abused the down payment assistance programs.  They would raise the price of a house, inflate it, to cover the monies that would be given to the buyer. Not that this actually happens already. But then again, I have seen some sellers and realtors raise the price of the house in order to cover the seller assistance also.

So, which one is better? Do you think it matters if the house is actually worth more legally, that they should be able to do this, under any program?  Where does fraud set in? If an appraiser can 110% justify that the value of the house is legitimate?  If there are other comparables in the market, that this would solidify the appraiser's findings, should this be enough in regards to the true value...the real value. Again, is it the case of some bad apples ruining it for everyone else?

Your thoughts and or opinions????

FHA Money Down Assitance Programs vs 100% financing.... What's the difference?

 Jeff Belonger       National Future Mortgage
888-835-1663       jbelonger@nationalfuturemortgage.com

HUD/FHA Nehemiah Program being banned... Fact or Fiction?

SAY IT ISN'T SO... please, don't.... Well, you better have a back up plan for your clients.

I have heard and read a few perceptions of what is going on in regards to a few HUD - FHA programs that might be cancelled.  So, what is being mentioned?

• HUD is looking to stop down-payment assistance programs. These would be such programs as Nehemiah, AmeriDream, and a few others.
• HUD is looking to lift the 3% funds requirement from home buyers. Which would mean that they would allow 100% financing.

Now, I have a problem with a few of these so-called rumors ...or are they rumors? My problem? There are people who are writing about them just from e-mails that they are getting or from others just talking about it on the fly. But nobody does any research or follow up to verify the validity. Not giving any specific information to what is actually being talked about and why.

What I am finding is that people are screaming that it's not fair, because it will hurt some sectors or areas that focus on this type of financing because of low-income housing. Reality? The grass is not greener on the other side. The reality and concern of it is because of the foreclosure rates on these types of programs. Yes, it goes to say that a few bad apples always ruin it for the rest.

Statistics from the NAMB state that the foreclosure rate for these non-profit assistance programs was 6.4% in 2004 versus an overall FHA foreclosure rate of 3%. Just in 2006 alone, HUD reports that 33% of all FHA borrowers used these down-payment gifts from these non-profit organizations. The true meaning behind this is that most of these borrowers are not using any of their own funds to purchase a home.

Sure, there can be arguments made that certain types of people abused this type of financing. Here is a great
story about a particular builder in Charlotte, North Carolina who used the Nehemiah program on the homes that he built. A quarter of the 147 homes built in a specific sub-division went into foreclosure under the Nehemiah program.

The argument that stems from this is that these buyers have no 'skin' in the transaction. They are using none of their own money. It's easier for them to walk away from the deal afterwards. Another issue was that the builder was jacking up the price of the home to compensate for his out of pocket reimbursement to the buyer as a gift. To see how this program works, please read the links below.

Summary: Part of the debate is that many say get rid of these assistance programs because HUD is playing with the idea of 100% financing. My question would be, does it really matter what we call the program? Common sense tells me that it's still zero down, no matter how you look at it. And they still would be able to get 6% seller concession.

Overall, it originally looked positive in regards to HUD's movement for such bills to be passed in regards to new
FHA programs. House introduces FHA reform bill This was being talked about around the end of March 2007. Now HUD looks to ban the non-profit assistance program as of 5/14/07. What se thee?

 

Information on Nehemiah and creative financing.

Are you left in the dark about your mortgage payment?

Are you upset with the mortgage industry? Is the problem that some of these loan programs are risky and fall apart at the end?  Or can it be for the fact that you are left in the dark when it comes to certain things that you should be told upfront about?  How about knowing what your payment is and not just the fact that you are approved for that loan amount !!!!!  Buying a home can be intense.
 
I received an e-mail the other day from Ravi Shah who is a realtor working in Moorestown, New Jersey. Ravi referred me to a client who was already pre-qualified by another lender, but the client couldn't remember the name of the lender.

I finally get a hold of the client, introduce myself, and ask him if he has about 20 minutes so I can ask him 3 to 4 simple questions. Here was my problem when asking this in the past. The client would say ..."That's too much time. The last few lenders that I spoke to only took 5 to 10 minutes."  Me? I am sorry, I need more time than that in order to determine correctly what I can do for you. I need to know your goals.  "Okay, ask..."

1. How is your credit?  He tells me 700+...... (I still ran his credit later) And he only makes $15,000 a year. He is on disability and would need a No Doc loan. But he is unaware of this.
2. How much cash do you have to work with?  (he sold his home last fall and walked away with $50,000, but he only wants to use about $20,000)
3. Is there a certain price that you are interested in? (I was approved for $200,000)
4. Okay, lastly, how much of a payment would you like to carry monthly, worst case? (Well, about $700/month)

Okay sir, we have a problem here. He asks me why?  I tell him that there is only one way to get to that payment and based on your income information, this would not be your best loan program. I asked him if they told him what his payment would be monthly. He said NO.  Sir, it sounds like they just told you enough to catch your interest.

Conclusion :  I am not here to bash any lender or loan officer. Gee, I have been one for almost 15 years now and still love it. But many of these loan officers and lenders will tell you what you want to here. Don't be afraid if you ever run into any problem as your loan is being processed, if things change during the process, or when you finally get to settlement that your terms have changed or the costs have changed. You have the right to complain as a consumer.

 

For more comments in regards to this topic, please Purchase Price vs Payment.    what's missing?????

Jeff Belonger     National Future Mortgage
888-835-1663    jbelonger@nationalfuturemortgage.com

FHA financing... How to be creative with no money out of pocket!! -- Part 1

Can this be true?  No money out of pocket? Yes, no money from the buyer on an FHA loan can actually happen. Talking to a FHA Expert can certainly make this possible. 

So, how is this possible?  You need the help of a non-profit organization. Such organizations would be Nehemiah or AmeriDream. These programs allow the assistance from the seller, but in a form of a gift.

To learn more, please read :  Creative FHA financing -- No money out of pocket from the buyer!!! .

Mortgage Shopping -- Payment vs Rate

After being in the mortgage industry for almost 15 years, this is a concern that happens more times than none. It's okay to shop as a consumer. But as a shopper, you could shop yourself out of a good rate. And the loan officer should be asking about your goals. Here is a typical conversation from a consumer.

Me - "What kind of payment do you want and or feel comfortable with?"         

Consumer - "I want that rate of 5.5%." 

Me -  "Your payment is going to be $2,500 based on that rate and that $200,000 house ."

Consumer - "That's too much. Why is it so much?"

Me - "Sir, it would be better if I asked you a few questions first. Again, what payment would you feel comfortable with? 2nd, what are your goals? (I would go into more detail at this time)  These are 2 great questions that will allow me to get to know more about you, so I can tailor the best possible loan for you. Possibly giving you a few different options."

Consumer - "But I want that low rate that my neighbor got last month!"

Me - "Sir, there are just too many variables in regards to your statement. Too many unknowns. First off, that was a month ago, rates can change daily. Second, how many points did he pay and how much did he put down?  How much did he come to the closing table with? What were his credit scores?" 

Consumer -  "I don't know. My credit is good because my credit score is a 600. And I don't want to put much down."

Me - "Sir, if you can just allow me to ask those questions again, I will be able to educate you on what I am trying to accomplish for you and be able to give you a detailed breakdown of how this works. And what you just supplied to me still doesn't help me. Can we start over? Do you trust me, that I want to help you? If you don't have trust and faith in me, then we won't be able to move forward."

Consumer - "Well, my best friend has used you several times and says he trusts you. And I trust him, so I guess so. Okay, what do you need again?"

 

Many people in our industry have been told to sell payment, not rate. If you think about it, it makes sense. Too many people get hung up on trying to get the lower rate. Sometimes in your mind, a lower rate means that you can afford that payment. When in reality, you should start with what payment you can afford.

Another issue is that some consumers try to out do their neighbors and friends. It becomes bragging rights, in regards to who got the best deal. Unless you both pull out your credit reports, you HUD-1 settlement sheet (to see how much you paid), and bought the exact same house; this still won't tell you who got the best deal.

Last, each consumer is different. There is not one person out there that will ever have the exact same scenario as the next. And 2 months down the road, who can say that the rates would be the same or that they are the same.

 

 

Trust the professional that you decide to go with. Always ask questions and if you don't understand something, don't hesitate to ask. "No question is a bad question."

 

 

For some other things to keep in mind while comparing, please read :

Shoppers that shop themselves right out of the market…….

The Myths about ZERO point mortgages instead of paying points upfront……

First Time Homebuyers & what to look for in a Mortgage Lender before you apply or make application; may it be buying, or refinancing. (Also, info for people refinancing or that aren’t first time homebuyers.)