The FHA Expert

2008 FHA & Conforming loan limits -- Truth or Rumor

We all know that the economy is in the tank in one way or another. The Senate passed the bill of raising the FHA loan limits across the country back in December of 2007. What so many people didn't understand is that it had to go back to the House floor to decided what the new loan amounts would be. And after this is decided, then the President would sign off on this new bill.  In all honesty, I thought that this would have taken place by the end of January.

Now, I am being contact by realtors and consumers asking what these new loan limits are, because there are talks on the street that they were raised. This is not the case as of yet. It's still speculation, because they are still working out the numbers. And what has been thrown into the mix of things, is that there is a plan to raise the conventional loan limits from $417,000 to $650,000 and the FHA limits to reach a maximum of $729,000.  But this would be for those high cost areas such as California, New Jersey, New York, and Massachusetts. There is more information in regards to the FHA limits being permanent, unlike the conventional backed loan limits to be there for relief until the end of December of 2008.

Overall, all of this sounds great, right?  Yes and no. Gee, shouldn't it be yes across the board, that it will help so many that are about to go into foreclosure? Yes, that is the good part. But let's face reality. Let's take a look at the values of homes. I could be here all day, that values are dropping. That people are upside down on their house, meaning that they owe more than it's worth. Florida is a great example. I have a client right now, that was promised a mortgage back in July of 2007, but the loan officer couldn't make it happen. Knowing your guidelines are very important. But that house was appraised for $258,000 back in June. I am now getting estimates of $160,000 and they needed to pay off debt in order to qualify and lower their mortgage payment. My new loan amount was going to be $158,500, so as you can see, we have a slight problem.

Another issue, even if they raise the loan amounts, there are going to be the income qualification problems. On a $450,000 mortgage at 6.5%, depending on the taxes adn homeowners insurance, you would need a total income of around $120,000 to $140,000 per year. Now, I am sure that we can find so many in California, Manhattan, and North Jersey that make this kind of money. But keep in mind, the cost of living in some of these areas are very expensive also. Example, a sub at Subway in Manhattan is about $1.50 more than it would be in South Jersey. Sure, these are just pennies to some, but it adds up over time. There are just so many factors other than just saying, "by raising the loan limits, it will solve so many of the problems." I agree, it will help many, but keep in mind, we are in an election year. And because of this, I would have to guess that we will see the FHA & Conventional loan limits finalized by the end of February.

FHA mortgages are better than conventional mortgages -- Why is that?

We are now moving into a volatile market and more than ever, you need to be working with a mortgage professional that has your best interest in hand. Sometimes easier said than done. But what can you do about it?

I have always said that no question is a bad question.  If you don't think that your credit is better than average, then more than likely, you will fit into a FHA Mortgage than a conventional mortgage. This is a lot easier to state now than just in the last year because of several major changes to conventional loans. But why don't you hear about the differences?  Here are some of my thoughts.

• The lender is not FHA approved. You need to ask your loan officer if they are approved and licensed FHA. But how can you trust anyone these days, even family members. I am very serious about this. You can call HUD or visit their web site to see if that lender is approved FHA.  HUD site :  http://www.hud.gov/ll/code/llplcrit.html

• Many loan officers don't know much about FHA and how it works. They are use to conventional loans or subprime loans. Why is this?  Because you typically need to do more than just input the loan into the underwriting system. See, on a conventional loan, if you put it in the system and it says approved, you are basically done with it. In regards to FHA, it will usually come back with refer, but FHA loans can be manually underwritten. And you need to truly understand the credit guidelines and what are compensating factors to get your mortgage approved.

HUD/FHA has been around since 1934. It's a proven agency helping homeowners achieve the American Dream. Just recently, it's been much tougher to get the best rate under conventional standards.  Just a little secret that I would like to share with you.  FHA is not a monster or a bad loan as  many have classified it. Bad rumors. The FHA rates are exactly the same as conventional rates and sometimes better.  Appraisals are done the same as a conventional appraisal. This has been like this for 5 years or more now and aren't scrutinized as in the past. Here are some other things to arm yourselves with when shopping with a lender.

• If your home that you are refinancing or purchasing is in a declining market or there is an oversupply, this will be a problem with conventional loans. You will be penalized at least 5%, meaning that your LTV will be reduced at least 5%. This is not the case with FHA loans.
• FHA in most cases is not credit score driven. But with many lenders, you need at least 2 scores above 500. But with conventional mortgages, the lower the credit score, possibly the higher your rate. And if you ever have a loan officer tell you that you fall into another type of FHA category because of your credit, this is FALSE.  They are lying to you. There aren't any tiers for rates as of yet. They are working on this though. Please check back to my home page for updates.
• And lastly, as I mentioned above, if you are putting less than 30% down and have a credit score less than 680, you will be penalized also. I will tell you this, that your conventional rate will be at least 3/8% higher than the FHA rate just based on this information.

Conclusion :  Just be aware of what you are being told and advised. Do a little homework, depending on how you came across that lender and/or loan officer. I hate to use the word sales person, but that is what many of these loan officers are, just sales people. Some may seem nice, but they will tell you what you want to hear. And one more piece of advice. If the loan officer doesn't send you a Good Faith Estimate within 24 hours of speaking to them, this is usually a red flag. But there is more to a good faith estimate than just a bunch of figures. Don't always believe the piece of paper that it is written on. I will go into more details at another time. I just wanted to make you aware of this.

Adjustable Rate Mortgages - FHA Secure mortgages could be your answer....

Could your adjustable rate mortgage be ready to adjust?  Has it adjusted and you are now having problems making your new mortgage payments?

As I stated once before, the FHA Secure loan sounds great, but not all will qualify. But you need to a true mortgage professional to make sure that you would qualify and not just a bunch of broken promises from a sales person.

So what do you need to know to possibly qualify for the FHA Secure loan?  Keep in mind, you currently don't have to have a FHA mortgage. But you do have to meet these specific qualifications :

• You have to be in an adjustable rate mortgage and current on your mortgage with no lates. No matter what, you have to be current with no lates prior to your mortgage rate adjusting. Now, I was part of the hud conference call and there are circumstances that can come into play, depending on your excuses and reasons why you might have been late. This goes back to normal FHA underwriting guidelines.

• You need at least 3% equity in the property.

• Interest rates must have or will reset between June 2005 and December 2008.

• And lastly, basically you need to qualify like you normally would on previous FHA mortgages. This means that you need a decent to solid employment history to show stability and income that meets the normal qualifying ratios of 31%/43%. Again, it's up to the underwriter who can exceed these ratios, depending on the how solid the borrower is.

The problem with this program and why it hasn't been utilized as much as many people thought it would be is because you need to be current and not late prior to the adjustment. It's meant to be relief for those that will have payment shock. "FHASecure is designed for families who are good borrowers but were steered into high-cost loans with teaser rates," said Assistant Secretary for Housing-FHA Commissioner Brian Montgomery.