Tuesday, March 11, 2008

New FHA Loans: What You Need to Know

  • New FHA restrictions just came out. Here’s the upside.
  • The loan limits for SFR in L.A. are $729,750 (same as “jumbo conforming”).
  • Loan limits for 2 units are $934,200.
  • The interest rate is 6% as of this writing; however, there is mortgage insurance (see below).
  • Minimum down payment is 3% (not including closing costs).
  • Fixed rate and Adjustable rate programs are available.
  • NO MINIMUM FICO REQUIREMENT (this is huge).
  • Must be full documentation loan. No stated income loans.
  • No buyer reserve requirement (this is also huge).
  • No income limits.
  • The seller can contribute up to 6%, including closing costs, although the seller does not have to pay the closing costs.
  • There can be non-occupant co-signers on the loan.
  • You do not have to be a first-time buyer.
  • Gifts are permitted for the entire 3% borrower investment and don’t need to be “seasoned.”
  • Gifts are also permitted for all closing costs & pre-paid items.
  • Down payment assistance programs are permitted, such as city first-time buyer housing programs.

Now, here’s the downside:

  • There is mortgage insurance. It equals either 0.5% point per month, or 1.5% points up front. The up-front payment is deductible from your taxes during the year that you buy.
  • There are stricter appraisal requirements:
  • Any operable or useful element in the subject property must have at least 2 or more years of useful life or it must be replaced.
  • The appraiser must be FHA-approved.
  • The appraiser can require a separate inspection upon any “visible” defect or if he/she has knowledge of any existing problem.
  • The property must be structurally sound.
  • It must have a useable garage.
  • The property cannot have code violations.
  • Each living unit much contain domestic hot water, sanitary facilities and a safe method of sewage disposal. Connection to public systems is required if available.
  • Heating systems must be adequate for healthful and comfortable living conditions.
  • Condo projects must be pre-approved; they can be spot-approved but this is much more difficult.
  • Condo projects must have sufficient reserve funds.

10 comments:

  1. Anonymous12:34 PM

    I like how you included Full Doc as an upside to FHA. That is what guarantees few will be able to use it. It also has a 31/43 front/back ratio limit when manually underwriting. For minimum FICOs, try getting a FICO under 575 approved.. it isn't a FHA issue it is a lender issue.

    The MIP is 1.5% up front for any loan and .5% a year if your loan was originally above 80% LTV. 5 year minimum on the monthly MIP if you get it.

    Full Doc and Full amortization isn't something that is going to save this housing market.

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  2. Anonymous4:17 AM

    Hi Judy, It was a nice experience browsing through your blog. I didn't know about the downside of FHA loans. Thanks for the info...Keep up the good work. I also agree with the fact that only few will be able to use it.

    Mike

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  3. Anonymous12:36 PM

    And I'm finding it hard to find a bank that is acknowledging the new loan limits. Do you have any suggestions? The two financial institutions I called said it is not federally mandated and they were taking a "wait and see" attitude and were only lending the $417,000.

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  4. "And I'm finding it hard to find a bank that is acknowledging the new loan limits. Do you have any suggestions?"
    I'm hearing this from all over. I think it's because each lending institution has to sort through the new guidelines and adapt/create them for themselves and then bring their reps up to speed. Here's my suggestion: visit my website at www.judygraff.com. Click the "select page" on the home page. Then, click local partners. I KNOW that the top two lenders have programs with the new guidelines.

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  5. What's the maximum DTI ratio that can be approved for an FHA loan?

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  6. Mike D, I'm polling lenders about your question. One lender tells me it depends on the entire package: downpayment, credit score, etc., but he thought it could go as high as 50%. Back in the day, FHA's DTI was 40%, and they're obviously more agressive now...I'll let you know more as soon as I know.

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  7. Anonymous3:19 PM

    FHA front end can be 31-33 if manually underwritten. With sufficient compensating factors the back end can go as high as 60..

    There are people doing the new FHA but not many doing the new conforming jumbo. A mortgage broker will be able to help you find a FHA up to 729k. Indymac and TBW are doing them currently.

    The terms of the Fannie/Freddie conforming jumbo are so horrible and considering the pricing hits about to take effect for FICOs under 720.. Fannie/Freddie are out of the market for this kind of stuff.

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  8. Can someone explain what is meant the "front end" and "back end?"

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  9. Anonymous6:53 PM

    Front end ratio is what you spend out total housing cost. So PITI (principal + interest + property taxes + insurance) and things like HOA or mello roos. Divide that by Gross Income to get your front end ration.

    Back end ratio is your total monthly debt service divided by Gross Income. Also called DTI (Debt to Income).

    Fannie/Freddie are apparently just doing the back end ratio for some programs. 45% DTI on the Conforming Jumbos, which is very loose. But the other parts of their guidelines are so restrictive to make it pretty moot.

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  10. Interesting blog. About loans that are very useful to everyone. It give everyone the idea where to find lenders that are really nice when it comes to loans.
    Thanks for sharing.

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