When purchasing or refinancing a primary residence, lenders want to make sure that borrowers have some money left over after the closing has occurred. The cash reserves are usually two months based on your total mortgage payment, including taxes, insurance, PMI and association fees. Here is a list of the "acceptable" and "unacceptable" cash reserve sources.
Depending on the down payment, sellers can pay a percentage of the buyer's costs at the time of closing. Typical fees and/or closing costs paid by a seller in accordance with local custom - known as common and customary fees or costs - are NOT considered a sales concession, but the following fees, normally charged to the buyer but paid by the seller, could be considered a sales concession:
Fannie Mae and Freddie Mac require appraisers to include a "Quality Rating Code" on all appraisal reports. Here's what they mean for both existing and new construction.
Existing Property
C-1 - The entire structure is new, never been occupied and has no physical depreciation.
C-2 - Existing home, no deferred maintenance and requires no repairs. This rating is give if property is "almost" new or has been totally renovated.
C-3 - Existing home, well maintained but evidence of normal wear and tear.
C-4 - Existing home, minor deferred maintenance and requires only minimal repairs.
C-5 - Existing home, major deferred maintenance and in need of significant repairs but the home is still livable as a residence.
C-6 - Existing home, severe defects that affect safety, soundness and livability. If property receives this rating, it's not eligible for conventional loan.
New Construction
Q-1 - Unique home individual designed by an architect for a specific user and details are exceptionally high quality.
Q-2 - Custom designed home built on individual property owner's land or high-quality tract lots. Workmanship and materials are high quality.
Q-3 - Built from readily available blue prints in above-standard tract lots or individual's land. Materials in home are up-graded from standard materials and workmanship exceeds standards.
Q-4 - Standard or modified blue prints. Materials, workmanship, finish work are stock builder grade and may have some upgrades.
Q-5 - Basic, standard quality, economy homes with limited interior design. Meets minimum building codes and inexpensive construction, stock materials and limited upgrades.
Q-6 - Low cost and may not be suitable to year-round use. Low quality and could be built by non-qualified builder with or without plans. May not be able to obtain a convention loan if receives this rating.
If you are working with a client who is looking to obtain financing for home improvements when purchasing an existing home or a new construction property, then this program is a perfect match for your buyer. This program also is great when working with borrowers looking to make improvements on an existing home they own.
Benefits and Features:
Requirements
Limitations:
There are so many types of income, that sometimes it is difficult to know what will and will not be accepted to obtain mortgage financing. This handy chart shows you what types of income require a lender to verify that the income will continue for 3 years, and which ones do not.
Keep in mind that this chart is only referring to what types of income need to be verified for continuance. There are other factors that determine if the income is acceptable as a basis for loan repayment.
Appraisal waivers mean that an appraisal is not required on a property. This saves the borrower money and helps them close faster! Not all properties qualify, but it is always worth a try!
· Limited cash-out refinance transactions:
o Principal residences and second homes up to 90% LTV/CLTV
o Investment properties up to 75% LTV/CLTV
· Cash-out refinance transactions:
o Principal residences up to 70% LTV/CLTV
o Second homes and investment properties up to 60% LTV/CLTV.
· Purchase transactions:
o Principal residences and second homes up to 80% LTV/CLTV .
· Loan casefiles that receive an Approve/Eligible recommendation.
· Properties in high-needs rural locations, as identified by FHFA
o Principal residences up to 97% LTV/105% CLTV (for borrowers at or below AMI)
o Contingent on mandatory property inspection
· Two- to four-unit properties
· Loan casefiles in which the value of the subject property provided to DU is $1,000,000 or greater.
· HomeStyle® mortgage products (Renovation and Energy)
· Texas 50(a)(6) loans
· Leasehold properties, community land trust homes, or other properties with resale restrictions.
· Cooperative units and manufactured homes
· DU loan casefiles that receive an ineligible recommendation.
· Loans for which the mortgage insurance provider requires an appraisal.
· Loans for which rental income from the subject property is used to qualify.
· Loans using a Gift of Equity
· When the lender has any reason to believe an appraisal is warranted.
Has it ever made sense that a borrower would let their second (vacation) home sit completely unoccupied and not take advantage of the times during the year that the property is not in use by the owner? Fannie Mae has stepping up to the plate and addressed this situation.
One of the definitions for a second home is that the property may not be a "rental property." The clarification clearly indicates that these transactions are eligible as long as certain requirements are met.
General Guidelines for a second home that shows rental income on Schedule E or on other information in loan file:
Red Flags to watch for:
Properties Eligible:
How Does the Program Work?
The Home Possible® mortgage offers more options and credit flexibilities to help
low- to moderate-income borrowers attain the dream of owning a home.
Program Guidelines:
As you know when you list a condo unit for sale and you want to offer financing terms, you'll need to check to see if the condo project is on an "approved" list.
In order to save time and money, Freddie Mac published a list of condo "types" that DON'T qualify for financing. Here's the list:
Qualifying
Benefits
There are many ways to come up with the money that you need to buy a home.
My goal is to assist you with your personal plan!
Important Note: Depending on the program, some of these funds may be used only for closing costs. It is important to discuss with your lender what can be used for down payment purposes.
Acceptable
The following persons are exempt from paying the funding fee:
Important Note: If a client is exempt from the funding fee on their first VA loan, they will also be exempt on any future VA transactions. It is not just a one-time benefit.
Not everyone who served our country is eligible for a no-down VA loan - but there are many, many veterans who DO qualify and don't realize that they are eligible. While a Certificate of Eligibility is the document that makes the final determination, here's a list of those who may qualify.
Branches of Service
Coast Guard
(If discharged, must have attained an "Honorable Discharge" or "Other Than Honorable" discharge in order to obtain a Certificate of Eligibility.)
Surviving Spouse Benefit Criteria
An IRRRL is a VA-guaranteed loan made to refinance an existing VA-guaranteed loan, generally at a lower interest rate than the existing VA loan, and with lower principal and interest payments than the existing VA loan.
The ability to refinance a VA loan without the hassle of an appraisal or verification of income is a real winner for those who simply want to lower their monthly payment. Review the chart below to see if your VA Status Qualifies you for a VA IRRRL.
Below is a list of VA Minimum Property Requirements (MPRs)
for existing homes that can be used as a screening checklist for your listings.
· General: Must be free of hazards that affect the health and safety of occupants, structural soundness of property, or impair the use and enjoyment of property.
· Handrails required on stairs with 3 or more risers.
· Severe tripping hazards must be remedied (i.e., major buckling of concrete).
· 25% maximum non-residential use.
· Mechanical systems must be adequate, safe, and protected from elements.
· Conventional heating system must be present in all homes to maintain temperature of 50 degrees in areas with plumbing (i.e., wood stove cannot be only heat source).
· Solar systems for water and space heating must have reliable backup system.
· Roof must have 2 years of remaining life and no more than 3 layers of shingles.
· Crawlspace must have adequate access, be clear of debris and be properly vented. Must have access to ductwork and plumbing.
· Excessive dampness or ponding of water in crawlspace must be corrected.
· Natural ventilation of attics and crawl spaces must be provided.
· Laundry and storage space may be shared in a 2-4 unit.
· Rear yard must have access. Row units may be by means of alley, easement, or passage through subject dwelling.
· Private streets must have permanent easement and be maintained by HOA or maintenance agreement.
· Streets must have all-weather surface.
· Living unit must have its own access.
· Unit utilities may not pass over, under or through another living unit unless there is legal and permanent access for maintenance and repair.
· Must be space between buildings for maintenance of exterior walls.
· Termite cert required. Treatment required if necessary.
· Lot must drain away from dwelling.
· Exterior wood must be protected from elements. Chipped or peeling paint must be remedied.
· Properties built prior to 1978 must have all defective paint surfaces remedied both interior and exterior.
· Property cannot be located within a high-pressure gas or petroleum easement. If located within 220 yards' special certifications will be required.
· Property cannot be located within a high-voltage electric line easement.
· Connection to public water/sewer disposal systems is only required when mandated by building, planning or health authorities.
· Private water systems must be tested.
· Water treatment systems are allowed only if public water is not available and water supply is from aquifer confirmed uncontaminated by health department.
· Shared wells must be adequate and have maintenance and well-sharing agreements.
VA allows the financing of certain energy-efficient improvements in the new purchase mortgage loan.
Acceptable energy-efficiency improvements include, but are not limited to:
The mortgage may be increased by:
VA does not permit EEMs more than $6,000.
VA loan assumptions are not restricted to Veterans who have VA eligibility. Anyone can assume a VA loan if they meet the occupancy, credit and income requirements set forth by the VA.
Here are some quick facts:
If a non-Veteran assumes a VA loan and defaults on that loan, the portion of the eligibility that was used to insure that loan will be unavailable to the original Veteran borrower until the paid claim debt is paid off to VA.
VA Specially Adapted Housing (SAH) Grants are funds available to Servicemembers and Veterans with severe service-connected disabilities to assist them in the building, remodeling or purchasing an adapted home. Maximum of 3 grants, up to the maximum dollar amount allowable.
A temporary grant may be available to SAH/SHA eligible Veterans and Servicemembers who are or will be temporarily residing in a home owned by a family member. The maximum amount available to adapt a family member's home for the SAH grant is $40,637 and for the SHA grant is $7,256.
Veterans and Servicemembers may receive assistance for any home improvement necessary for the continuation of treatment or for disability access to the home and essential lavatory and sanitary facilities. A Veteran may receive a HISA grant in conjunction with either a SAH or SHA grant. The HISA program is available for both Veterans with service-connected disabilities and Veterans with non-service-connected disabilities.
You can apply by completing VA Form 26-4555, Veterans Application in Acquiring Specially Adapted Housing or Special Home Adaptation Grant and submitting it to your local VA Regional Loan Center. You may also apply online; please visit the Veteran's portal at www.ebenefits.va.gov to register and submit an application for Specially Adapted Housing benefits.
A Presidential directive has required the VA to stop enforcing a portion of Title 38 that defines a spouse as someone of the opposite sex. Same-sex couples who are legally married by state law may now enjoy the VA home loan benefits they have earned.
How does this directive affect same-sex couples when qualifying for a VA loan?
What is the lender's process and how will it affect my same-sex couple buyers?
A manually underwritten loan includes a loan that:
A 'Refer' decision does not mean the loan is not approvable. It just requires an underwriter to review the details and see if it meets the FHA guidelines.
FHA Requires ALL Lenders to Manually Underwrite an FHA Loan
if the Automated System does not approve the loan or requires a downgrade to a Refer!
Following is a list of common "Triggers" that result in a file being manually underwritten:
Family Member is defined as follows, regardless of actual or perceived sexual orientation, gender identity, or legal marital status:
Close Friend with a clearly defined and documented interest in the Borrower.
The Borrower's Employer or Labor Union.
A Governmental Agency providing homeownership assistance to low- or moderate-income families or first‐time homebuyers.
We Are Family!
How FHA Defines Family Members
Family members often lend a hand to assist someone in purchasing a home. They can help with gifts, gifts of equity, and co-signing to name a few. Many of the rules built around these topics require the lender to determine if the person helping is a family member as described by FHA.
FHA Definition of Family
Always thought FHA was a one-time-good-thing? Well think again!
Does your buyer currently have an FHA mortgage and -
Then your buyer may need another FHA mortgage. But how is that possible if they haven't sold their current FHA financed home?
The following situations allow your buyer to have more than one FHA mortgage
But wouldn't they have to qualify with two mortgages? Not in most cases!
Unique properties – Log homes, extra small homes, homes with lower-than-normal ceiling heights, etc., can be FHA eligible if they are structurally sound and readily marketable. The final determination to accept or reject the house is made by the lending institution’s underwriter and can be dependent on the availability of similar comparable sales/listings for the appraisal report.
Shared lots with undivided interest – Properties with legal descriptions that read “An undivided 1/2 (or 1/3,) interest in and to Lot. . . . .” are NOT eligible for FHA financing.
Excess land is defined as a lot that is larger than what is a typical and readily marketable in the area AND capable of a separate use. Generally, the excess portion can be subdivided and marketed as an individual parcel. However, in small communities and outlying areas, appraisers must use different criteria because the market may accept a wide variance in lot sizes. The appraiser should describe the excess land but not value it. The appraisal only gives value to the portion of the land which is not considered excess. A legal description of the portion being appraised is required, which may entail a survey being performed. The appraiser must also describe the portion being appraised.
Nonresidential use – Areas designed or used for nonresidential purposes shall not exceed 49 percent of the total floor area. Any non-residential use of the Property must be subordinate to its residential use, character and appearance. Non-residential use may not impair the residential character or marketability of the Property. The non-residential use of the Property must be legally permitted and conform to current zoning requirements.
Move ons – Only stick built homes are eligible to be moved. Homes moved without prior HUD approval will be treated as proposed construction and only eligible for 90% financing if on the new foundation for less than one year. If on the new foundation for more than one year, the property is eligible for 96.5% financing. All damage incurred during the move is the responsibility of lender. The 203(k) program is available to assist an applicant to move a house.
Forest and Farm Property Tax Deferral Programs - Farm or forest tax deferral does not make a property eligible for FHA financing but if it is likely that the farm or forest use will not continue, a termination of deferral and payment of all deferred taxes must be required.
One of the issues that always come up is how much money your clients plan to use for their down payment. However, what is rarely discussed is, "where is the money coming from for the down payment and closing costs?"
When working with FHA buyers and getting them pre-approved, if they say they are getting all (or part) of the money from a gift, FHA requires a "paper trail." I want to share with you exactly what is needed because this alone could hold up closing - or kill a deal.
The gift letter itself must contain the following verbiage:
There are four ways to verify the transfer of the funds (only one is required):
FHA has very specific guidance regarding Sales Concession and how roster appraisers must consider them.
FHA reminds appraisers that ignoring sales concessions and the impact they may have on a sales price can easily lead to overvaluation.
There are very specific guidelines regarding these types of transactions that a buyer and seller must follow in order for FHA financing to be an option. You can be a deal-saver by guiding clients with the right information!
Rent credit for down payment granted by a landlord to tenant facts:
(Ex: Landlord collects $1,000 per month and market rent is $800.
Only $200 can be applied toward down payment for future purchase.)
FHA has specific rules and exceptions when it comes to property flipping.
Property Flipping is a practice where recently acquired Property is resold for a considerable profit, within a short period of time with an artificially inflated value, often abetted by a Mortgagee's collusion with an Appraiser.
FHA defines the seller's date of acquisition as the date the seller acquired legal ownership of that Property. FHA defines the resale date as the date of execution of the sales contract.
Time Restriction on Transfers of Title:
Exceptions to time restrictions on resale are:
Required Documentation:
The lender must obtain a 12-month chain of title documenting the time restrictions on resales.
A little-known acceptable source of funds to purchase
a home is a LOAN from a family member.
FHA will allow family members to lend the full amount of cash required to get into a home, including the down payment. There is no additional "cash investment" required from the borrowers. Details are:
Who Can Exceed the LTV Limits?
FHA defines Identity of Interest as a sale between parties with an existing Business Relationship or between Family Members.
For an Identity of Interest sale, the Maximum loan to value is
85% vs. the FHA standard of 96.5%.
There are Exceptions to This Rule.
The Following Types of Transactions are Permitted to Exceed the 85% LTV restriction:
Family Member Transactions:
The Borrower purchases as their principal residence, the family members principal residence. OR
The property owned by another family member is purchased, and the borrower has been a tenant in that property for at least 6 months prior to the sales contract.
Builder's Employee Purchase: An employee of a builder, who is not a Family Member, purchases one of the builder's new houses or models as a Principal Residence.
Corporate Transfer: A corporation transfers an employee to another location, purchases the employee's house, and sells the house to another employee.
Tenant Purchase: The current tenant purchases the Property where the tenant has rented the Property for at least six months prior to the sales contract.
FHA clients that have no "credit score" or reportable credit on a credit report can still get mortgage financing. Here are some ways that we help those clients establish a credit history!
If a Client Is Renting:
Note: Some utilities are now being reported on your credit report!
If a Client Is Not Renting:
Other Methods:
Your lender can work with you to offer suggestions for creating a credit profile. This may include opening a credit card, charging a small amount and paying it completely off each month. These methods take a little time but may be well worth the effort!
The Key is to verify an established payment pattern by those providing these forms of credit! After all, these are all forms of credit. They are just not always reported to the credit bureaus!
Many people ask me what types of heat sources are okay for homes where the borrower is using FHA to finance the property. Here's the information - and by the way, USDA (Rural Housing) uses FHA rules listed below as their heat source guidelines too.
General Guidelines
Wood Stoves & Solar Systems
(Example: electric baseboard heat in bathroom, kitchen and basement/crawl space where plumbing pipes are located.)
Floor Heaters
Non-conventional Heating Systems
Propane Tanks
If you ever looked at a dream home and loved the “bones” of the house but not the outdated decorating or years of wear and tear, a renovation loan may be what you need to turn that dream into a reality. These loans allow you to buy the property, complete the renovation, and then move in, all wrapped into one home loan.
· Non-structural work up to $35,000
· No Minimum Amount
· Major rehab or repairs
· A Minimum Amount of $5,000
· Minor remodeling
· Replacing carpeting
· Bathrooms & Kitchens
· Health and safety hazards
· Lead-based paint stabilization
· Wells and/or septic systems
· Plumbing, heating, air conditioning, and electrical systems
· Accessibility for persons with disabilities
· Energy efficiency improvements
· New roofing, siding, gutters, and downspouts
· Fences, walkways, and driveways
· Decks, patios, and porches
· Kitchen Appliances
· Any items eligible for a Limited loan.
· Major remodeling
· Converting a 1-family structure to a 2-, 3-, or 4-family structure.
· Decreasing an existing multi-unit structure to a 1- to 4-family structure or reconstructing a structure that has been or will be demolished, provided the complete existing foundation system is not affected and will still be used.
· Repairing, reconstructing, or elevating an existing foundation where the structure will not be demolished.
· Purchasing an existing structure on another site, moving it onto a new foundation, and repairing/renovating it.
· Making structural alterations
Did you know that FHA allows borrowers who have outgrown their current home to retain the current home as a rental property and obtain a 2nd FHA loan?
Borrowers will be required to:
not eligible)
That's right. If an appraised value is higher than the sales price,
FHA-required repairs can be financed into the new FHA loan!
Proceeds from the sale of personal assets are acceptable if the individual purchasing the asset is not part of:
Documentation Requirements:
Depending how much money is needed, the lender may accept alternatives to this required documentation, especially when the proceeds of the sale represent a minor percentage of the borrower's overall money needed to close.
With a big increase in HUD REOs being sold these days, we are seeing FHA appraisers requiring "Lead-Based Paint Repairs" to be completed prior to closing.
According to HUD, the only reason this would be a requirement is when a HUD REO property, constructed before 1978, is being purchased using FHA-insured financing.
Since the EPA has some jurisdiction over the lead-based paint removal, here are the EPA's requirements:
Realtors and property management firms can download more information using this links:
Renovation, Repair and Painting (RRP) ProgramAnswers to Frequent Questions about EPA's Lead Renovation, Repair and Painting (RRP) Rule
Renovation, Repair and Painting Program: Realtors
Good Neighbor Next Door (GNND) is the new name for an old program. Most of you may know it as Teacher Next Door or Officer Next Door. It was changed to include Firefighters and Emergency Medical Technicians (EMTs).
Highlights:
Eligible borrowers are:
Additional borrower criteria:
But what happens if the homeowner has to leave temporarily?
Are they now on the hook for that additional 50% of the purchase price? Maybe not.
Interruptions in the 36-month mandatory occupancy term may be allowed for hardship circumstances if the request is made in writing to HUD. The request must include:
The written request for approval of an interruption of the owner-occupancy term must be submitted to HUD's contractor at least 30 calendar days before the anticipated interruption. Eligible GNND program participants who are also military service members protected by the Service members Civil Relief Act (SCRA) need not submit their written request to HUD 30 days in advance of an anticipated interruption, but should submit their written request as soon as practical upon learning of a potential interruption.
HUD's contractor that would consider these requests is:
ISN Corporation
Attention: Secretary Held Loan Servicing
2000 N Classen Blvd. Suite #3200
Oklahoma City, OK 73106
(800) 225-5342 (toll free) (405) 724-7800 (fax)
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