Club Chaos Agents - All Things Hollish, Wacked, and Jacked

 

This makes FHA loans sound to EASY. This is extremely misleading...

 

I must digress... this post was just sent to me. FHA loans have no minimum credit score for Florida Homeowners -

From reading this post, the author makes it sound very easy to obtain FHA loans with less than perfect credit. The author states this -  "At the same time FHA loans to (do) not penalize Florida buyers with a higher interest rate because of having less then perfect credit."

Much of the information above and in the post is extremely misleading. I would consider this as a FHA mortgage myth per se. Let me break it down for you.

 

 

 

Misleading info about FHA Loans :

 

FHA mortgages don't have minimum credit score requirements.  Okay, this is actually true, there is no minimum credit score from FHA. But many lenders have minimum credit scores. Here are some changes that FHA is trying to implement before the end of this year. I wrote about it here. FHA mortgage changes with down payment and credit scores. .

Let me take this one step further. Many lenders won't go below a credit score of 620. Yes, there are a few lenders that will do credit scores from 580 to 619, but you need to be very very careful when promised this kind of loan. First off, they are much more difficult, that the guidelines are much tougher. Secondly, the interest rates and fees are usually much higher, sometimes up to 1 percent more in interest rate with points. And I have come across many borrowers in the last 6 months that were promised a FHA loan with less than a 620 score and many of them never closed. Again, not saying that it can't be done, but it's not easy.

 

 

 

Summary : Overall, this kind of post with the information is very misleading. Here is another statement from that article.

Easier to qualify: Because FHA insures private Florida mortgage  lenders, FHA lenders are  more willing to give you loan terms that make it easier for you to qualify.

More willing?  Okay, getting an FHA loan can be easier sometimes than getting a conventional loan. But this statement makes it seem like it's easy. Each borrower is different, not one borrower being the same. You need to work with a very good professional loan officer. I currently have a borrower with a 637 credit score who was first pre-approved in the first week of May 2010.  She just received this from the lender.

"I'm sorry I was out of my office all day today. The reason a commitment hasn't been given is because your credit score does not meet the required score needed to get the loan"

Wow.. rut row... this lender knew about this same credit score back in May, and now she is just saying this?  I told the client that I can help. It's not an easy deal, but I have been helping her get all her ducks in a row in the last 10 days. We are ready to proceed.

 

My point?  Just because someone promises you a loan, gives you a pre-approval letter, or even a commitment letter, it does not guarantee you a FHA loan.  Yes, FHA loans with less than perfect credit and lower scores (620 or higher) can happen, but not everyone can handle these types of loans. Mortgage Myths or misleading mortgage information is out there, just be careful. Do your research carefully.

 

 

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- Conventional Loans - 203 k loans -

- FHA Home Loans - Mortgages -

 

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For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

 

The cost of FHA loans could increase before the end of the year is over with.  Right now, depending on your LTV (loan to value), the FHA monthly mortgage insurance is either .50% or .55% of the base loan amount.  We could see increases any where from .90% to 1.55%. That is a significant increase. Michael LaFido gives more details in this post : FHA mortgage insurance premiums approved to triple in cost

 

 

FHA Monthly Mortgage Insurance Premiums  (with less than 5% down)

Current premium                    -   .55% monthly

Expected increased premium  -  .90% monthly

Maximum increased premium  - 1.55% monthly

 

 

As in the article mentioned above, it can be established that monthly payments on a $200,000 mortgage could increase any where from $59/month to $167/month. Two things happen here.

1. Yes, the borrowers payment increases and even $150 extra a month could impact the borrowers ability to pay

2. But it also would reduce the purchase price by $20,000 or more.

 

 

Below is an excerpt from what Mr. LaFido stated in his post.

 

 

 

 

 

 

 

Here is my problem with this kind of statement, in which HUD has even stated the same thoughts. I call it smoke and mirrors. Here is how I break it down.

First off, he stated that it would reduce closing costs by $2,500.  Even though the Upfront Mortgage Insurance is considered closing costs, it does not have to be paid in cash at settlement. It can be rolled into the loan amount. With that said, the difference alone in payment is only $14 a month if you reduce the loan amount by $2,500.  So even  if they raised the monthly percentage to the next tier, that is a difference of $59/month. So if you reduce the upfront, that is a difference of $45 more a month.  And if you went to the highest tier, that is a large difference of $167 a month, minus the $14, gives you a difference of $153 a month. Just in 16.33 months, you paid off the difference of the $2,500.  So if you stayed in the house for just 3.2 years, you doubled your costs, paying an extra $2,500.  Think about it, FHA says they will give you a break on the upfront. In reality, they are receiving money pretty quickly in a short time, to help the depleted mortgage insurance funds. I really don't have a problem with that, because FHA is a vital part of the housing industry and we need to make every effort to sustain this type of financing.

 

 

Here is an excerpt from what HUD stated in January of 2010 which can be found here : FHA Announces Policy Changes to Address Risk and Strengthen Finances

 

 

 

 

 

 

 

 

 

Notice what they said..... "with less impact to the consumer". Come on, please don't insult my intelligence. $100 to $150 wouldn't have an impact on the average borrower?

 

 

Conclusion : As I mentioned, don't so much have a problem with what needs to be done to help with FHA mortgages, but I do feel that they could reduce the monthly percentages by at least a 1/4 of a percent. As I showed above, just in 3.2 years on a $2000,000 loan, FHA would recapture an additional $2,500 in that time period. And just for the fact that FHA has realized that it's funds have been depleted for a few years, why couldn't they have looked at this seriously a few years ago or even a year ago, and made a slight change instead of what I feel is a drastic change.  Yes, FHA loans are vital to home buying, but at what cost? What are your thoughts?  We need to let the government hear our voices on this subject.

 

 

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

 

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- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- FHA Home Loans - Mortgages -

 

Experience & Knowledge at its BEST !!!

 

 

Follow me on:

 

 

_____________________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

 

Important facts about the New Good Faith Estimate

 

The Main Negatives : The New Good Faith Estimate does not show :

• the total monthly payment. It only shows the principal, the taxes, and if mortgage insurance required.

• the total costs for the entire mortgage. It just shows your total estimated settlement charges, that doesn't include the down payment.
  

• a signature & date spot. Yes, this form is suppose to be given to you within 3 business days of applying for a mortgage.  Read about the 6 trigger points that define the mortgage application. Yes, there are methods of tracking if the GFE (Good Faith Estimate) was sent to you. But in reality, there is no clear proof since you are not required to sign this form. Meaning that there can be ways around the fact if your received it or not.

• a break down of all lender costs. It just shows the total, in Box A. The title of Box A reads as, "Your adjusted Origination Charges". I will further explain this in detail below.
  

 

Please read Part 1 before you proceed to get a clear idea of what I am explaining and why :

Good Faith Estimates Explained - FHA Loan Good Faith Estimates - Understanding the whole process - Part 1 of 2

 

 

 

Break down of Box A for the Good Faith Estimates

 

It's been argued by some that you can't throw junk fees into the Good Faith Estimate last minute. That statement is correct, because you can only make certain changes on the New GFE.  These are called "changed circumstances", which I will talk about later. But one fact that is misleading is the part that some loan officers state that the borrower can clearly see what the total of the lender charges are in Box A.  I want to explain on how this might still hurt the borrower, if not explained properly.

 

 

Box A with Points and NO lender closing costs - Example # 1

 

 

 

 

 

 

 

My main focus is on Box A.   It states, "your adjusted origination charges". In this case, the $2,488.71 are just points and no other lender charges, such as commitment fee, processing fee, or warehouse fee.

 

 

 

Box A with Points and lender closing costs - Example # 2

 

 

 

 

 

 

In this scenario, Box A has points and lender fees. The problem is that you don't truly know what your total points are and that they do not appear on the New Good Faith Estimate. If you clearly are given a Itemization Fee Sheet or a 2010 Itemization Sheet, you would be able to see the break down. The unfortunate part of this is the fact that all the forms mentioned, the Good Faith Estimate, the Itemization Fee Sheet, or the 2010 Itemization Sheet don't require a signature and a date. Sorry, but a sneaky loan officer could hide this from you. And you wpn't see the true charges until you actually go to settlement, because they will be broken down on the HUD settlement statement by numbers.  The same exact numbers that were located on the Old Good Faith Estimate. 

 

 

 

Detailed Box that would only show such items on the Itemization Fee Worksheet

 

 

As you can see with this form, this is a snap shot of the Itemized Fee Worksheet. You can see the total origination fee which is $3,288.71 and this matches Box A in example #2.

But as you can see, the break down shows you the other charges that Box A in example 1 doesn't show.  Why do I think this is critical? I have 2 main reasons.

 

 

 

 

 

 

Jeff Belonger’s 2 Main Reasons

 

1. This would be based on a $200,000 mortgage. I charge the borrower 2 points that would be equaled to $4,000 and no lender fees, so my Box A would say $4,000. Yet my competition is charging 0 points and $3,500 in lender fees and their Box A total was $3,500. You would think that this lender is cheaper by $500, right?  Incorrect.  Why?  You would need to speak to your tax accountant, but my reasoning would be because you can write off a percentage of your points, but you can't write off any of your lender fees. 

So simple math says that if the borrower is in the 28% tax bracket, they would be able to write off $1,120 of my total points.  Now, this is strictly for purchases. When it comes to refinancing, this is stretched out over the term of the loan, or for how long that they have the loan. Again, you need to speak to a tax accountant or CPA.

Overall, if I was charging $4,000, but the borrower gets to write off $1,120, my net expense to the borrower is $2,880.  This technically means that I am $620 better than the other lender. Yes, the argument could be made that I would initially be $500 more out of pocket to the borrower. But this can be reviewed several different ways. I just wanted to show that the total of Box A is not your best proof of which loan could be cheaper for the borrower.

 

2.  I have done a few experiments with borrowers recently to prove my point on this 2nd part. As I mentioned, the borrower does not see the total break down on the New GFE, aka the New Good Faith Estimate. I have sent out all disclosures to the borrowers and at first, didn't go over the actual break down which is listed on the Itemization form. I would then ask them if there were any questions and they would say no. I then would say, let me go over your break down anyhow. My point is that many people just look at the totals and not the separate charges.  And just for the fact that the loan officer could get away without even disclosing the Itemization sheet upfront because it does not require a signature and a date. How would a borrower know unless they were properly educated about the procedures and such.

 

 

 

One excellent feature : 

 

I do love this feature, because it explains to you if you have a fixed rate or an adjustable rate.  It also tells you if you have any pre-payment penalty or a balloon payment.  If HUD would just put this on the old Good Faith Estimate, I would love it then.

 

 

 

One Last Thing - CHANGED CIRCUMSTANCES –

 

Overall, it's a little more detailed in this, but I wanted people to beaware of this and to be careful on how some loan officers or lenders that might try to pull a fast one over you. Sure, they could be caught and fined, but some will take the risk on this. They have done it in the past.

 

 

 

Summary :  HUD's intentions were to express to all borrowers to shop and shop effectively.  I think that is awesome. But I have my opinions about that and how they have gone about this. I have spoken to about 15 different well respected loan officers and each one, including myself, think that they did a horrible job on the new Good Faith Estimate.  I have shown a few reasons why and there are a few more that I could talk about at a later time. But they were briefly explained in the beginning.  The average consumer just needs to speak to a trusted loan officer who will take the time to educated them on all details and not just rate and points.

 

 

 

The Series on the New Good Faith Estimates for 2010

• Good Faith Estimates Explained - FHA Loan Good Faith Estimates - Understanding the whole process - Part 1 of 2

• Good Faith Estimates Explained - FHA Loan Good Faith Estimates - Detailed changes - Part 2 of 2

 

 

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                                                                                           FOLLOW ME ON FACEBOOK

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- FHA Home Loans - Mortgages -

 

Experience & Knowledge at its BEST !!!

 

 

________________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

 

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

 

Important Blog Today – FHA loans & HUD’s changes - You can make your voice heard. Please read further..

 

 

So much has transpired in the last week with FHA loans and there are things that you need to know and understand why some of these changes took place.

Last week HUD put out their policy changes and what could take place in the near future. FHA loan changes go from fact to fiction. The next day, they put out the official HUD mortgagee letter, ML 2010-02.

Overall, I have noticed several comments that either the commentor seemed confused about the changes or believed that the changes would be no good and or destroy home buying. Which will lead me into my next blog tomorrow. We must ABOLISH FHA loans. (please stop by tomorrow for any eye opener)

 

 

 

Some important FHA changes -

 

What were the FHA loan changes by HUD? Please read : FHA loan rumors become a reality. Keep in mind, the only change that is official is # 1. The other specified changes will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

 

1. Raising the FHA UPMIP (upfront mortgage insurance premium) - So many keep saying that this is an added expense to borrowers at closing. Yes & No. This statement is misleading, even though it appears on the HUD settlement statement. In reality, you are allowed to finance this upfront mortgage insurance into the loan. The new change was only 50 basis points, going from 1.75% to 2.25%. This change will go into effect on or after April 5th, 2010, with all new FHA case numbers assigned.

 

Example on the difference :

On a $300,000 loan, you are talking about an additional $1,500 added onto the loan. This equates to an additional $8 per month. That is not much to disqualify someone, unless you were already exceeding the debt-to-income ratios already.

 

Why was this change made?  To help re-establish FHA's capital reserves. David Stevens gives an explanation to some of this in FHA changes.  Just a FYI - David has just recently joined us at Active Rain and was appointed the Assistant Secretary of Housing in early 2009. I wanted to share my thoughts because some of my views slightly differ from what Mr. Stevens wrote in his blog post.

 

 

2. FHA credit score changes & down payment updates - With all FHA loans, you still don't need a credit score. Keep in mind most lenders and investors have what are called lender overlays.  The lender can add to the FHA guidelines. Why would a lender do this?  To make it more sellable to other investors on Wall Street.

This is a change that is not really a huge change. You must now have a credit score of 580 or above in order to be allowed to use the regular 3.5% down payment guideline. Any score below this, the borrower will need at least 10% down. Why is this not such a huge concern? Most lenders are at 620 and several are at 640. The reason being is that most investors on Wall Street don't want to purchase loans less than a 620, because more loans under this score don't perform as well.

Credit scores under 620 - Yes, there are a few investors that allow for scores under 620, but BUYER BEWARE. Just because a loan officer has this program, doesn't mean that it will happen. On top of that, most lenders have major penalties if you fall under the 620 score. These penalties are anywhere from a 1/2% in rate to up to 2 additional points in fees, and sometimes both. Why?  Because that lender will portfolio that loan, hoping that they can sell it in 12 months. The additional points and higher rate is to help with their risk, for those loans that don't perform. 

My opinion on this?  Work with a trusted loan officer that is not pushing the lower credit score. Work with a loan officer that will help you get your credit scores up in 6 months to a year. So what you missed the first time homebuyers tax credit. Because of the difference in fees and rate, it will cost you more money over the longer period than if you just waited and worked on your credit.

 

 

3. FHA seller concessions from 6% to 3% in seller help - Mr. Stevens stated this in his blog, FHA changes. "The current level exposes the FHA to excess risk by creating incentives to inflate appraised value.  This change will bring FHA into conformity with industry standards on seller concessions."

Hey, I love making loans, but I will have to agree with HUD's assessment here. Now, I will say this though. It will hurt many markets across the U.S. Especially those families that are middle to lower income and those buying homes that are priced at $160,000 or lower, especially those at $90,000 and less.

 

 

Overall, we can have that whole argument that you need skin in the game, etc, etc. On all FHA loans, the borrower still needs 3.5% of their own money into the transaction. Sure, you can get a gift from family members, or even grants, and or even money from non-profit organizations. But the outcome in my opinion, could dampen the housing recovery even more. And that is why you can voice your concerns and add comments to the Federal Registry. FYI - I will be posting a powerful blog tomorrow on Abolishing FHA loans overall. Please stay tuned.

 

 

 

Make your VOICE heard in February 2010

 

 

The Federal Register

 

PS.. - Reminder - I will post a new blog when these changes become public on the Federal Registry, allowing everyone to voice their opinions. Here is when you can stand up and be officially heard. YOUR VOICE.

 

 

• FHA Loans Rumor Alerts - 3% seller concessions & FICO scores - Part 1 of 2

• FHA Loans Rumor Alerts - You don't need 10% or 20% down & more about credit scores - Part 2 of 2 (not truly all about part 2, but I do go into discussions about the credit scores - because of the recent FHA changes, I didn't get into great details about 10% or 20% down)

 

• What is Transparency?? Best Mortgage Rates/Online services - (Part 1 of 2)

• Transparency in Real Estate/Mortgages - Interview your Realtor or Loan Officer - (Part 2 of 2)

 

Okay.. it's been stated and written....

We need to ABOLISH FHA Loans!!!!

 

 

 

                   

                                                                                               FOLLOW ME ON FACEBOOK

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

 

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

 

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc