I have decided to being sharing motivational quotes that I come across throughout the day with everyone else.  I find that these quotes pop up everywhere.  I see them in articles, at the bottom of emails, on advertisements, websites and etc.  My goal is to update this blog throughout the course of the day.  Please feel free to add to it if you like.  Hopefully, one of the quotes will motivate someone throughout the course of the day.  The first quote of the day is:

Success isn’t how far you got, but the distance you traveled from where you started.
- Proverb

“Enthusiasm spells the difference between mediocrity and accomplishment.”
- Norman Vincent Peale

“Many of life’s failures are people who did not realize how close they were to success when they gave up.”
- Thomas Edison

“Adversity is another way to measure the greatness of individuals. I never had a crisis that didn’t make me stronger.”
- Lou Holtz

“The greatest mistake you can make in life is to be continually fearing you will make one.”
- Elbert Hubbard

“I long to accomplish a great and noble task, but it is my chief duty to accomplish small tasks as if they were great and noble.”
- Helen Keller

“For every failure, there’s an alternative course of action. You just have to find it. When you come to a roadblock, take a detour.”
- Mary Kay Ash

“Always bear in mind that your own resolution to succeed is more important than any other one thing.”
- Abraham Lincoln

I have decided to being sharing motivational quotes that I come across throughout the day with everyone else.  I find that these quotes pop up everywhere.  I see them in articles, at the bottom of emails, on advertisements, websites and etc.  My goal is to update this blog throughout the course of the day.  Please feel free to add to it if you like.  Hopefully, one of the quotes will motivate someone throughout the course of the day.  The first quote of the day is:

“All blame is a waste of time. No matter how much fault you find with another, and regardless of how much you blame him, it will not change you”
- Wayne Dyer

“If we all did the things we are capable of doing, we would literally astound ourselves.”
- Thomas Edison 

“The secret of getting started is breaking your complex, overwhelming tasks into small manageable tasks, and then starting on the first one.”
- Mark Twain

“The belief in a thing makes it happen.”
- Frank Lloyd Wright

“What lies behind us, and what lies before us are small matters compared to what lies within us.”
- Ralph Waldo Emerson

I have decided to being sharing motivational quotes that I come across throughout the day with everyone else.  I find that these quotes pop up everywhere.  I see them in articles, at the bottom of emails, on advertisements, websites and etc.  My goal is to update this blog throughout the course of the day.  Please feel free to add to it if you like.  Hopefully, one of the quotes will motivate someone throughout the course of the day.  The first quote of the day is:

“What we think or what we know or what we believe is, in the end, of little consequence. The only consequence is what we do”
- John Ruskin

“I have learned that the greater part of our misery or unhappiness is determined not by our circumstance but by our disposition.”
- Martha Washington

“Always make a total effort, even when the odds are against you.”

“Enjoy life. This is not a dress rehearsal.”
- Author Unknown

“Enthusiasm spells the difference between mediocrity and accomplishment.”
- Norman Vincent Peale

Fannie Mae recently announced incentives for buyers of their Fannie Mae-owned HomePath properties.  Any individual purchasing an owner occupied Fannie Mae-owned HomePath property before May 1, 2010 may be eligible to receive up to 3.5% of the final sales price to be used towards closing costs (not down payment) or new appliances. 

Below is the actual news release from Fannie Mae regarding seller assistance on Fannie Mae-owned HomePath properties.  To see if a property qualifies, please visit:

http://www.homepath.com/

January 28, 2010

Fannie Mae Announces 3.5 Percent Seller Assistance on HomePath® Properties

Incentive Part of Ongoing Effort to Stabilize Neighborhoods

WASHINGTON, DC – Fannie Mae (FNM/NYSE) announced today that people purchasing a Fannie Mae-owned HomePath® property will receive up to 3.5 percent of the final sales price to be used toward closing cost assistance or their choice of appliances. The offer is available to any owner-occupant who closes on the purchase of a property listed on HomePath.com before May 1, 2010.

“Attracting qualified buyers to the market and reducing the inventory of vacant homes is critical to stabilizing neighborhoods and helping the market recover. Many families are taking advantage of the federal home buyer tax credit to buy a new home so this is a great time for Fannie Mae to offer some additional help,” said Terry Edwards, Executive Vice President of Credit Portfolio Management. “Home buyers have the option to choose between financial assistance toward closing costs or new appliances for their home.”

Properties eligible for this incentive are listed on HomePath.com and most listings include detailed property descriptions, photographs, community and school information and more. In addition, many Fannie Mae-owned properties are eligible for special HomePath Mortgage and HomePath Renovation Mortgage financing which offers home buyers an opportunity to purchase with as little as 3 percent down.

Please contact me directly is you have any additional questions.

Short Sale Kickbacks

Recently, CNBC aired a report about Short Sale Kickbacks.  The report shares information regarding 2^nd lien holders requesting to be paid outside of escrow and off of the HUD-1 in order to agree to the short sale.  The report discusses how the 2^nd lien holders are upset with the lack of funds received through the short sale and are trying to get additional funds.  The report claims that they are requesting these funds from the buyer or the realtors involved in the transaction.  Not disclosing funds associated with a transaction is a clear violation of RESPA rules and a fraudulent practice.  The report proceeds to say that the 2^nd lien holders claim that this illegal practice is approved by their legal department so they will continue.  The report claims that the banks involved in this practice are some of the major players in the industry.  How can this be possible?  How can a bank be permitted to knowingly commit fraud and operate in a manner that says that the rules do not apply to them?  I continue to be amazed.

Does this attitude of the banks bother anyone else?  To view the CNBC report, click on the link below:

http://www.cnbc.com/id/15840232?video=1386877150&play=1

What is Truth-in-Lending (TIL)?

Mortgage professionals receive more calls with regard to the Truth in Lending Disclosure than any other disclosure in the large packet furnished at the beginning of the loan process.  The Federal Reserve Regulation Z was authorized by the “Truth-in-Lending” Act of 1969.  The purpose of the law was to agree to a uniformed formula for calculating the true cost of credit by developing an APR (Annual Percentage Rate).  The APR is intended to weigh the monthly payments of the loan against the non-interest finance charges of the loan.  This ACT also allows the borrower to cancel a transaction within 3 days (excluding Sundays and holidays) of signing a loan that results in a lien against their primary residence (refinance only).  This is known as the Right of Rescission.

Another purpose of this law was to provide applicants with an “early disclosure” of the APR.  This requires the TIL to be delivered to the applicant within 3 business days.  The logic behind this early disclosure is permit the applicant to comparison shop and avoid settling for a loan that has hidden fees due to improper verbal disclosure by a mortgage professional.  Delivering this disclosure typically causes the applicant to call the mortgage professional and question them about the change in interest rate from what was previously discussed.  Those of us who have been there, know that the applicants do not know the difference between the interest rate and the APR and it is our job to clearly explain the difference.

The issue is that APR and interest rate mean the same thing to the applicant, but refer to two different concepts.  The APR will be higher than the interest rate and will confuse applicants when they review the TIL.  Most applicants are familiar with consumer loans, credit cards, car loans which typically have a simple interest rate with no fees.  Likewise, the phrase “Amount Financed” that appears on the TIL is lower than the amount applied for in the initial application.  On the surface, these two items give the perception of deception on the mortgage professional’s part, but it isn’t.  It is actually detailed disclosure intended to help the applicant make an informed decision. 

There are 4 boxes on the TIL Disclosure; the APR, Finance Charge, Amount Financed and Total of Payments.  Below these 4 boxes is a Payment Schedule which is followed by various other disclosures detailing the loan terms.Here are some very basic working definitions for the boxes.  There is more to it, but you can get the basic concept from the following:

Total of Payments- Computes the total of payments by multiplying payment schedule, including PMI by the amount of payments

Amount Financed- is the loan amount, less points, prepaid interest, PMI and lender fees.

Finance Charge- is the Total of Payments less the Amount Financed

APR- Compute the APR by dividing the Total of Payments by the number of payments and apply that against the Amount Financed, as if it were the loan amount.

These definitions can be confusing and very difficult to explain to applicants.  That is why it is important to have a knowledgeable mortgage professional working with your customers.  A lack of knowledge typically gives applicants the perception that that are being mislead.  If you referred the applicant to this person, what does that say about you?  Will it change your customer’s perception of you?  Out of ignorance, customers are unfortunately misled frequently.  This practice is against the spirit of the law in the first place.  We all need to take the time to make sure that we can explain the disclosures in our chosen profession.  There is a reason for them and no it is not to make our lives difficult!

$8,000 First-time Home Buyer Tax Credit at a Glance

• The $8,000 tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
• The tax credit applies only to homes priced at $800,000 or less.
• The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
• For homes purchased on or after January 1, 2009 and on or before November 6, 2009, the income limits are $75,000 for single taxpayers and $150,000 for married couples filing jointly.
• For homes purchased after November 6, 2009 and on or before April 30, 2010, single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

The $6,500 Move-Up / Repeat Home Buyer Tax Credit at a Glance

• To be eligible to claim the tax credit, buyers must have owned and lived in their previous home for five consecutive years out of the last eight years.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500.
• The tax credit applies only to homes priced at $800,000 or less.
• The credit is available for homes purchased after November 6, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, the home purchase qualifies provided it is completed by June 30, 2010.
• Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

First Time Home Buyer Tax Credit Fraud

There are many of us involved in the real estate industry that have been signing petitions and writing blogs about extending the First Time Home Buyer Tax Credit.  We have been stating how great it is for the housing market and all kinds of other positive aspects of the credit.  Well, the IRS dropped a major bomb on us this week, the IRS is investigating more than 100,000 “doubtful” claims of the tax credit intended for First Time Home Buyers.  The IRS is also investigating 167 “criminal schemes”.  Lawmakers are concerned that a significant number of the First Time Home Buyer Credits may be fraudulent (IRS News).

 A Jacksonville tax preparer has already pleaded guilty to falsely claiming the First Time Home Buyer Credit on customer’s tax returns (Busted!).  If you read the article, you will find out that the tax preparer was on probation for forgery and indicted on 35 counts of tax fraud (15 of those for FTHB tax credit).  The preparer took $1000 from each customer, entered a false address and told them they qualified because they worked two jobs.  For those of us who pay attention, this scheme is laughable, but at least 15 people fell for it!

More than 19,000 people filed 2008 tax returns claiming the credit and had not yet purchased a home.  74,000 people claimed to fit the FTHB credit criteria, but had previous ownership in the last 3 years.  The examples of fraud with this credit are numerous (Disturbing).

I get really irritated when I read these types of articles because I had supported the idea of extending the credit because of the First Time Home Buyers that I have worked with that are looking forward to using the credit to make improvements to their homes.  Now I am second guessing myself, is the risk worth the reward?  Is there another way?  I am not naïve enough to think that fraud will stop if the credit is not extended, I would just hope that better control mechanisms would be put in place to minimize future fraud.  DPA anyone?

1. Thou shalt not change jobs, become self-employed or quit your job.

2. Thou shalt not buy a car, truck or van.

3. Thou shalt not use credit cards excessively or let your accounts fall behind.

4. Thou shalt not spend money you have set aside for closing.

5. Thou shalt not omit debts or liabilities from your loan application.

6. Thou shalt not buy furniture or any other big ticket item that requires financing.

7. Thou shalt not authorize any inquiries into your credit.

8. Thou shalt not make large deposits without first checking with your loan officer.

9. Thou shalt not change or close bank accounts.

10. Thou shalt not co-sign a loan for anyone.

100% Financing In AZ

The United States Department of Agriculture (USDA) allows for individuals to purchase a new home without the home buyer putting any money down. This is not a new loan, this loan has been in existence for some time, but not used until recently.  Due to the current climate of our market in Phoenix AZ and its surrounding areas, this loan is being utilized more frequently by those individuals that have the ability to offer this loan.  Many communities throughout the state of Arizona are approved to use this loan for new home purchase financing. This loan works similar to FHA or VA as far as what it requires for a new home buyer in the Phoenix AZ area to qualify. However, you are subject to income restrictions and only certain geographical areas qualify. Not every community in the state of Arizona is approved for USDA financing.

This loan is now one of the most popular ways to finance a home in the qualified areas. This loan provides 102% financing which allows you to finance the 2% Funding Fee that is required on all USDA loans.

Typically, you are required to have a minimum of a 620 credit score to qualify. You can have past bankruptcies and foreclosures and still qualify to buy a home for sale in the Phoenix AZ area with a USDA mortgage loan. Many of the lenders offering USDA will require that your DTI ratios are 31/43, but exceptions can and will be made based on the overall strength of the file.

There is no limit to the amount a seller can contribute to your closing costs and pre-paid items. Typically, lenders allow a maximum of 6% seller concessions.

There is no PMI. This makes the payment usually lower than an FHA loan.

There is no cash reserve requirements.

There is no sourcing or seasoning of cash required to close. Most lenders will require a paper trail, but will allow gifts. (Sourcing of funds)

If you want to check the area’s that are approved or check to see if your income qualifies then visit USDA Income and Property Eligibilty Site.

If you wish to speak with me directly about this unique loan product, please complete the quick contact form below.

Top 10 Mortgage Financing Questions

1) Do I need 20% down to buy a home?

No. You are able purchase with as little as a 3.5% down payment. In certain instances, you can buy with no money down.  If you choose to finance more than 80% of the purchase price, you will most likely be required to have mortgage insurance.

2) Can the seller pay my closing costs?

Yes. The seller can pay for your closing costs and pre paid items (taxes and insurance).  Lenders will have guidelines as to how much a seller can contribute to your closing costs.  Most lenders allow between 3%-6%.  Please check with your lender prior to making an offer. The seller is not permitted to give you your down payment.

3) How is my interest rate determined?

Your interest rate is determined by a variety of factors. The most critical are your credit score, down payment %, property type and upfront closing costs paid. Typically, the more closing costs that you pay upfront, the lower your rate will be.  Your seller concessions will be valuable in this area.  Always ask for options from your lender/broker about rates and fees.  Your lender/broker will give you the necessary information to make an intelligent informed decision.

4) Do I need perfect credit scores to be able to buy a home?

No. With certain types of loans you can have a credit score as low as a 530. Credit scores range from 300-850.

5) What is Pre-Approval and does it cost money to get Pre-Approved?

A pre-approval is free and highly recommended. A pre-approval helps you establish an amount that you are able to qualify for when purchasing a home. Once you are       pre-approved you can make an offer on a home. The pre-approval letter shows the seller that you are able to purchase their home and have already pursued financing.  Most sellers will not entertain offers without a pre-approval from a bank/broker.

6) Do interest rates change daily?

Yes. Interest rates changed daily and sometimes hourly based on the positive or negative activity in the mortgage bond market. Mortgage bonds trade a lot like stocks on Wall Street, this is why rates change so frequently.

7) When can I lock my interest rate?

You can lock your interest rate once you have the property you wish to purchase under contract. Once your interest rate is locked the rate cannot change.  This either works for you or against you.  You will either avoid a market crash or miss out on the market improving.  Rule of thumb is to lock your rate if you like it.  The market is too volitale currently to take a risk looking for a lower rate.  Every .125% on the interest rate on a $100,000 loan amount equates to approximately $8 per month.  In most cases, it is not worth the risk to wait.  “If you like it, lock it!”

What is an FHA loan?

An FHA loan is a government insured loan.  This type of loan requires a minimum of 3.5% as a down payment.  Gifted funds for a down payment are allowed.  You may also have a co-signer that does not intend on occupying the property if this helps you to qualify.  FHA loans tend to be a little more flexible on their underwriting guidelines.

9) Does the $8,000 dollar first time home buyer credit expire?

Yes. The tax credit is set to expire on December 1st, 2009.  Please anticipate lenders getting inundated with loans in the months of October and November.  This will slow down underwriting and loan closings.  Do not miss out due to procrastination.  Weigh your options, is making an offer on this short sale or bank owned property to save $5,000 of the purchase price worth not being able to take advantage of the first time home buyer tax credit?

10) What am I looking for when I chose a lender?

Cost isn’t everything! Look for experience.  With the market changing constantly, you will need an experienced mortgage professional to assist you in making the biggest purchase of your life.  Loan products change daily and lenders are going out of business, so you need to make sure that the lender/broker you chose will be there and be able to deliver the financing on your new home purchase or refinance.  What good is a slightly lower rate or slightly lower fees if you never get the loan?  Too many potential homeowners end up paying unnecessary fees or losing purchase opportunities due to choosing a lender/broker that wasn’t experienced and able to deliver.  Don’t bargain hunt for financing on the biggest purchase that you will ever make.  Be prepared to spend a little more if need be to insure that you get you a quality loan, it will be worth it!

Home Purchase Assistance in AZ

Did this title get your attention?  I thought it would.  The title is correct, there is a home purchase assistance program available in the State of Arizona.  Please do not confuse this program with down payment assistance.  This is a common misconception with various state programs that are available to potential buyers looking to buy the homes for sale in Phoenix AZ and the rest of the state.  All programs of this type are home purchase assistance programs, not down payment assistance programs.

Funding has been made available through the U.S. Housing and Urban Development (HUD) Neighborhood Stabilization Program (NSP) for potential homeowners in the state of Arizona.  This is a financing tool that will make it easier for eligible, credit-worthy homebuyers to obtain mortgages.  The Your Way Home AZ Program has been created in order to help homebuyers purchase foreclosed homes for sale in the State of Arizona.  The potential home owners and properties must meet certain requirements, including income level, location and purchase price of the property and other conditions.

The program is administered by the Arizona Department of Housing (ADOH).  ADOH has designated $20,000,000 of the NSP funds for the Your Way Home AZ Program.  Many of the programs requirements are directly mandated by HUD and are non negotiable.

Under the federal legislation and NSP regulations, these funds may be used to “establish financing mechanisms, … including such mechanisms as soft seconds,” to assist in purchasing homes that have been foreclosed upon.  Potential home buyers of these homes for sale in the State of Arizona must have a household income no greater than 120% of the median income for the area they intend to purchase a home in.  HUD is requiring that the purchase price of the home be at least 1% lower than the appraised value of the home.

Your Way Home AZ will provide a second mortgage to eligible home buyers for up to 22% of the purchase price of the property.  The second mortgages will have a term of 5 to 15 years depending on the amount of assistance and will be forgiven at the end of the term if all program requirements have been met and the borrower continues to occupy the property.

If you would like to learn more about this program and if you or your customers qualify, please complete the contact form below.

Reverse Mortgage Basics

What is a reverse mortgage?

If you are over the age of 62 and have paid off more than 35% of your mortgage balance, a reverse mortgage will allow you to borrow against the equity in your home. Instead of continuing to make mortgage payments, you get paid back the money you already have in it—that’s the “reverse” part.

How do I get my money?

The reverse mortgage program provides the widest array of cash-advance choices, giving you “flexibility for life.” You can take your money in several ways:

• Take a single, lump sum of cash (tax-free).
• Establish a “credit line” account that you control.
• Have the lender send you a monthly payment for life.

In addition, you can choose any combination of these options, and even have the ability to “change your mind” later. You can modify these options at any time down the road, and will not be charged to do so. Remember, the choice is always yours to make.

What can I do with the money?

This is the best part! Once you receive your money, it is totally up to you. Some seniors will choose to save the money, some will establish an emergency fund for long-term care, and many will simply “enjoy life to the fullest.”

What about my children?

Many children of reverse mortgage borrowers are pleased that their parents are able to use their equity and remain living in their homes. Often it is a great relief to these children, that their parents are able to take care of their own needs; many even encourage their parents to do so.

Whether or not you decide to discuss this matter with your children or other Heirs, depends on a variety of personal and family factors. You may value their advice or want to know what they think. Or, you may think it best not to discuss it before making a decision, or not to tell them after you have closed a loan.

On the other hand, to avoid future misunderstanding, you may want to make a note of your decision in your will. Whatever you decide, the important thing is to give some thought to your heirs. We believe you should.

Who should NOT get a reverse mortgage?

A reverse mortgage is not right for you if you have:

• Low home equity (still owe 70% of home’s value) For example, if you own a $100,000 home but still owe $70,000, we do not recommend a reverse mortgage
• Short time left in home (less than 2 years) You wouldn’t buy a house if you planned to move out in just 2 years. The same is true of a reverse mortgage. The closing costs of a reverse mortgage get spread out over time making the reverse mortgage quite inexpensive due to low interest rates. However, in two years there is too little time to spread out the costs.

Pima County Bond Program

Pima county has a unique mortgage revenue bond program that assists First Time Homebuyers in obtaining 100% financing when purchasing a home inside the county limits.  Please see a brief description of the program below:

Qualifications:

Borrower has to be considered a First Time Home Buyer.  This means that you can’t have purchased a home within the last 3 years (NO EXCEPTIONS). You must meet the income level qualifications.  Combined income for 1-2 individuals can’t exceed $66,000 per year.  Combined income for 3 or more individuals can’t exceed $77,000 per year.  The individuals per household and home ownership in the last 3 years will be verified through tax returns.  The borrower will need to have acceptable credit to qualify for a loan. The maximum purchase amounts are as follows:

1 – Unit $374,506 2 – Unit $479,427

Loan Types:

Allowable programs include FHA, but conventional and VA loans are acceptable too.  In the case of an FHA loan, the down payment and/or closing costs can be covered by a 2^nd loan of up to 7% of the purchase price on a 30 year fixed rate. This is especially valuable at this time when DPA has been legislated out of the business for the immediate future.  If a VA loan is used, there is no First Time Home Buyer requirement.  The property must be a primary residence and not an investment property.

Collateral Types:

As long as the residence is in Pima County, it qualifies.  This means any new or existing SFR, town home, condominium or permanently affixed manufactured home are acceptable.  If you utilize FHA financing, the collateral must meet FHA guidelines (especially important with MFG homes and condo’s ).  2 unit properties are also eligible as long as they are 5 years or older and the borrower is occupying at least 1 of the units.

Valuable info:

This is not a Grant program.  This program is funded with tax exempt mortgage revenue bonds, it allows FTHB to purchase homes with no money down.  You can finance 100% of the purchase price AND closing costs if needed.  Earnest money can be refunded at the time of close.

An escrow account doesn’t just protect you, the borrower, it also protects the lender’s vested interest in your property.

Think of an escrow account as a safety net for your home. It financially safeguards both you and your lender against liens and property damage.

Since most of us do not have the means to buy a home outright, we rely on lenders and mortgages to help fulfill our dreams of homeownership. In turn, lenders rely on escrow accounts to ensure property taxes are paid on time and home insurance policies are kept up to date. Without the assurances provided by an escrow account, a lender’s financial risk could increase significantly.

To fully appreciate the benefits of escrow for lenders, let’s first review what escrow is, and how it works for borrowers.

What is an escrow account?
An escrow account is an account held by a third party agent who represents both the borrower and lender. The borrower makes regular deposits into the account — usually as part of a regular mortgage payment. Then, when property taxes and insurance premiums become due, the third party agent releases the funds to cover the payments.

Rather than paying your taxes or insurance in a large lump sum, many homeowners prefer the idea of spreading their property taxes and insurance premiums evenly over 12 monthly payments. Plus, with escrow, you don’t have to remember to send your payments on time. This means there’s less risk of missed payments or lapses in your insurance coverage.

The benefits of escrow to the lender
If your down payment is less than 20 percent of the property value, your lender will likely insist that you open an escrow account at the time of your mortgage closing. Even if your down payment is greater than 20 percent, your lender may recommend or require that you have an escrow account.

 The reason is simple: Escrow accounts provide lenders with added security and peace of mind that their collateral — your home — is protected in a couple of important ways:

1. Your property taxes will always be paid on time, which ensures tax authorities will have no reason to place a lien on your home or foreclose on it.

2. Your home insurance premiums will always be up to date, which means your property will be covered in the event of damage or destruction caused by a fire or natural disaster.

Lenders need these assurances just as much as homeowners.

Imagine if your property taxes fell into arrears and a lien was placed on your home. It goes without saying that it would be an unfortunate experience for you and your family. But your lender would also suffer because without the collateral of your home, it may not be able to get its money back should you default on your loan.

In another scenario, let’s say your property insurance has lapsed due to a few unpaid premiums. And then, during a storm, your house is destroyed. Just as you’re left without a home, your lender is left without any collateral, since there’s no insurance to cover the loss.

You can see why so many lenders insist their borrowers use escrow accounts.

For many new homeowners, escrow accounts are the norm. Even though the funds in escrow typically do not earn interest, the account provides a convenient, hassle-free way to ensure your taxes and premiums are always paid on time. And that can offer peace of mind to you and your lender.

Things to know about an FHA Streamline Refinance:

With the number of REO properties increasing, Fannie Mae has decided to follow Freddie Mac in offering the HomePath Mortgage. HomePath financing is available for Fannie Mae REO’s with the HomePath logo found on http://www.homepath.com.  Here is a quick synopsis of the HomePath Mortgage:

• Minimum 5% down for primary residence, 10% down for investment properties
• Borrower can own up to 10 financed properties (but need 25% down if they own more than 4)
• NO APPRAISAL NEEDED
• NO MORTGAGE INSURANCE
• High balance (jumbo) and interest only products available
• Seller contributions can be 6-9% on primary residence (the larger the down payment, the larger the allowable contribution), only 2% on investment property
• This loan does price with a higher rate than your average 30 year fixed conforming loan.  If you want an equivalent rate to the going 30 year fixed, this loan would price with an additional approx 1.5% to 2.5% discount points.  Keep in mind, much of this can be covered by the seller and there is no mortgage insurance.  Of course one can just opt for the higher rate in lieu of the discount points.
• Same basic underwriting requirements of a conforming loan, but without the property issues (appliances missing – no problem)

This program is especially perfect for seasoned investors or even first time investors. For anyone who has been in investing knows that guidelines for investment properties tightened greatly over the past few years. Now, you have the opportunity to buy very reasonably priced homes with as little as 10% down with fantastic interest rates and NO MI. I personally think this is a fantastic program that will help you take advantage of a wonderful market to buy your first home or buy your next home! Take advantage of a down economy and invest in your future.

Reverse Mortgage Myths & Facts

“The lender will own your home.” FALSE!
You and your family or your estate continues to retain ownership of your home. The lender does not take control of the title. The lender’s interest is limited to the outstanding loan balance.

“Reverse mortgage lenders just want to sell your house.” FALSE!
Our lenders are in the business of helping you keep your home and maintain your financial independence. Reverse mortgage customers may remain in the home as long as they wish.

“Your heirs will be saddled with the loan.” FALSE!
The reverse mortgage is a non-recourse loan. This means that the lender can only derive repayment of the loan from refinance or sale of the property.

“You need a certain level of income, good credit or good health to qualify.” FALSE!
A reverse mortgage has no income, credit or health requirements.

“You have to make monthly payments on your reverse mortgage.” FALSE!
There are never any monthly payments. Payment of taxes, insurance and upkeep of the home are the only responsibilities of the homeowner.

“Your home must be debt-free to qualify for a reverse mortgage.” FALSE!
You may have a mortgage or other debt on your home. The mortgage must be paid off first with the proceeds of the reverse mortgage.

“The borrower could ending up owing more than the home is worth.” FALSE!
Two of the great safeguards for reverse mortgages are that they are structured so that the borrower or his estate can never owe more than the value of the home upon repayment.

“Once the proceeds are received, taxes will need to be paid.” FALSE!
The cash proceeds from a reverse mortgage are tax free because it is already your money.

VA Funding Fee

On VA Loans, the VA funding is a fee paid by Veteran home loan borrowers when they use the VA’s home buying program. It is paid upfront and is allowed to be included in the final loan amount itself. VA loans do not have monthly mortgage insurance – sometimes called PMI or Private Mortgage Insurance. This VA funding fee goes directly to the VA and allows them to continue to offer veterans home loans. This funding fee in essence “takes the place” of that mortgage insurance. The VA guarantees the loan to the lender and the fee varies depending on the type of loan, if it is a first time use, manufactured home, disabled veteran and so on.

The Funding Fee is paid by nearly every veteran home buyer.  The only exception is for veterans who collect disability from the VA.  The fee is waived in that case. It is paid on all VA home loan transactions unless VA disability is received by the veteran.  The VA funding fee can vary based on the type of service, whether you have been active duty or reserves and if the loan is a purchase, streamline refinance or cash out transaction.

Purchase & Construction Loans

Cash-Out Refinances

* The higher subsequent use fee does not apply to these types of loans if the veteran’s only prior use of entitlement was for a manufactured home loan.

Other Types of Loans

Understanding a VA Good Faith Estimate (GFE)

Veterans must understand how to read and interpret a good faith estimate (GFE).  This is probably one of the most important documents when deciding what company to choose to handle the financing on the VA LOAN.  This GFE disclosure IS REQUIRED by the Real Estate Settlement Procedure Act (RESPA).  If you don’t get one then the broker or lender is not adhering to laws that govern the mortgage industry.

WHAT IS A GFE?

In a nutshell this disclosure should list all the costs associated with the VA loan.  It will show the new monthly payment, payoff amount or purchase price amount, taxes and insurance and funds required to close or funds the VETERAN is getting back (refinance) and debts being paid off if applicable.  There are specific costs and they are broken down into categories or numbers. Some of these costs are as follows:

800’s – ITEMS PAYABLE IN CONNECTION WITH LOAN

These are all the charges that the lender or broker will charge.  In this section, would be listed the ORIGINATION or DISCOUNT FEE.  The appraisal and other broker or lender fees will be listed here too.  Please remember the veteran will not pay the “junk fees”.  The DEPT of VETERAN AFFAIRS will not allow an originating company to charge these fees which in return should benefit the veteran.  Here is a list of the NON allowable charges.  NON allowable means that the Veteran cannot pay them; on a refinance the broker or lender must pay them or not charge them at all, and on a purchase the seller can pay them.

NON Allowable Fees/Charges

• Attorney Fees
• Brokerage Fees
• Prepayment Penalties
• HUD/Inspection Fees
• Signing Fees
• Escrow/Closing Fee

813 – COMPENSATION TO BROKER

Yield Spread Premium (YSP) is the fee the bank or lender (the entity lending the money and who you will make first payment to) has the ability to pay the broker a fee or premium for sending your loan to their company.

1100 – TITLE CHARGES

All of the Title Charges will be listed here.  They are title insurance, title exam, wire and endorsements.  Just like the broker there are fees here that the title company cannot charge a Veteran.

1200 – GOVERNMENT RECORDING & TRANSFER CHARGES

The fees listed under this section would be recording fees, city and state tax stamps.  The recording fee is what the county recorder will charge for recording the new Deed of Trust.  State and City tax stamps are state specific.  Some states have tax stamps and other do not.

1300 – ADDITIONAL SETTLEMENT CHARGES

This area would list any pest, termite inspections and home inspections.

900 – ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE

This heading makes it sound like the VETERAN must pay for these before the loan can close.  This is not the case.  Is simply is referring to monies collected before the first payment.  The charges listed here are the interest that needs to be collected before the first payment is due.  With VA loans interest is billed in what is referred to as “arrears” which means when a payment is made in June the Veteran is paying for the interest accrued in May.  So let’s say you close on the 20^th of the month.  You will have 10 or 11 days of interest collected in this section.  With VA LOANS the VA FUNDING FEE is listed in this section.  If the veteran is receiving VA disability then there will be no funding fee.  Veterans should pay close attention to this.  An experience broker knows not to charge a VAFF when disability is being received by the veteran.

1000 – RESERVES DEPOSITED WITH LENDER

With VA loans your taxes and insurance will need to be collected with your monthly payment.  An escrow account is used to hold the money that is owed for taxes and insurance.  When a Veteran makes a payment a portion of the payment gets deposited into an account.  This account will continue to build payment after payment until the taxes or insurance are due.  The lender will make the payment for the Veteran.  This is very helpful because it will prevent unforeseen expenses on the home owner and delinquent taxes and insurance.  The amount collected upfront varies and is based on the dates that your taxes and insurance are due.  For example, let’s say that taxes are due in December and the Veteran is refinancing and their first payment is due in March.  The Veteran will have made 10 payments before taxes are due, but you must have enough for the year plus 2 months as a cushion.  So in this section we would collect 4 months.  This same principle applies to the insurance.

TOTAL ESTIMATED FUNDS NEEDED TO CLOSE/ TOTAL ESTIMATED MONTHLY PAYMENT

This just gives the overall costs and details of the transaction and the total new monthly payment.  This is a very important disclosure and should be looked at very carefully.  Remember also, that this is just an estimate.  Usually this will never be 100% accurate to the final costs.  Those are listed on the HUD 1 or Settlement Statement, however, the GFE should be as close as possible and should give Veterans a good idea what to expect cost wise when buying or refinancing a home.

Veterans-Why do you Need Title Insurance on a VA Loan?

Between home owners insurance, property taxes, flood insurance, the VA funding fee and your mortgage payment, you may think to yourself, “What is title insurance and why do lenders require veterans to have it on VA loans?” Title insurance is a policy that protects your mortgage lender against problems relating to the property’s title prior to the date when you purchased your home. Because your home may have gone through several ownership changes, it is important to be protected against anything that could have gone wrong with your title prior to your ownership.

Title insurance insures the lender against a financial loss in case the title has any unknown judgments, outstanding liens against the property including foreclosure, unpaid real estate taxes on the property and the title insurance protects you and your lender if a lawsuit is filed against the title. An example of what title insurance protects the lender against would be if someone who previously owned the property had forged a signature in transferring title. Instead of the lender or you having to pay for this problem out of pocket, title insurance covers the insured party for any claims and legal fees that arise from such problems.

Before issuing a title insurance policy, the title insurance company will search the public land records for matters affecting title to the property. The purpose of this examination is to determine ownership of the property and to identify any possible problems and all liens against the property. If problems are revealed by the title search, frequently they can be resolved so that clear title can pass to you.

Title insurance is required in most states to close on a mortgage for both a purchase and a refinance. On a VA refinance you will need to purchase a new title insurance policy so that the new lender can be protected the same way that the old lender was.

So even though title insurance may seem like a useless expense it actually will save you and your lender in the long run in case you end up having any problems with the title on your home.

SHORT SALE NEGOTIATIONS

 The biggest obstacle with most short sale negotiations has little to do with the buyer’s agent and quite a bit to do with the listing agent. If the listing agent is inexperienced with short sales and makes a mistake when pricing the home, coupled with minimal to no short-sale negotiation skills, the process will be time consuming and a very frustrating.

Short sales involve asking the existing mortgage note holder(s) to accept less on a sales price than the amount(s) currently owed. They are typically accepted by the bank due to the fact that the customer is what is commonly referred to as ” upside-down”  in their home. This means that more is owed to the bank(s) than the home is worth in today’s market.

Be advised that the seller is not required to be in default for a short sale to occur; however, the credit ramifications can be exactly the same for a short sale as a foreclosure. The impact to your credit will be negative. This will negatively impact your ability to obtain credit in the future especially as it pertains to mortgage loans.

Short Sale Negotiation Potential Obstacles

Many lenders do not like return phone calls in a timely manner or at all. Banks will place a call to the listing agent when it’s convenient or when they are ready to proceed with working on your request.

• If your file is incomplete, your request for a short sale will not be accepted and will further delay your short sale negotiations.
• You will start with the loss mitigation department and talk to numerous individuals each time you call. (take notes and write down names)
• If foreclosure is looming, ask for the file to be escalated to a negotiator immediately, but do not expect them to have a sense of urgency. (follow up daily)
• The seller must be facing a hardship. If you can’t substantiate the hardship, it is likely that your short sale will not be approved. Short sales are not intended for homeowners who want out of a bad investment decision or want to purchase another house cheaper due to the current climate of the market.
• Send comparable sales with your offer that support the offering price because if the bank feels that it can get more money through foreclosure proceedings, it won’t entertain offers at a list price too far below market value.  The banks goal is to minimize their loss on the loan.

Negotiating With the Short Sale Negotiator

Expect to be dealing with multiple negotiators throughout the short sale negotiations. There is no explanation as to why you will deal with multiple negotiators, so I strongly encourage you to keep detailed notes and make sure that your conversations are accurately annotated in the banks system. 

Here are a few tips on what you should do throughout short sale negotiation process:

• Get the name, phone number (and, if possible, email) of the negotiator you speak with
• Find out the bank’s objectives. Ask “yes/no” questions such as “Is this offer feasible?” “Does your bank ever do short sales?”
• Don’t take “no” for an answer. Ask for a supervisor.  Ask for options.   Be persistent.
• Be prepared to discuss your situation in extreme detail so that the bank will understand your situation and view the short sale as the best solution to the problem (have conviction)
• Do everything they ask quickly and accurately (don’t take shortcuts)
• BE HONEST AT ALL TIMES

Be Relentless in Short Sale Negotiations

The bank will be relentless, so you need to be prepared to cooperate with their requests. Be polite, be firm, be honest and don’t be intimidated. Most likely, the bank will want to negotiate the real estate commissions paid to the realtors involved prior to approving the short sale offer.

• Be aware that the bank isn’t forced to agree to anything.
• Request that every agreement to be in writing.
• Make notations and keep a record of every conversation, who you spoke to and the date and time of the conversation. You may need it in the future.
• Ask the bank for a timeline for their decision and when would be a good time to call back for an update. Place a call a few days prior to the date suggested.
• If you repeatedly receive voice mail when calling, leave a message and call again just before lunch, right after lunch, just before the day ends and again in the morning before the day begins.  Try not to call at times that may be considered high volume times.  The banks received many calls, timing is everything.

The short sale negotiation process can be very frustrating, but don’t let the day-to-day frustrations annoy you or your agent and stop you from making the necessary calls to the bank.  Many short sales do eventually close and help numerous homeowners out of difficult situations.  The end result will be worth the hard work and frustration that you may endure through the process.

Quotes that Motivate

 My intent of this blog is not to brag or give the perception that I am better than others, but I just want to share some information that may help others.  I was recently asked by a new business associate, “what motivates you to work so hard in these difficult times and keep a positive attitude?’.  My initial response was, “I don’t think we really have any other choice”.    I was initially very flattered by what I viewed as the highest compliment that I can be paid by a business associate.  While I stand behind my initial response, I decided to take a step back to self evaluate and figure out why I am working hard in these difficult times and what motivates me.  A little background on me, I am a former college football player that has achieved varying degrees of success in the business world.  I have been in the mortgage industry for approximately 11 years and do not plan on leaving the business.  Aside from the obvious motivators in my life like: children, wife, house payment, bills and etc. (no particular order of importance), I have a strong desire to compete and succeed.  That seemed to explain to me the “who”, “what”, “when”, “where” and “why” of the question I was asked.  The part that I was still searching for was the “how” as it pertained to the positive attitude.  Being a former athlete, I realized that I still use some basic forms of motivation daily that impact my attitude like:  music, motivational stories, speeches, movie scenes and quotes.  I have compiled a few of my motivating quotes that I refer to frequently, I hope you enjoy them as much as I do:

• Blake: We’re adding a little something to this month’s sales contest. As you all know, first prize is a Cadillac Eldorado. Anybody want to see second prize?
  [Holds up prize]
  Blake: Second prize is a set of steak knives. Third prize is you’re fired.

 – Glengarry Glen Ross 

• Life is not a matter of having good cards, but of playing a poor hand well.
  -Robert Louis Stevenson

• Don’t let the fear of the time it will take to accomplish something stand in the way of your doing it. The time will pass anyway; we might just as well put that passing time to the best possible use. 

- Earl Nightingale

• You must take personal responsibility. You cannot change the circumstances, the seasons, or the wind, but you can change yourself. That is something you have charge of. You don’t have charge of the constellations, but you do have charge of whether you read, develop new skills, and take new classes.

-Jim Rohn

• The future is literally in our hands to mold as we like. But we cannot wait until tomorrow. Tomorrow is now. 

-Eleanor Roosevelt

While I am sure that some will find this silly and useless, I hope that others will see it for what it is.  It is just merely another tool to assist all of us in making our days that much more productive and successful.  I use some quotes to help motivate me to make a tough sale and others to help motivate me to push hard through tough times and stay positive.  Whatever works for you, go with it!  We all have the same goals, we just go about accomplishing them in different ways.

“Flipping” and FHA Loans

 Property “flipping” has become a very popular trend in the real estate market due to our current state of affairs.  In most cases property “flipping” occurs when a property is resold for a considerable profit at an artificially inflated price shortly after being acquired by the seller.  The subject of property “flipping” is extremely popular in the real estate community amongst realtors, investors and lenders.  More and more properties are falling into the category of “flipping” and it is important that everyone understands exactly what it is and how it can negatively impact the financing of the property.  FHA has implemented regulations to specifically address this issue.  Below is a brief overview of the regulation and how it applies to any individual looking for FHA financing on one of these properties.

The Department of Housing and Urban Development (HUD) has a federal regulation designed to protect consumers from the predatory real estate lending practice called “flipping” on mortgages insured by the Federal Housing Administration (FHA).

How the regulation works

The regulation, “FR-4615 Prohibition of Property Flipping in HUD’s Single Family Mortgage Insurance Programs,” makes recently flipped properties ineligible for FHA mortgage insurance. It also allows FHA to better manage its insurance risk by requiring additional support for a property’s value when a significant increase between sales occurs.  This means that you must prove through receipts any money that was invested in the property for the purpose of improving it and increasing the value from when the property was originally purchased.

Sale by Owner of Record

Only the owner of record is eligible to sell a home to an individual who will obtain FHA mortgage insurance for the loan; it may not involve any sale or assignment of the sales contract, a procedure often observed when the homebuyer is determined to have been a victim of predatory practices.

Time Restrictions on Re-sales:

• Re-sales occurring 90 days or less following acquisition will not be eligible for a mortgage to be insured by FHA. FHA’s analysis disclosed that among the most blatant examples of predatory lending was on “flips” that occurred within a very brief time span, often within days. Thus, the “quick flips” will be eliminated.
• Re-sales occurring between 91 and 180 days will be eligible provided that the lender obtains an additional appraisal from an independent appraiser based on a re-sale percentage threshold established by FHA; this threshold would be relatively high so as to not adversely affect legitimate rehabilitation efforts but still deter unscrupulous sellers, lenders, and appraisers from attempting to flip properties and defraud homebuyers. Lenders may also prove that the increased value is the result of rehabilitation of the property.
• Re-sales occurring between 90 days and one year will be subject to a requirement that the lender is required to possibly obtain additional documentation to support the value to address circumstances or locations where HUD identifies property flipping as a problem. This authority would supersede the higher expected threshold established for the above-mentioned 90 to 180 day period and will be invoked when FHA determines that substantial abuse may be occurring in a particular locality.

When you are considering purchasing a new home, please make sure that you and your realtor due your due diligence.  Any deviation from the above mentioned requirements will typically result in your loan being denied.  It should be noted that these requirements only pertain to properties not owned by banks and is intended to deter investors from engaging in predatory practices and to protect the consumer.

Buy a HUD home with as little as $100 down and finance the repairs needed!

Believe it or not, you can buy a home in this market for as little as $100 down and finance the repairs that may be needed through the loan.  The U.S. Department of Housing and Urban Development (HUD) has numerous homes to sell on a daily basis.  These homes are for sale at drastically reduced prices and are commonly referred to as “HUD Homes”.

HUD homes are homes that have been acquired by the U.S. Department of Housing and Urban Development.  The properties are usually single family residences or condos and can be in different states of disrepair.  This is why you are permitted to finance some of the repairs needed in your loan.  

HUD homes attract a variety of potential home buyers.  Investors purchase HUD homes because they can find a distressed property that can be rehabilitated and resold for a profit.  Teachers, law enforcement officers, firefighters and emergency medical responders qualify to purchase HUD homes at 50% off of the sales price (Good Neighbor Next Door Program) in designated areas.  Others chose to purchase HUD homes because they are able to buy a larger home at a lesser price typically.

If you are a First Time Buyer it is strongly recommend that you work with individuals that have experience with purchasing and financing HUD homes previously.  HUD homes are generally sold “as is”, this means that they will not warrant the condition of the property and rarely make any requested repairs.

HUD requires that all individuals making an offer be pre-approved by a FHA approved lender to purchase the HUD home or be an “all cash” buyer.  If you are paying “all cash” for the property you will need to provide HUD sufficient evidence to prove that you have the necessary funds to purchase the home. Sufficient evidence that HUD may ask for may include a bank statement, deposit slip, or a letter signed by a banker.

HUD has classified potential purchasers into two separate categories:

1) Owner-occupied buyers: An owner-occupied buyer is a person that will occupy the property as his or her primary residence within 30 days of the close of escrow

2) Investors. . An investor is essentially everybody else—people looking to buy real estate as an investment, someone looking for a second home

How does HUD get the homes to sell?

The United States Department of Housing and Urban Development (HUD), is the federal agency that oversees the resale of “HUD homes“. HUD homes are HUD foreclosure properties that have been transferred to HUD because a homeowner failed to make the payments on their FHA insured mortgage and the property was foreclosed on.

If you are interested in learning more about HUD homes and your financing options, please feel free to contact me directly.

HUD’s new Neighborhood Stabilization Program (www.hud.gov/nsp) provides emergency assistance to state and local governments to acquire and redevelop foreclosed properties that might otherwise become sources of abandonment and blight within their communities. The Neighborhood Stabilization Program (NSP) provides grants to every state and certain local communities to purchase foreclosed or abandoned homes and to rehabilitate, resell, or redevelop these homes in order to stabilize neighborhoods and stem the decline of house values of neighboring homes. The program is authorized under Title III of the Housing and Economic Recovery Act of 2008.

To view what city specific programs are available throughout the state of Arizona, click on the city of your choice below:

State of Arizona

Maricopa County

Pima County

City of Avondale

City of Chandler

City of Glendale

City of Mesa

City of Phoenix

City of Surprise

Pacific Funding Group, Inc is an approved lender/ broker with the Arizona Department of Housing (ADOH) to participate in the “Your Way Home AZ” home purchase assistance program.  For additional information, please contact me directly at 480-650-9274.

Follow Up or Follow Through?

When working with others on business transactions, do you expect them to follow up or follow through?  Webster’s dictionary defines these two actions the following way:

Follow Up: to pursue in an effort to take further action

Follow Through: to press on in an activity or process especially to a conclusion

Through the course of my working career, I have found it necessary to clearly define the difference between the two in order to get the desired results.  For many years, I would end my business conversations by asking someone to follow up on something.  To me this meant, make sure that the job gets done and quickly.  Little did I know that it meant, make a few attempts to get the job done and be able to say you tried when asked.  After dealing with this frustration too many times, I decided that I needed to clearly define what was expected, but in a manner that was not overly bossy or controlling.  Being perceived as bossy or a control freak in certain business settings can be detrimental and potentially cost you business and referrals in the future.  That is when I began using the phrase follow through when discussing business needs instead of follow up. Here are some examples of the changes in wording that I made:

Old Request

Please follow up with the customer regarding the remaining documents that we need in order to submit the loan to underwriting.

New Request

Please follow through with the customer and insure that we have the remaining documents that we need in order to submit the loan to underwriting.

Old Request

Please follow up on the appraisal order and find out when it is expected to be returned.

New Request

Please follow through on the appraisal order and find out when we can expect it to be returned.

Old Request

Can you please follow up and see when we will have the final fully executed purchase contract.

New Request

Can you please follow through and make sure we get the final fully executed purchase contract.

Even though there is a slight change in wording, the tone and message of the statement changes the meaning drastically and calls for action to be taken immediately. You can use this type of requesting with all parties involved in a business transaction without offending anyone. Following up tends to conjure a more laid back approach to getting something done.  Following through formulates a mental image of urgency and accomplishment. I found that changing a few words allowed me to be more assertive in my requests without being blatantly obvious about it.

In today’s real estate market, we all need to have a sense of urgency.  Houses have multiple bids being made, so showing properties and making an offer quickly is important.  Underwriting guidelines, rates and turn times are changing hourly, so we need to get the file submitted, approved and to docs as quickly as possible.  I have found that making the slight change in wording has improved my business relationships and allowed me to set clearer and more concise expectations for the business transaction and ultimately experience a higher level of success and be more effective.

Remember, it is not always what you say, but how you say it!

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HUD’s “Good Neighbor Next Door” Program (GNND)

There is a terrific program available for potential home buyers who are employed in certain professions.  This program is designed to assist these individuals purchase a home at a reduced price and as little as a $100 down payment in some instances.

HUD’s Good Neighbor Next Door program offers law enforcement officers, firefighters, emergency medical responders, and school teachers the opportunity to purchase HUD real estate-owned properties (REO) in designated revitalization areas at a 50 percent (50%) discount from the purchase price.  HUD also offers an FHA insured mortgage with a down payment of only $100.

Here are some of the eligibility requirements for the GNND program:

• Borrower can’t have owned any residential real property for one year prior to the date of submitting an offer on a home through this program
• Borrower must agree to live in the property as a primary residence for a minimum of 3 years
• Borrower must be in good standing with their current employer
• Employment Requirements are limited to:

• Law enforcement officer as defined by HUD:
  • Employed full-time by a law enforcement agency of the federal government, a state, or a unit of general local government (county or parish, city, town, township, or other political subdivision of a state).
    • Must be sworn and have power to arrest for violations.
    • Officers employed by federal, state or local agencies (such as public housing authority) or public or private colleges and universities or businesses are not eligible.
• Firefighter and Emergency Medical Responders, as defined by HUD, include
  • Full-time firefighter or emergency medical technician by a fire department or emergency medical services responder unit of the federal government, a state, or a unit of general local government.
• School teacher, as defined by HUD:
  • Only full-time teachers employed at state-accredited public and private schools.
    • Other persons employed by an accredited public or private school are not eligible to participate in this program.
  • Participant’s school must serve the school district/jurisdiction in which the home they are purchasing is located.

It is important to understand that this program is only available in HUD designated revitalization areas.  Revitalization areas are typically in low and moderate income neighborhoods.

The following are eligible/ineligible property types:

Eligible:

• 1 unit only
• Condominiums
• PUD’s

Ineligible:

• 2-4 units
• Triplex
• Condotels
• Recreational Condos
• Model Home Leasebacks

This program is an excellent way for potential home buyers who qualify for the GNND program to purchase a home at a drastically reduced price.  This program may not be right for everyone, but it definitely has its place in today’s constantly changing market.  Please contact me directly if you want any additional information on the GNND program.

FHA announces new appraisal guidelines

On Friday, the U.S. Department of Housing and Urban Development (HUD) announced new appraisal guidelines regarding appraisals. In a series of Mortgagee Letters, dated Sept. 18, 2009, HUD provided new guidelines affecting the independence, portability and validity periods of appraisals used in its Federal Housing Administration (FHA) program. These guidelines will take effect on Friday, Jan. 1, 2010.  Here are some of the more important facts of the Mortgagee Letters and the changes to the existing FHA appraisal process taken directly from the Mortgagee Letters.

Independence (ML 09-28)

This Mortgagee Letter provides clarification and reaffirms Federal Housing Administration (FHA) appraisal requirements related to appraiser independence and announces new requirements pertaining to entities that are eligible to order appraisals for FHA insured mortgages.

FHA has long advised lenders and appraisers of the importance of appraiser independence in the context of generally accepted prudent lending practices.  In this mortgagee letter, FHA reiterates the importance of appraiser independence, and advises of new requirements regarding who is eligible to request an appraisal from an FHA Roster appraiser.  The new requirements set forth in this mortgagee letter will be effective for all case numbers assigned on or after January 1, 2010.  The existing requirements will remain in effect.

New requirements
▪ Prohibition of mortgage brokers and commission based lender staff from the appraisal process
▪ Appraiser selection in FHA connection
▪ Appraisal and appraisal management company (AMC)/third-party organization fees

Reiterating existing requirements
▪ Prevention of improper influences on appraisers
▪ Appraiser independence safeguards
▪ Appraiser engagement: knowledge of market area, geographic competency

New requirements

FHA prohibits “appraiser shopping” where lenders order additional appraisals in an effort to assure the highest possible value for the property and/or the least amount of deficiencies and/or repairs are noted and required by the appraiser.   However, a second appraisal may be ordered by the second lender under the following limited circumstances:

1. The first appraisal contains material deficiencies as determined by the Direct Endorsement underwriter for the second lender.
2. The appraiser performing the first appraisal is on the second lender’s exclusionary list of appraisers.
3. Failure of the first lender to provide a copy of the appraisal to the second lender in a timely manner would cause a delay in closing, posing potential harm to the borrower.

In the first two scenarios, the lender must ensure that copies of both appraisals are retained in the case binder. In the third scenario, the first appraisal must be added to the case binder when received. In all cases, the lender documents why a second appraisal was ordered and retains it in the case binder.

Additional requirements
▪ Appraisal transfer and change of client name in appraisal report is required
▪ Appraiser selection in FHA connection
▪ Lender compliance: Lenders who fail to comply with the requirements are subject to administrative sanctions.

New requirement

Validity period for all appraisals on existing, proposed and under construction properties will be 120 days. This change is consistent with industry practice and revises the current validity periods of six months for an appraisal of an existing property that is complete and 12 months for proposed and under construction properties.

To get additional information on all FHA updates, please use the link listed below:

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/

What is a 4506T?  How Can It Ruin My Mortgage Transaction?

Recently, I was anxiously awaiting the final approval from underwriting on a purchase money loan when I received the phone call that no one in the real estate/mortgage industry wants to receive, “your file has been denied”.  Of course, I asked “why”.  The underwriter then proceeded to inform me that they received the results from the 4506T and my borrower had not filed taxes in 2007 or 2008, so they were unable to validate my income and approve the loan.  Without being able to validate the income documentation that we submit through the IRS, lenders are left no other option.

What is a 4506T?  I have been getting this document signed for years and have never given any serious thought to what is was being used for and how it could negatively impact my loans.  IRS From 4506T is a Request for Transcript of Tax Return. This form is used to assist the lender in evaluating a borrower’s creditworthiness to obtain any type of loan, but it is used mainly for mortgage loans. It is an IRS transcript summary of an individual’s tax information used to validate the income furnished to the lender. Lenders use this form to validate the information provided to them by loan officers and borrowers.  It is especially helpful with detecting fraud. If you included 1040’s & W-2’s or 1099’s in the file, the 4506T is used to request a print-out which summarizes your tax returns for the years requested. This summary transcript validates the paperwork submitted to the lender. If this transcript does not match what was supplied to the lender or is not available, your loan will be denied unless you can furnish them with a reasonable explanation for the difference and further action may be taken against those individuals that furnished the documentation to the lender.

I strongly recommend that you start requesting 2 years tax returns on every file and emphasize to your borrowers that the lender will be verifying their tax returns as part of the loan process.  This will help you avoid the situation that I recently dealt with.  The rules have changed and we all need to make sure that we are aware of them and play by them.  It is minor improvements in the validation process by lenders that will hopefully improve the overall quality of the loans approved and continue to expose those individuals in our industry that lack ethics and integrity.

What are FHA’s Property Requirements?

The purpose of this blog is assist potential buyers about what FHA requires as it pertains to the condition of a property being purchased when utilizing an FHA loan for financing.  The guidelines may vary slightly depending on the lender or your geographic location.  It should be noted that the lender has the ability to have additional requirements and many do.   As a result of the different lender requirements, currently there are multiple misconceptions about what FHA’s actual minimum property standards are.  Please keep in mind that FHA is not a lender, they are an insurance company that the lender utilizes to insure their loan.  Here is a breakdown of what FHA actually requires taken directly from HUD’s website and other publications:

Repairs Required

Section 1103 – “FHA has shifted from its historical emphasis on the repair of minor property deficiencies and now only requires repairs for those property conditions that rise above the level of cosmetic defects or normal wear and tear.”

As Is Appraisals

Section 1103 – “FHA now permits “as-is” appraisals [on property] when minor property deficiencies, which generally result from deferred maintenance and normal wear and tear, do not affect the safety of the occupants or the security and the soundness of the property. FHA no longer requires repairs for these types of minor cosmetic deficiencies.”

Examples of conditions not necessitating repair include but are not limited to:

- Missing Handrails
- Cracked or damaged exit doors that are otherwise operable
- Cracked window glass
- Defective paint surfaces in homes constructed post 1978
- Minor plumbing leaks (such as leaky faucets)
- Defective floor finish/covering
- Evidence of previous (non-active) Wood Destroying
Insect/Organism damage
- Rotten or worn-out countertops – Damaged plaster,
sheetrock or other wall and ceiling materials in homes
- Poor workmanship
- Trip hazards
- Crawl space with debris
- Lack of all-weather driveway surface

Examples of property conditions that the FHA will require repair include but are not limited to:

- Inadequate access/egress from bedrooms to exterior of
homes
- Leaking or worn out roofs
- Evidence of structural problems
- Defective paint surfaces in homes constructed pre-1978
- Defective exterior paint surfaces in homes post
- 1978 where the finish is otherwise unprotected

“If the appraisal reports a potential property deficiency that may pose a threat to the safety of the occupants or the security and soundness of the property the lender will require an inspection of the condition to determine whether repairs are necessary to resolve the problem.”

Examples of conditions that will continue to require inspections include but are not limited to:

- Standing water against the foundation and/or excessively
damp basements
- Hazardous materials on the site or within the improvements
- Faulty or defective mechanical systems (electrical, plumbing
or heating)
- Evidence of possible structural failure (e.g. settlement or
bulging foundation wall)

Appliances

FHA states that the property must have a “Space” for cooking.  There is no specific requirement as to how the food is to be cooked or stored.  So they do not have any special requirement for the type or presence of appliances.  However FHA does defer to local law to ensure that appliances meet local code regarding proper amperage.

FHA requires that if the property does have appliances they must be in working order.  If your clients are purchasing a home that contains appliances that do not work and the seller is not willing to fix, it would be best to ensure the removal of the non-working appliances prior to the appraisal.  This would be in compliance with FHA guidelines.

Air Condition and Other Utilities

FHA defines the Heating/Air Conditioning unit as a utility and NOT an appliance so different rules apply.  FHA only requires that the heating unit works and is able to heat the house.  They do not require that the A/C unit work.  Most appraisers will test the unit and make comments in the appraisal report.

Pools

FHA requires a home with a pool to have a working pool pump that is able to circulate the pool water.  They also require that the pool has enough water in it so that the pump can effectively circulate the pool water.

FHA does not specifically test the water nor does it have a certain requirement as to the clarity to the water.  They do however open up a gray area by stating that the level and quality of the water in the pool must not pose a health or safety risk.  I.E. no mosquito infestations or algae!!

Home Inspection Requirements

Section 1103 – “FHA no longer mandates automatic inspections for the following items and/or conditions in existing properties:”

- Wood Destroying Insects/Organisms – TERMITES
- Well (individual water system)
- Septic
- Flat and/or unobservable roof

Most properties listed will state what type of financing is available for the property.  Please make sure that they list FHA as an option.  For additional information on FHA loans, please visit http://mortgageloansaz.com or http://hud.gov.

What is FHA?

I would like to clear up one of the biggest misconceptions in the mortgage industry. FHA is not a lender, they are an insurance company. I can’t tell you how many people do not know this.  Here is a basic acceptable working definition:

Federal Housing Administration (FHA): Federally sponsored agency chartered in 1934 whose stock is currently owned by savings institutions across the United States.  FHA is a federal agency that provides mortgage insurance for residential loans with very low down payments (3.5% or $100 depending on the loan program). The borrower is required to pay the insurance premium monthly and the lender is the beneficiary. In the event of a borrower defaulting on their loan, FHA will pay the lender an amount covering some or all of the outstanding loan balance. Although FHA does not lend the mortgage money, it does set underwriting and construction standards for the lenders.  The lenders can and usually will have additional underwriting standards.

It is important that everyone associated with the real estate industry understand this definition.  This will give some insight into the constantly changing underwriting guidelines that we have encountered as of late.  Many people are frustrated with lenders raising their FICO/overall credit requirements and often point out to me that FHA doesn’t have a fico requirement or that the automated underwriting decision was an “accept”.  I realize this, but we must understand that FHA doesn’t lend money.  That is why the argument that FHA doesn’t require a specific guideline is not as effective as it used to be.  The lenders still need to guard against high levels of delinquency and default.  They do this by adding additional requirements to the basic standards to reduce the risk based on their past experiences with a borrower profile.

The next time you begin to argue about FHA guidelines with a lender or your mortgage professional, remember, they are just an insurance company!