FHAFHA

Relic of the PastRelic of the Past oror

Tool of the Future?Tool of the Future?

Why learn FHA?Why learn FHA?

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Reason # 1: Close more loans.Reason # 1: Close more loans. Many borrowers who donMany borrowers who don’’t qualify for FNMA t qualify for FNMA

or FHLMC products can be approved and or FHLMC products can be approved and closed, instead of being a crumpled up credit closed, instead of being a crumpled up credit report at the bottom of a shredding bin. FHA report at the bottom of a shredding bin. FHA underwriting uses common sense to make a underwriting uses common sense to make a decision, not a matrix.decision, not a matrix.

Why Learn FHA?Why Learn FHA?

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Reason # 2: Ability to close more loansReason # 2: Ability to close more loans FHA loans have aggressive underwriting criteria FHA loans have aggressive underwriting criteria

that allows you to close more deals, coupled that allows you to close more deals, coupled with lower interest rate and a higher YSP with lower interest rate and a higher YSP premiums itpremiums it’’s a winning combination.s a winning combination.

Why Learn FHA?Why Learn FHA?

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Reason # 3: Survive Market Changes.Reason # 3: Survive Market Changes. FHA is reFHA is re--emerging as the loan of choice for the emerging as the loan of choice for the

““nonnon--creampuffcreampuff””

borrower. Whenever an borrower. Whenever an environment changes radically, failure to adapt environment changes radically, failure to adapt results in a failure to survive.results in a failure to survive.

FHA BasicsFHA Basics

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Owner Occupied OnlyOwner Occupied Only Second homes and investment properties are not Second homes and investment properties are not

permitted under any circumstances.permitted under any circumstances. OwnerOwner--Occupied transactions have typically accounted Occupied transactions have typically accounted

for over 80% of all originations. As the allowable for over 80% of all originations. As the allowable LTVsLTVs

for NOO properties return to normal, mortgages for NOO properties return to normal, mortgages

on primary residences will again dominate pipelines.on primary residences will again dominate pipelines.

FHA BasicsFHA Basics

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Full Doc OnlyFull Doc Only Income documentation: VOE + Last 30 days Income documentation: VOE + Last 30 days paystubspaystubs..

SelfSelf--employed borrowers: 2 years tax returns and YTD employed borrowers: 2 years tax returns and YTD P&L (bank statements cannot be used to verify P&L (bank statements cannot be used to verify income)income)

Asset documentation: VOD + one month statement, Asset documentation: VOD + one month statement, or two months statements (no VOD only option or two months statements (no VOD only option available)available)

FHA BasicsFHA Basics

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Full Doc OnlyFull Doc Only FHA was not in high demand when 100% SISA FHA was not in high demand when 100% SISA

financing was available for borrowers with little or no financing was available for borrowers with little or no credit. However, now that the industry is beginning to credit. However, now that the industry is beginning to return to normal, and with very few stated return to normal, and with very few stated documentation products available or, the requirement documentation products available or, the requirement of higher scores, more trade lines, and larger down of higher scores, more trade lines, and larger down payments put them out of reach. Stated Loans are no payments put them out of reach. Stated Loans are no longer an option, FHA is often the best alternative. longer an option, FHA is often the best alternative.

Maximum Maximum LTVsLTVs

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For those of you who are used to using a For those of you who are used to using a program matrix, we have prepared a simple grid program matrix, we have prepared a simple grid detailing the maximum detailing the maximum LTVsLTVs

available, grouped available, grouped

by credit score and property type:by credit score and property type:

Max LTV MatrixMax LTV Matrix

Purchases and Rate/Term RefinancesPurchases and Rate/Term Refinances

ScoreScore 1 unit1 unit 2 unit2 unit 3 unit3 unit 4 unit4 unit

500500--580 580 on exceptionon exception

96.5%96.5% 96.5%96.5% 96.5%96.5% 96.5%96.5%

580580--600600 96.5%96.5% 96.5%96.5% 96.5%96.5% 96.5%96.5%

601601--700700 96.5%96.5% 96.5%96.5% 96.5%96.5% 96.5%96.5%

701701--800800 96.5%96.5% 96.5%96.5% 96.5%96.5% 96.5%96.5%

FHA Max FHA Max LTVsLTVs

If you donIf you don’’t prefer a matrix, here is the max LTV t prefer a matrix, here is the max LTV for purchases and rate/term refinances:for purchases and rate/term refinances:

11--4 Units, all scores:4 Units, all scores:

96.5%96.5%

UFMIPUFMIP

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Up Front Mortgage Insurance PremiumUp Front Mortgage Insurance Premium

Every loan will have an Insurance premium added Every loan will have an Insurance premium added to of 1.75% It will look like this.to of 1.75% It will look like this.

Sales Price Sales Price $100,000$100,000Base Loan AmountBase Loan Amount

$ 96,500 $ 96,500 (SP x 96.5%)(SP x 96.5%)

UFMIP UFMIP (1.75% of BLA)(1.75% of BLA)

$ 1,691$ 1,691Total Loan AmountTotal Loan Amount

$ 98,191$ 98,191

Monthly MIPMonthly MIP

In addition to the funded UFMIP you will also In addition to the funded UFMIP you will also have a monthly premium.have a monthly premium.

.55% times the Base Loan Amount.55% times the Base Loan Amount

$96,500 x .55% = $530.75 per year $96,500 x .55% = $530.75 per year divided by 12 = $44.23 per Month divided by 12 = $44.23 per Month Monthly premiumMonthly premium

FHA Max FHA Max LTVsLTVs

Max Max LTVsLTVs

for FHA cashfor FHA cash--out refinances:out refinances:11--2 Units2 Units

95%*95%**must own property for at least one year with no *must own property for at least one year with no lateslates, or limited to 85%, or limited to 85%

33--4 Units4 Units

85%85%

Minimum Credit ScoresMinimum Credit Scores

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No Minimum Credit ScoreNo Minimum Credit Score Our credit decision is based on an actual analysis Our credit decision is based on an actual analysis

of the borrowerof the borrower’’s credit. Many borrowers with s credit. Many borrowers with scores in the low 500s have been approved, and scores in the low 500s have been approved, and many with scores in the 600s have been denied.many with scores in the 600s have been denied.

Minimum Minimum TradelinesTradelines

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No Credit OK, No Credit Score OK.No Credit OK, No Credit Score OK. No credit is better than bad credit. Use of altNo credit is better than bad credit. Use of alt--

trades is permitted based on guidelines provided trades is permitted based on guidelines provided by HUD and specific rules of the Lender you by HUD and specific rules of the Lender you are using. are using.

Credit AnalysisCredit Analysis

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Common SenseCommon Sense FHA FHA looks atlooks at

credit differently than FNMA or credit differently than FNMA or

FHLMC and approves loans based upon the FHLMC and approves loans based upon the circumstances surrounding the credit history. circumstances surrounding the credit history. Common sense prevails. All judgments must be Common sense prevails. All judgments must be paid prior to closing and collections may be left paid prior to closing and collections may be left open at the discretion of the Lender.open at the discretion of the Lender.

Bankruptcy GuidelinesBankruptcy Guidelines

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Chapter 7 BankruptcyChapter 7 Bankruptcy Must be discharged two years. Exceptions for Must be discharged two years. Exceptions for

periods between 12 and 24 months are available, periods between 12 and 24 months are available, but only if the reason for the BK was but only if the reason for the BK was ““out of out of the controlthe control””

of the borrower (a difficult of the borrower (a difficult

exception to qualify for).exception to qualify for).

Bankruptcy GuidelinesBankruptcy Guidelines

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Chapter 13 BankruptcyChapter 13 Bankruptcy A borrower can currently be in a Chapter 13 repayment A borrower can currently be in a Chapter 13 repayment

plan and still be approved for an FHA loan. The plan and still be approved for an FHA loan. The repayment plan must be at least 12 months old, and all repayment plan must be at least 12 months old, and all credit (especially the mortgage) must have been paid credit (especially the mortgage) must have been paid with no with no lateslates

since the inception of the plan. since the inception of the plan.

Additionally, there must be no Additionally, there must be no lateslates

on the plan itself, on the plan itself, and the trustee must give written permission for the and the trustee must give written permission for the transaction and a payoff.transaction and a payoff.

Seller ContributionsSeller Contributions

Maximum Seller ContributionMaximum Seller Contribution

6%6%All All LTVsLTVs, 1, 1--4 Units4 Units

Minimum InvestmentMinimum Investment

Minimum Investment RequirementMinimum Investment Requirement

3.5%3.5%All All LTVsLTVs, 1, 1--4 Units4 Units

Minimum InvestmentMinimum Investment

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The borrower must contribute at least 3.5% of The borrower must contribute at least 3.5% of their own funds. The borrowertheir own funds. The borrower’’s own funds are s own funds are defined as either savings, gift or grant. There is defined as either savings, gift or grant. There is no requirement for any borrower savings; the no requirement for any borrower savings; the entire 3.5% requirement can be a gift or grant.entire 3.5% requirement can be a gift or grant.

GiftsGifts

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No DonorNo Donor’’s Abilitys Ability There is no requirement to source the There is no requirement to source the ““donordonor’’s s

abilityability””

to give the gift, only to show that it is to give the gift, only to show that it is coming from the Donorcoming from the Donor’’s account. s account.

GiftsGifts

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Gift DocumentationGift Documentation The simplest gift to document is a gift directly into the The simplest gift to document is a gift directly into the

settlement agentsettlement agent’’s escrow account. If done this way, s escrow account. If done this way, and if the gift is large enough, no bank statements are and if the gift is large enough, no bank statements are required from the borrower:required from the borrower:

(1) FHA Gift Letter (available on our website)(1) FHA Gift Letter (available on our website) (2) Copy of bank check payable to escrow account(2) Copy of bank check payable to escrow account

(3) Evidence that the bank check was drawn on donor(3) Evidence that the bank check was drawn on donor’’ssaccountaccount

(4) Escrow Letter from settlement agent confirming(4) Escrow Letter from settlement agent confirming receipt of the gift check into escrow accountreceipt of the gift check into escrow account

RatiosRatios

Standard Income RatiosStandard Income Ratios

31/43*31/43**These ratios can be exceeded with a*These ratios can be exceeded with a

compensating factor.compensating factor. In some cases, In some cases, muchmuch

higher.higher.

RatiosRatios

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Compensating FactorsCompensating Factors Some examples of compensating factors are:Some examples of compensating factors are:

--

3 months PITI reserves3 months PITI reserves

--

Less than maximum financing Less than maximum financing --

10% down payment10% down payment

--

housing payment increasing by less than 10%housing payment increasing by less than 10%

Once again, if the loan makes sense, the loan can be Once again, if the loan makes sense, the loan can be approved.approved.

FHA AppraisalsFHA Appraisals

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Appraiser must be on the FHA Approved List.Appraiser must be on the FHA Approved List.••

Repair requirements are the same as a Repair requirements are the same as a conventional appraisal.conventional appraisal.

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No appraisal reviews, driveNo appraisal reviews, drive--bys, AVMs, bys, AVMs, BPOsBPOs, , or any other additional appraisal items.*or any other additional appraisal items.*

*unless property has transferred in the last six months with a l*unless property has transferred in the last six months with a large increase in sales price.arge increase in sales price.

Streamline RefinancesStreamline Refinances

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Once a borrower has an FHA loan, they can be Once a borrower has an FHA loan, they can be refinanced into another lowerrefinanced into another lower--rate FHA with very little rate FHA with very little documentation:documentation:

--

no employment, income or asset documentationno employment, income or asset documentation --

no credit report, just a mortgage historyno credit report, just a mortgage history

--

no appraisal optionno appraisal option

Check with your Lender for Loan seasoning requirements.Check with your Lender for Loan seasoning requirements.

Basic FHA Loan limitsBasic FHA Loan limits••

FHA Mortgage Limits List FHA Mortgage Limits List --

FHA ForwardFHA Forward••

The current basic standard mortgage limits for FHA insured loansThe current basic standard mortgage limits for FHA insured loans

are:are:––

OneOne--family family TwoTwo--familyfamily

ThreeThree--family family FourFour--familyfamily

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FHA Forward $271,050.00 FHA Forward $271,050.00 $347,000.00 $347,000.00 $419,400.00 $419,400.00 $521,250.00$521,250.00••

HECM HECM $200,160.00$200,160.00••

Fannie/Freddie $417,000.00 Fannie/Freddie $417,000.00 $533,850.00 $533,850.00 $645,300.00 $645,300.00 $801,950.00$801,950.00••

High cost area limits are subject to a ceiling based on a percenHigh cost area limits are subject to a ceiling based on a percent of the Freddiet of the Freddie••

Mac Loan limitsMac Loan limits••

The ceilings are currently:The ceilings are currently:––

OneOne--family family TwoTwo--family family ThreeThree--family family FourFour--familyfamily

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FHA Forward $729,750.00 FHA Forward $729,750.00 $934,200.00 $934,200.00 $1,129,250.00 $1,129,250.00 $1,403,400.00$1,403,400.00••

HECM HECM $362,790.00$362,790.00••

Fannie/Freddie $729,750.00 Fannie/Freddie $729,750.00 $934,200.00 $934,200.00 $1,129,250.00 $1,129,250.00 $1,403,400.00$1,403,400.00••

Section 214 of the National Housing Act provides that mortgage lSection 214 of the National Housing Act provides that mortgage limits for Alaska,imits for Alaska,••

Guam, Hawaii, and the Virgin Islands may be adjusted up to 150 pGuam, Hawaii, and the Virgin Islands may be adjusted up to 150 percent of theercent of the••

new ceilings. This results in new ceilings for these areas of:new ceilings. This results in new ceilings for these areas of:––

OneOne--family family TwoTwo--family family ThreeThree--family family FourFour--familyfamily

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FHA Forward $1,094,625.00 FHA Forward $1,094,625.00 $1,401,300.00 $1,401,300.00 $1,693,875.00 $1,693,875.00 $2,105,100.00$2,105,100.00••

HECM HECM $544,185.00$544,185.00••

Fannie/Freddie $1,094,625.00 Fannie/Freddie $1,094,625.00 $1,401,300.00 $1,401,300.00 $1,693,875.00 $1,693,875.00 $2,105,100.00$2,105,100.00

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https://https://entp.hud.gov/idapp/html/hicostlook.cfmentp.hud.gov/idapp/html/hicostlook.cfm

Recap: Why FHA?Recap: Why FHA?

Close moreClose more loans.loans.

Recap: Why FHA?Recap: Why FHA?

Make more Make more money.money.

Recap: Why FHA?Recap: Why FHA?

Survive market Survive market changes.changes.