fha presentation

FHA “The American Dream of Home Ownership”Presented by: Steve Hankla

Today’s Agenda

FHA Products Envision Lending Group Presently Offers

FHA Guidelines AnalysisFHA Streamline KFHA HECM ( Reverse Mortgage ) Q&A

FHA Products Envision Lending Group Presently Offers

FHA Products Offered by Envision Lending GroupFHA Fixed15 and 30 Years

FHA 1/1/5 Arm with 2% Margin

97% Purchase

95% / 85% Cash Out Refinance

FHA Streamline (with and without appraisal)

FHASecure

FHA Streamline K

FHA HECM ( Reverse Mortgage )

FHA Guidelines Analysis

FHA Guidelines - Eligible Borrowers

U.S. Citizen

Lawful Permanent Resident Aliens

Non-Permanent Resident Aliens

Non-U.S. Citizens with no lawful residency in U.S. are not eligible for FHA-insured mortgage

FHA Guidelines – Eligible Borrowers

U.S. Citizen• A valid Social Security Number verified by credit report, income

documentation and social security card is required.

• There is no maximum age limit requirement, but the minimum age is the age at which the Note can be legally enforced in the state or jurisdiction in which the property is located.

• 2 year employment history with most recent 2 full years documentation of income is required.


Lawful Permanent Resident Alien• Evidence of permanent lawful residency in U.S. issued by the

Bureau of Citizenship and Immigration Services (BCIS).

• A valid Social Security Number verified by credit report, income documentation and social security card.

• 2 year employment history with most recent 2 full years documentation of income.

• If the authorization for permanent residency status will expire within one year and a prior history of residency status renewals exists, the lender may assume continuation will be granted .


Non-Permanent Resident Aliens• Legally eligible to work in the U.S. as evidence by an Employment

Authorization Document (EAD) issued by Bureau of Citizenship and Immigration Services (BCIS).

• A valid Social Security Number verified by credit report, income documentation and social security card.

• 2 year employment history with most recent 2 full years documentation of income.

• If the authorization for temporary residency status will expire within one year and a prior history of residency status renewals exists, the lender may assume continuation will be granted.

FHA Guidelines - Eligible Properties

Single family (1,2, 3 and 4 units), Plan Unit Development (PUD) and Condominiums

Primary Residence – purchase transactions are allowed for owner occupied properties only

1-2 unit properties have No Cash Reserve Requirement

3-4 unit properties require a Cash Reserve Requirement of 3 months principal, interest, taxes and insurance (PITI) of borrower own funds

• Cannot be derived from Gift Funds

FHA Guidelines - Eligible Properties (Refinance)

Recently Listed Properties

• Cash-out - If the property was listed for sale within the most recent 6 months prior to the date of the loan application, the loan does not meet guidelines.

• No Cash-out - If the property was listed for sale within the most recent 6 months prior to the date of the loan application, evidence that the property has been taken off of the market is required.

FHA Guidelines - Eligible Properties

Declining Markets If the subject property is identified to be in a declining market, the following requirements apply :

• The appraisal report must be dated no earlier than 60 days prior to Envision’s receipt of the credit package.

• The sales comparison approach of the appraisal must include a minimum of 2 comparable closed sales with closing dates no earlier than 90 days prior to the date of the appraisal; and

• In addition to the minimum of 3 comparable sales, a current listing for a comparable property within the subject’s immediate neighborhood is required. The number of days on market must be included. Cash Reserve Requirement of 3 months principal, interest, taxes and insurance (PITI) of borrower own funds for 3 and 4 units properties

FHA Guidelines - Down Payment Requirement A cash investment of three percent of the contract sales price is required – the three percent may come from the following sources:

• Borrower

• Gift from a relative

• Borrower's employer or labor union

• Charitable organization, government agency or public entity that has a program that provides homeownership assistance to low- and moderate-income families or first-time homebuyers. Privately Funded Assistance Programs are NOT permitted as down payment

• a close friend with a clearly defined and documented interest in the borrower.

FHA Guidelines – Seller/Interested Party Contribution

The seller of the subject property may give a contribution of up to 6% of sales price to the borrower for pre-paids, discount points and closing costs

It must be a true contribution; therefore, the sales price may not be increased to allow the property seller to recoup contributing funds

The seller of subject property may not give a gift to Borrower toward down payment


Payments cannot be made on behalf of the borrower for the new loan payment, taxes, insurance, condo HOA fees or any other reoccurring fee.

Interested party contributions may not be used to:• Make the borrower’s down payment• Meet reserve requirements• Make the PITI payment and condo/PUD fees


DAP funds must be a true contribution

When an interested party (i.e.: Builder) donates funds to a third party which then provides the money to pay some or all of the closing costs for a specific transaction, Envision considers the funds to be an interested party contribution subject to our limits. These funds can be used to pay closing costs to 6%.

Funds from seller/privately funded down payment assistance programs, such as Nehemiah and AmeriDream, are still accepted by some wholesale investors. In the future we do anticipate elimination.


A transaction with an interested party contribution has the following (additional) appraisal requirements.

The appraisal must indicate the amount of the contribution

The appraiser must comment on the impact the contribution has to the final value of the property

The appraiser must demonstrate the effect, if any, this has on the final value

• The comparable sales must be adjusted by the value of the contributions as recognized by the market, in the appraiser’s opinion, not necessarily the dollar for dollar amount of the contribution

• Any comparables sold with financing and/or sales concessions must reflect the difference between what the comparables actually sold for with the concession and what they would have sold for without the concessions

• Positive adjustments for sales or financing concessions are not acceptable

FHA Guidelines - Assets Verification

Sufficient funds to close must be verified by following documentation:• Most Recent 2 Months Bank Statements

• Any recent large deposit and new accounts must be explained

• Gift Funds: Gift Letter with copy of the canceled check, deposit slip and Lending Group statement that shows the deposit, or a copy of a certified check made on the donor's account and a Lending Group statement showing the withdrawal from the donor's account

• Grant funds from an organization that meets HUD’s guidelines. Provide an award letter indicating how grant funds will be distributed.

FHA Guidelines - Ratio Requirements Ratios are used to determine whether the borrower can reasonably be expected to meet the expenses involve in homeownership.

The lender must calculate two ratios:

• Mortgage Payment Expense to Effective Income Ratios

• Total of the Mortgage Payment and All Recurring Debt to Effective Income Ratios.

• The Ratio requirement for the two calculations are 31% / 43%

• Ratios up to 33%/45% may be acceptable only if borrower has at least 3 Compensating Factors

Ratios may exceed 33% / 45% with AUS approval

FHA Guidelines - Compensating FactorsSatisfactory 12 to 24 months housing expense history greater or equal to new housing obligation

Small increase of housing expensesLarge down payment 10% or moreAbility to save with conservative attitude toward creditSubstantial documented cash reservesPotential for increase earningRelocation as a result of employment of primary wage earner

Substantial non-taxable incomeDocumented Income that is not reflected in effective income

FHA Guidelines – Stability of Income

Salaried Income Requirement: • Provide most recent 30-days of pay-stubs and most recent two-

years w-2s

• Verification of Employment (VOE) from each employer to show a full two years of income plus a 30 day paystub. VOE must indicate start date, base income and that employment is likely to continue

• Employment gaps more than 30 days must be explained.

• Income is determined by averaging complete two year income history

• If recent income is decreasing from previous two years, the lower recent income is considered for qualifying

The above documentation requirements may be streamlined if AUS approval is received


Part-time, Overtime, Bonus and Seasonal Incomes: • Provide a Verification of Employment (VOE) showing income has

been received for the past two years plus paystubs

• VOE must indicate income is likely to continue.

• Monthly income is calculated by averaging last two year income history

• Income received for less than two years may be acceptable provided borrower can justify and document in writing the reason for using the income for qualifying purposes.



Commission Income Requirement: • Copies of signed and dated tax returns for the last two years, along

with the most recent pay stub

• Verification of Employment (VOE) must be obtained from each previous employer to verify income has been received for a full two years. VOE must indicate income is most likely to continue.

• Monthly income is calculated by averaging last two year income history

• If borrower’s income is 100% commission without documenting 2 two full years of commission income, borrower will not qualify for FHA financing at this time.



Self-employment income: • Borrower with a 25 percent or greater ownership interest in a

business is considered self-employed• Signed and dated individual tax returns, plus all applicable

schedules, for the most recent two years.• Signed copies of federal business income tax returns for the last

two years, with all applicable schedules, if the business is a corporation, an "S" corporation, or a partnership.

• A year-to-date profit-and-loss (P&L) statement and balance sheet• A business credit report on corporations and "S" corporations (if

applicable ) • A business showing a significant decline in income over the period

analyzed is not acceptable and will not qualify for FHA financingThe above documentation requirements may be streamlined if AUS

approval is received


Alimony, Child Support, or Maintenance Income. • Provide a copy of the final divorce decree, legal separation

agreement, or voluntary payment agreement, as well as evidence that payments have been received during the last twelve months (i.e., 12 months worth of bank statements)

• Provide proof income is likely to be consistently received for the first three years of the mortgage



Non-Taxable Income:• Disability income, Public Assistance Income, Military

Allowances, Social Security Income are not subject to federal income taxes

• Non-taxable income may be grossed up 25%

• Income most likely continue for 3 years and documentation from source of income

The above documentation requirements will be streamlined if AUS approval is received


Rental Income received for properties owned is acceptable if the borrower can document rental income is stable.

The following documentation may be considered: • Most current lease showing rental agreement for 12 full months

• Most recent cancelled checks for 12 full months or

• Tax returns indicating 12 month rental history

• 12 months rental history must be free of unexplained gaps greater than three months

• 75% of rental income is used to qualify borrower


FHA Guidelines - Credit Evaluation

Minimum Decision Credit Score less than 560, while many lenders require greater than 580.

Underwriters will examine the overall pattern of credit behavior, rather than focus on isolated occurrences of unsatisfactory or slow payments.

A period of financial difficulty in the past does not necessarily make the risk unacceptable if the borrower has maintained a good payment record for a considerable time period since the difficulty

Usually a full 12 months of good established credit payment history prior to the loan transaction is acceptable to overcome slow payments in the past



Collections

• FHA does not require that collection accounts be paid off as a condition of mortgage approval. Collections indicate a borrower’s regard for credit obligations and must be considered in the analysis of creditworthiness. The Underwriter will document their reasons for approving a mortgage where the borrower has collection accounts

• The borrower must explain all collections in writing

• Medical collections do not have to be paid off

• The Underwriter will determine if non-medical collections must be paid off prior to closing



Judgments: • Court-ordered judgments must be paid off before the mortgage

loan is eligible for FHA insurance endorsement.

• An exception may be made if the borrower has agreed with the creditor to make regular and timely payments on the judgment and documentation is provided that the payments have been made in accordance with the agreement

• The borrower must explain in writing all judgments



Foreclosure• The borrower’s previous principal residence or other real property

must have foreclosed or given a deed-in-lieu of foreclosure more than three years prior to be eligible for a FHA mortgage loan

• Borrower must have a good re-established credit history after the foreclosure or choose not to re-establish at all


Bankruptcy: Chapter 13 Bankruptcy does not disqualify a borrower from

obtaining an FHA-insured mortgage provided the following:

• Borrower has been in Chapter 13 for at least one year

• Borrower’s payment performance has been satisfactory (i.e., all required payments made on time)

• Borrower must receive permission from the trustee of the court to enter into the mortgage


Bankruptcy cont: Chapter 7 (liquidation) does not disqualify a borrower from

obtaining an FHA-insured mortgage if the following criteria are met:

• At least two years have elapsed since the date of the discharge of the Bankruptcy

• Borrower must have re-established good credit or chosen not to incur new credit obligations.

• Borrower also must have demonstrated a documented ability to responsibly manage his or her financial affairs. An elapsed period of less than two years, but not less than 12 months, may be acceptable if the borrower can show that the Bankruptcy was caused by extenuating circumstances beyond borrower control


Consumer Credit Counseling Payment Plans: Participation in a consumer credit counseling payment program

does not disqualify a borrower from obtaining an FHA-insured mortgage provided the following requirements are met:

• One year of the pay-out period has elapsed under the plan

• Satisfactory payment performance (i.e., all required payments made on time)

• Borrower must receive written permission from the counseling agency to enter into the mortgage transaction.

Non-Traditional Credit: • If borrower doesn’t have any traditional lines of credit on a credit

report, non-traditional lines of credit may be obtain to qualify borrower

• Provide documentation for a full 12 months:• Tier I: housing, utility and insurance payments• Tier II: retail account payments

• A minimum of three sources must be verified for 12 months. At least 2 of the three sources must be Tier I sources.

• May provide documentation to Credit Reporting Agency to establish credit or provide third-party documentation directly to the Underwriter

FHA Guidelines

FHA Guidelines

Verifying Previous Housing Obligations• Rental verification:

• Credit Report, Management Service or 12 month cancelled checks. Note: If the borrower is renting from a private party IMB will require 12 months of cancelled checks.

• Mortgage Verification:

• Credit Report, Verification of Mortgage or 12 month cancelled checks. Note: If the borrower is purchasing on a privately held mortgage, IMB will require 12 months of cancelled checks.


FHA Guidelines

Non-Occupant Co-Borrowers are allowed • No minimum ratio requirements for occupying borrower

• Non-Occupant Co Borrower must be a relative or a document friendship with borrower

• Guideline Ratios for occupying borrower and non-occupying combined are 31/43

• Single family properties or one unit condos only

FHA Refi Guidelines – 95/85% Cash Out

95% of the appraised value is permitted under the following eligibility terms and conditions:• Property owned as principal residence for at least 12 months

preceding the date of the loan application.• No late mortgage payments within last 12 months• If any late mortgage payment during preceding 12 months, only

85% will be considered• 1or 2 unit dwelling only (3 and 4-unit dwellings are not eligible).• Non-occupant co-borrowers are not permitted on cash-out

refinances


Appraisal Process Overview•Appraiser must be FHA approved

•FHA has adopted the following Fannie Mae appraisal reporting forms (mortgage industry standard forms):

• Uniform Residential Appraisal Report (Fannie Mae Form 1004) for all 1 unit single family dwellings

• Individual Condominium Unit Appraisal Report (Fannie Mae Form 1073) for all individual condominium units

• Small Residential Income Property Appraisal Report (Fannie Mae Form 1025) for all 2 to 4 unit single family dwellings

•Minor property conditions no longer require automatic repairs for existing properties

FHA Appraisals

The Newest FHA Product

FHA Secure• Effective immediately through December 31, 2008

• Delinquency resulted from reset (1st Lien)

• Eligibility Requirements: 1st Lien, Non FHA-ARM that has reset

• Six months on-time payments prior to reset

• Demonstrated capacity to repay

• Single Family owner-occupied, principal residence

• Compensating Factors are allowed with Manual Underwriting

FHA Secure (continued)• Current FHA geographical maximum mortgage limits apply

• Current FHA maximum loan-to-value limits apply

• May cover existing first lien, purchase money second, closing costs, prepaid expenses, points, late charges, arrearages, and other costs (No Cash Out allowed)

Effective immediately through December 31, 2008

The Newest FHA Product

Most Recent FHA Change

Second Liens in conjunction with FHA Secure• Effective immediately

• Must be Subordinate to First Lien

• First Lien must meet FHA LTV and Loan Limit Requirements

• CLTV may exceed the FHA LTV and Loan Limits (Lenders Discretion)

• Qualifying FHA Ratios (31 / 43) apply to second liens, unless payment are deferred more than 36 months

• Compensating Factors are allowed with Manual Underwriting

FHA Mortgage Insurance Premium (MIP)

Current MIP Structure• Every FHA loan has two types of Mortgage Insurance

• UFMIP: Up-Front Mortgage Insurance Premium

• Annual Mortgage Insurance Premium

Current MIP Structure• UFMIP: Up-Front Mortgage Insurance Premium is calculated on

the Base loan amount.

For Example: If you have a purchase price of $100,000, the base loan amount would be $97,000. The UFMIP would be 1.5% of the

base loan amount ($97,000) making the total loan amount $98,455.

• FHA UFMIP is 1.50%


Annual MIP: FHA requires collection of Annual MIP in monthly installments:• Annual MIP is .50% for a 30 year mortgage

• Calculation for monthly payment is:(.50% x base loan amount ÷12)For Example: The base loan amount is $97,000, the Annual MIP would be calculated by

multiplying $97,000 by .50% (this would equal $485). Then you will take the total of that calculation (the $485) and divide it by 12 (485 ÷12 = $40.42). The monthly amount of Annual MIP that the borrower would have added to their payment would be $40.42.

• Borrower must have mortgage for 5 years and the LTV must go down to 78% before borrower stops paying Annual MIP


Annual MIP: FHA requires collection in monthly installments:• Annual MIP is .25% for mortgage terms 15 years or less

• Calculation for monthly payment is: (25% x base loan ÷12)

For Example: The base loan amount is $97,000, the Annual MIP would be calculated by multiplying $97,000 by .25% (this would equal $242.50). Then you will take the total of that calculation (the $242.50) and divide it by 12 (242.50 ÷12 = $20.21). The monthly amount of

Annual MIP that the borrower would have added to their payment would be $20.21.

• If borrower puts down more than 10% (89.99% LTV), there is no Annual MIP for terms 15 years or less


Los Angeles County (High Cost)

Permanent Limits 1 Unit $362,7902 Units $ 464,4493 Units $561, 411 4 Units $697,696

Temp Limits ( Eff. March 13th)1 Unit $729,7502 Units $934,2003 Units $1,129,2504 Units $1,403,400

• Each county in every state has a maximum FHA loan limit.

• The loan amount can never exceed this loan limit.

• There are loan limit requirements for 1, 2, 3 and 4 unit properties.

• New loan limits have increased to 125% of median home values

FHA Loan Limits

American Dream of Home Ownership Presented by: Steve Hankla 949-734-4798

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