U.S. Bank Home Mortgage-MRBP

NIFA Housing Innovation Marketplace Conference

FHA Updates

U.S. Bank Home Mortgage-MRBP

NIFA Housing Innovation Marketplace Conference

FHA Updates

January 25th, 2011

Benefits of FHABenefits of FHA

• 3.5% minimum down payment required (Dependent on Credit Score)

• Non-Occupant Co-Borrowers allowed

• 100% Gift Funds allowed

• Non-Traditional credit (Can be used to strengthen a file)

• Two years on Bankruptcy discharge

• One year into Chapter 13 pay out.

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Borrowers InvestmentBorrowers Investment

• Minimum Cash Investment 3.5%:

• Borrowers may receive a Gift from a Family member or Funds from a Housing Finance Authority to be used as all or part of the 3.5% required down payment.

• Borrowers may pay reasonable, customary closing costs, and bona fide Discount Points . Borrowers cannot pay the Tax Service Fee.

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Minimum Credit Scores and Loan-to-Value Ratios

Minimum Credit Scores and Loan-to-Value Ratios

• Borrowers with a minimum decision credit score at or above 580 are eligible for maximum financing. (3.5% Down Payment)

• Borrowers with a minimum decision credit score between 500 and 579 are limited to 90 percent LTV. (10% Down Payment)

• Borrowers with a minimum decision credit score of less than 500 are NOT Eligible for FHA-insured mortgage financing.

• Borrowers with a non-traditional credit history or insufficient credit are eligible for maximum financing but must meet the underwriting guidance in HUD 4155.1 4.C.3. (No Credit Score)

• Note: Many lenders have set their own credit score limits for FHA loans at a minimum of 620

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Changes to FHA Mortgage Insurance Premiums Changes to FHA Mortgage Insurance Premiums

• Upfront Premiums • Purchase Money Mortgages 100 BPS

• Annual Premiums • LTV Annual Premiums for Loans > 15 Years (30 YR)

= or < 95 percent 85 BPS > 95 percent 90 BPS

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CreditCredit

• Credit History:

• Generally more lenient than conventional conforming loans

• Most recent 12-24 months is scrutinized more closely than older credit issues.

• Payment history on housing obligation is very important

• Judgments and liens must be paid prior to close, collections case by case

• Bankruptcy’s Chapter seven discharge minimum two years with no lates and re-established credit

• Chapter 13 acceptable with minimum 12 payments with approval from Trustee and no late payments

• Foreclosure/Short Sale/Deed in Lieu requires minimum three years since and re-established credit

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Credit (cont’d)Credit (cont’d)

• CCC: One year payments made with no lates to credit counselor or any accounts outside of CCC

• Non-traditional credit may be used but never to offset the BAD debt

• Student Loans: Deferred debt that comes due within 12 months of the closing date of mortgage must be counted

• Contingent Liability: Any debt that the borrower would be held liable in the event of default by the primary obligor must be counted. Contingent liability applies unless documented proof of primary obligor making payments on time in the past 12 months with no history of late payments. (Additional documentation if a mortgage)

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Acceptable Sources of Funds to CloseAcceptable Sources of Funds to Close

• Gift from a relative or closely defined friend-provide acceptable gift letter standard documentation to evidence withdrawal from donor and transfer to borrower and provide documentation of donor’s source of funds for the gift

• Secondary financing for purchase transactions as provided by Housing Finance Agencies or FHA approved Non-Profit organizations

• Funds from 6% seller contribution can include pre paids – never down payment

• Loan from family member, Standard FHA guidelines

• Borrowers own funds, Standard FHA guidelines

• Standard documentation or per Total Scorecard

• Loan against 401k (payment not included in DTI)

• Sale of an asset (paper trail requirements)

• Buyers cannot receive any cash back on a purchase transaction8

Seller Contributions & Inducements to PurchaseSeller Contributions & Inducements to Purchase

• The seller (or other interested parties such as real estate agents, builders, developers, etc.) may contribute up to 6% of the properties sales price toward the buyers actual closing costs, pre-paid expenses, points, and other concessions • No part of the 6% can every be used as any part of the required down

payment

• Any amount over the 6% will be considered an Inducement to Purchase

• Inducements to Purchase result in a dollar-for-dollar reduction to the sales price before applying the appropriate LTV ratio. These inducements include decorating allowances, repair allowances, moving costs, any personal property, and any amount paid over the 6% seller contribution allowed. See 4155 1-7 a & b

• Before you calculate the loan amount make sure you do not have to reduce the sales price due to an inducement to purchase.

• NOTE: • There are discussions within FHA

to reduce seller contributions to 3%9

Elimination of Loan Correspondent Approval Elimination of Loan Correspondent Approval

• On May 20th, 2010, FHA revised its lender approval policy to eliminate the approval of Loan Correspondents lenders, effective December 31st, 2010. On January 1st, 2011, currently approved FHA Loan Correspondents will no longer have access to HUD’s secure system, the FHA Connection.

• Entities without explicit FHA lender approval (including Sponsored Third Party Originators and former FHA-approved Loan Correspondents) may no longer close mortgages or submit for FHA insurance in their own names, regardless of when the case number was assigned or the current status of the case (e.g. approved, closed)

• Loan Correspondents that wish to continue participating in FHA programs after December 31st, 2010, must be registered as a Sponsored Originator in the FHA Connection by a Sponsoring Mortgagee. Sponsoring Mortgagees may Sponsor and Register a Correspondent Lender of theirs via the new Sponsored Originator Maintenance screen in the FHA Connection

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Streamlined 203(ks)Streamlined 203(ks)

• The Streamlined 203(k) program is intended for minor or uncomplicated rehabilitation or improvements to a home for which plans, consultants, engineers and/or architects are not required.

• The ceiling for 203ks is $35,000 for a maximum repair/rehabilitation amount.

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Eligible Improvements for 203ksEligible Improvements for 203ks

• Repair/Replacement of roofs, gutters and downspouts• Repair/Replacement/upgrade of existing HVAC systems• Repair/Replacement/upgrade of plumbing and electrical systems• Repair/Replacement of flooring• Minor remodeling, such as kitchens, which does not involve structural repairs• Painting, both exterior and interior• Weatherization, including storm windows and doors, insulation, weather stripping,

etc.• Purchase and installation of appliances, including free-standing ranges,

refrigerators, washers/dryers, dishwashers and microwave ovens• Accessibility improvements for persons with disabilities• Lead-based paint stabilization or abatement of lead-based paint hazards• Repair/replace/add exterior decks, patios, porches• Basement finishing and remodeling, which does not involve structural repairs• Basement waterproofing• Window and door replacements and exterior wall re-siding• Septic system and/or well repair or replacement

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