Most people know they need to look their best when trying to get approved for a mortgage. Like brushing our teeth and combing our hair for a family portrait, we know that our credit scores, job history and general financial health are important.  (To see how to avoid common pitfalls after you have been approved for a loan, see my recent post Your Loan is Approved! Now Avoid These Four Pitfalls That Can Really Ruin Your Day).

However, did you know that the type of property you choose may also have a major impact on your loan approval?  If not, dear reader, then Press On!

Let’s say you start out thinking you’re looking for a cute house with a white picket fence.  But then you begin to see different options.  Let’s see how those choices may change, limit or even eliminate your financing options:

A Planned Unit Development, or PUD
A what?  They look like a regular house, but are part of a large, master-planned community.  Most homes built in recent years by major builders are PUDs.  This property choice invariably comes with a required membership in a Home Owners Association (HOA).  The monthly HOA dues can commonly run into the $200 to $400 range, especially in Southern California.  This will reduce the amount of financing you qualify for because it will be included as part of your debt-to-income ratio.

Condominiums

• Non-Warrantable Condo Projects – This is a condominium that does not have official Fannie Mae or FHA approval (required to get financing from these agencies)
• Condo Conversions – These are condos that started life as apartments and then were converted to condominium building codes.  Most are OK, but a few may be little more than cosmetically-enhanced apartments.  Again, look for that all-important Fannie Mae or FHA approval on the project
• High-rise Condos – commonly defined as a condo above 4-stories tall.  Some lenders won’t do mortgages on them
• Those ubiquitous HOA dues will change your qualifying debt/income ratio

Manufactured and Modular Homes
This can be a tricky area with regard to financing.  These types of homes are partially built and assembled in a factory and then moved to the property site where they are permanently affixed to the land.  Such homes manufactured in recent years can look like a traditionally-constructed or site-built home except to the most discerning eye (like an appraiser).  However, lenders definitely make the distinction and the types of loans available to purchase or refinance this type of property are quite limited, especially in the current financial markets.  Where available, a mortgage on this type of property will likely require a greater down payment.  Options such as interest-only payments will be almost impossible to find.  While this type of housing can be ideal for the right Buyer, be aware that it will limit the financing options for you now, and most likely for the next person looking to purchase it (from you)

Large or Unusual Properties
This one can catch you by surprise.  A common example might be a home built on 18 acres of land.  Regardless of how big or nice the house is, a large tract of land may actually dominate the total value of the property.  Conventional mortgages are intended to finance residential property, not land.  As a result, some lenders will limit the maximum size of the property they will finance; 5 acres is not uncommon.  Other lenders will allow larger acreage but will require the appraisal to consider the value of the improvements (house) and limit land value to 5 acres.  Another issue can arise if the property includes improvements other than what is common to residential property.  Examples might be a home on 4 acres that includes 300 avocado trees, or a duplex where 1 of the 2 units actually houses a business such as a barber shop.  These properties may be viewed as commercial or mixed-use in nature, rather than residential.

Multi-Family Property (Duplex, Triplex etc.)
Conventional financing is still widely available for 2 to 4 family properties.  However, recent changes in the mortgage markets have tightened a number of requirements to qualify for financing on these property types.  Examples include larger down payments, higher credit scores, higher interest rates and more conservative debt-to-income ratios.

The important point to draw here is that one size does not fit all when obtaining financing. It’s best to have a reasonably clear idea of the type of property you are seeking to purchase before you obtain loan approval.  And if that idea changes, be sure to let your mortgage professional know as soon as possible.  That will avoid unpleasant surprises and assure that your approved financing will work for the home of your dreams!

For questions about matching your loan to your home, call Paul Gonzales, Countywide Mortgage Lending at (760) 746-7388 or email me at paulforloans@aol.com

Foreclosed properties and “short sales” are certainly in the news today.  We are all aware that they exist in every community right now including our own neighborhoods.  Properties that have been taken back by a bank or lender and held on their books are known as “real estate owned” or REOs.  For both regulatory and business reasons they must work to sell them as soon as they can and get the REOs off their ledgers.  So-called short sales are where the private owner and the lender agree to sell the property for less than what is owed.  In our current markets, this need to liquidate properties often forces the lender to sell at a loss.  As seen in recent sales figures for many areas, this practice has at least the potential to drive market prices lower in some areas.

OK – So how can the sale of a nearby foreclosure or short-sale affect me?

Any individual home sale in the area is only one statistic, not the entire local market.  In fact, a common misperception is that the lowest recent home sale “sets the price” for similar properties around it.  Not so.  Understanding just a couple of basics about how a professional appraiser determines value can illustrate the impact that recent nearby sales have on your home’s value.

Appraisers are required to identify recent sales of properties that are similar and near in proximity to the home being appraised; these other sales are called comparable sales, or “comps“.  There are extensive rules and formulas that they use to accomplish all that but those are the general criteria that they seek.  After adjusting the sales prices for considerations such as age, size, amenities, quality and condition (among many other issues) the appraiser then has a finely-tuned range of prices that he or she will use to determine the value of the subject property being appraised.  While not impossible, it is rare that the final value ascertained will be equal to the lowest comparable sales price (REO, short-sale or otherwise).  Most commonly, the final value will be somewhere within the range of prices analyzed.

Which brings us back to the topic of the sale of a nearby REO or “short“.  If the lowest sales price in the pool of comps used by the appraiser is an REO and is also significantly lower than the rest of the comps in the pool, the appraiser has the latitude to comment on that aspect.  Depending upon how solid the remaining sales comps are, the REO or short-sale could have only a minimal impact on the value of the subject property.  It may thus represent only the low end of the value range for that particular market.  On the other hand, if the majority of recent comps happen to consist of REOs and/or short sales, then they may well define that local market and collectively have a significant impact on the value of the subject property.

In the final analysis, the value of your property is determined by your local market and is usually defined by recent multiple sales.  Regardless of whether comparable sales are private sales, short sales or REOs, the market “is what it is” at that point in time.  What’s most important to remember is that for the vast majority of markets, value is not defined by any one single sales transaction!

for more information contact Paul Gonzales, Countywide Mortgage Lending (760) 746-7388 or paulforloans@aol.com

Your loan application has been officially approved by your lender and you are in escrow on your dream home. Just days before you expect to close your purchase and begin moving, your lender tells you that you no longer qualify for your financing. What happened?

During the typical thirty to forty-five day escrow, there is ample opportunity for the prospective home buyer to unwittingly sabotage his or her deal. These innocent mistakes can be grouped into four categories:

Credit Issues
Your initial credit report was good enough to qualify you, and then you went out and:

• forgot to make that dinky $18 payment on your J.C. Pennys account
• purchased a plasma screen TV with no payments due for a whole year (and now you have a new credit account with a subprime finance company)
• opened a new credit card or max’d out the balance on an existing card
• finally paid off that old traffic ticket that went to collection two years ago

Any one of these mistakes can have a dramatic effect on your credit score and disqualify you.

Employment

• you were a company employee, and now you are self-employed
• you still work for the same company but just switched from a salaried position to one that compensates you by commission or bonuses
• you have just made a significant career change, say from being an auto mechanic to a real estate agent

Lenders usually look for a stable employment and income picture for at least the last two years. Any significant change after your application is approved can start that “clock” over again

Income and Expenses

Your loan approval included a comparison of your present monthly consumer bills, together with the loan you requested, as a percentage of your monthly gross income, however:

• you or a spouse decided to switch from full-time to part-time
• you just made a major credit purchase such as a new car
• you have actually made no changes whatsoever, but you were qualified for a specific maximum loan amount to purchase a house. Now you want to buy a house or a condo that includes a $325 monthly homeowners association fee, or found a home in a neighborhood that has special tax assessments such as Mello-Roos.

Any significant decrease in income, or increase in expenses tied to consumer debts or the home purchase itself, can reduce the amount of financing you qualify for.

Financial Assets
Most loans require that the home-buyer have a minimum amount of financial assets such as money in the bank, investments or an IRA or retirement plan. Once approved, however, you:

• made a sizable cash purchase, such as furniture for the new home
• repaid a loan to Aunt Bethany
• took out a loan against your retirement plan

Your qualifying assets could fall below the minimum amount required to maintain your approval.

These mistakes are quite common and easy to make, because they involve normal activities and routine decisions that we make everyday. The key to avoiding any of these four major pitfalls is recognizing that your loan approval is like a photograph. It is literally a snapshot-in-time of you and your financial condition. Lenders will rely upon that snapshot right up until the time they wire the money to escrow, the title company records your new mortgage and your agent hands you the keys. There is nothing routine about that. So smile, look your best and stay “YOU” until your agent hands you those keys!

for more information call Paul Gonzales, Countywide Mortgage Lending,  at (760) 746-7388 or email me at paulforloans@aol.com

Your loan application has been officially approved by your lender and you are in escrow on your dream home. Just days before you expect to close your purchase and begin moving, your lender tells you that you no longer qualify for your financing. What happened?

During the typical thirty to forty-five day escrow, there is ample opportunity for the prospective home buyer to unwittingly sabotage his or her deal. These innocent mistakes can be grouped into four categories:

Credit Issues
Your initial credit report was good enough to qualify you, and then you went out and:

• forgot to make that dinky $18 payment on your J.C. Pennys account
• purchased a plasma screen TV with no payments due for a whole year (and now you have a new credit account with a subprime finance company)
• opened a new credit card or max’d out the balance on an existing card
• finally paid off that old traffic ticket that went to collection two years ago

Any one of these mistakes can have a dramatic effect on your credit score and disqualify you.

Employment

• you were a company employee, and now you are self-employed
• you still work for the same company but just switched from a salaried position to one that compensates you by commission or bonuses
• you have just made a significant career change, say from being an auto mechanic to a real estate agent

Lenders usually look for a stable employment and income picture for at least the last two years. Any significant change after your application is approved can start that “clock” over again

Income and Expenses
Your loan approval included a comparison of your present monthly consumer bills, together with the loan you requested, as a percentage of your monthly gross income, however:

• you or a spouse decided to switch from full-time to part-time
• you just made a major credit purchase such as a new car
• you have actually made no changes whatsoever, but you were qualified for a specific maximum loan amount to purchase a house. Now you want to buy a house or a condo that includes a $325 monthly homeowners association fee, or found a home in a neighborhood that has special tax assessments such as Mello-Roos.

Any significant decrease in income, or increase in expenses tied to consumer debts or the home purchase itself, can reduce the amount of financing you qualify for.

Financial Assets
Most loans require that the home-buyer have a minimum amount of financial assets such as money in the bank, investments or an IRA or retirement plan. Once approved, however, you:

• made a sizable cash purchase, such as furniture for the new home
• repaid a loan to Aunt Bethany
• took out a loan against your retirement plan
• Your qualifying assets could fall below the minimum amount required to maintain your approval.

These mistakes are quite common and easy to make, because they involve normal activities and routine decisions that we make everyday. The key to avoiding any of these four major pitfalls is recognizing that your loan approval is like a photograph. It is literally a snapshot of you and your financial condition. Lenders will rely upon that snapshot right up until the time they wire the money to escrow, the title company records your new mortgage and your agent hands you the keys. There is nothing routine about that. So smile, look your best and stay “YOU” until your agent hands you those keys!

Paul Gonzales, Manager Countywide Mortgage (760) 746-7388  or  paulforloans@aol.com

Guys – the statistics are out and they speak for themselves; women out-purchase us in the real estate market two-to-one!  National data for the year ending last June reveals that single women accounted for 21% of all home purchases, to 10% of purchases for single men. That may just be an eye-opener for many of us in the business.   Such a significant demographic group deserves to be both recognized and well-served by the real estate and financing industries.  Click on the link below to read an excellent article on this subject posted by Marilyn Kennedy Malia on Bankrate.com:

“4 Tips for Single, Female Homebuyers”

Paul Gonzales, Sales Manager, Countywide Mortgage (760) 746-7388 or paulforloans@aol.com

The New Reality In Today’s Market
With today’s focus on the value of residential real estate, one of the most critical aspects of purchasing a property is it’s physical condition. The professional appraisal required to obtain financing is a very comprehensive analysis of the property’s value, including condition.  In particular, when a Buyer is looking at foreclosed or bank-owned properties (known as Real Estate Owned or REOs) the property’s physical condition will come under very close scrutiny by both the appraiser and the lender.

Certain property conditions will be considered normal wear and tear, while others indicate a need for freshening up.  Still other physical aspects fall into the category of health and safety issues.  It is this latter category that concerns lenders and may affect the ability to obtain financing.

Financeable – Minor Deferred Maintenance and Functional Obsolescence
Those are mouthfuls, aren’t they?  Common examples of deferred maintenance can include worn carpeting, neglected landscaping or the need for fresh paint.  Functional obsolescence refers to issues such as obsolete floor plans (I.e. three bedrooms and only one bathroom), outdated fixtures or old-style floor or wall heaters.  While these conditions may affect the over-all value of the property they are generally acceptable to lenders and will not (in most cases) affect the ability to get a loan.

Non-Financeable – Health and Safety and Structural Issues
This is the area where some Buyers are finding it difficult or impossible to obtain financing.  These conditions can be found in any property but are more likely to occur with foreclosed, bank-owned properties:

• Open walls – holes knocked into walls or other damage
• missing fixtures or cabinets
• damaged or non-existent flooring – exposed concrete or subfloor
• roof with less than 5-years of remaining life
• a non-working pool or spa
• cracked foundation or slab
• extensive water damage or mold
• inoperable, damaged or missing heating systems
• damaged electrical or plumbing system

These conditions are generally not acceptable to lenders and unless they are remedied will disqualify the property for conventional financing.

Solutions – Yes, There Are Some!
Some Sellers may be willing to fix or repair the problem or credit the Buyer an amount of money to account for it.  Of course, the Buyer also has  the option of curing the problem at his or her own expense.  However, the condition must be taken care of and verified by a follow-up appraisal report before the lender will agree to finance the purchase and the sale can conclude.  If the Seller is a bank or lender, some may be willing to cooperate with the Buyer while others are selling the property strictly “As-Is”.  Another option is to seek non-conventional financing such as “hard-money” or perhaps a construction or rehab loan.  While an option, these types of financing are often difficult and/or expensive to obtain and ultimately may not be a viable alternative to the average home buyer or investor.

This is an area where a little knowledge will go a long way for the typical real estate Buyer.  Being aware of how the property’s condition can affect your financing at the beginning, rather than several weeks into your escrow, can save you more than a few gray hairs!

for more information contact Paul Gonzales, Manager Countywide Mortgage at (760) 746-7388 or paulforloans@aol.com

This is the fourth and final post in a series that deals with important aspects of FHA financing.

• The first post provided an overview of the program.
• The second post detailed FHA credit requirements
• The third post discussed the income and employment requirements.
• This post will discuss the down payment and asset requirements necessary to obtain an FHA home loan.

Minimum Down Payment
In today’s challenging market, this is probably the most attractive feature of the FHA home loan – the minimal down payment requirement.  The minimum allowable down payment is 3.5% of the purchase price.  This benefit is enhanced further by the flexibility allowed for the source of those down payment funds, as discussed below:

Reserve Requirements
Reserves are funds that a buyer has “left over” after purchasing the home.  Most conventional home loans require enough reserve funds to cover at least two months of mortgage payments including property taxes, insurance, mortgage insurance and home owner’s association (HOA) dues if required.

FHA financing does not have a reserve requirement if purchasing a 1 or 2 family property (a 3 or 4 family property requires at least three months of reserve funds).

Acceptable Sources of Funds

• Borrower’s depository funds – Funds owned by the Borrower in bank accounts, stocks and bonds, Certificates of deposit, retirement accounts such as 401k plans
• Gift funds – Can come from a wide variety of sources, including family members, a close friend with established close ties to the borrower, an employer or labor union, charitable or non-profit organization, government agency or a public entity such as a city through a homebuyer’s assistance program. A couple important caveats: the gift funds must be thoroughly documented and provide a clear paper-trail. Depending upon the source of the gift funds, such documentation will include a detailed “gift letter”, copies of cancelled checks and bank withdrawal slips or evidence of bank wire transfer. There must be reasonable evidence that the qualified donor has the financial ability to give the gift. As of October 1st, 2008, funds from certain non-profit organizations which are matched by donations from the home seller can no longer be gifted to the buyer
• Sale of existing home – proceeds from the sale of an existing home may be used to purchase a new home with FHA financing
• Sale of personal property – the sale of a car or other personal property is acceptable as long as the funds can be paper-trailed to the sale
• Cash or “mattress money” – this requires a written explanation describing the source of the cash, how it was accumulated and how long it took to accumulate. Such cash accumulation must make sense for the borrower, such as not having a checking or savings account or credit accounts.
• Commission from sale of property – acceptable if the borrower/buyer is a licensed real estate agent and entitled to a commission from the sale

Mortgage Insurance
A lesser appreciated, but very vital benefit of FHA financing, has to do with mortgage insurance, or MI. Until recently, it was generally easy to avoid having to pay for mortgage insurance when purchasing a home with less than 20% down payment. This was accomplished by getting a second mortgage to “piggy back” with an 80% first mortgage. Thus a qualified buyer could buy a home with little or no money down by obtaining two mortgages. In the reality of today’s markets such second mortgages are all but non-existant or exorbitantly priced.

The only remaining option for a homebuyer with less than 20% for a down payment is to pay for mortgage insurance. In certain areas such as California and Florida, most companies that provide such insurance have limited the maximum coverage to 90% (or less) of the purchase price. In addition, they have tightened their underwriting guidelines and it is indeed more difficult to actually qualify for the insurance.

Enter the FHA home loan. It is generally considered easier to qualify for MI under the FHA and it will go to 96.5% of the purchase price. In short there is a significant portion of the home-buying population who have no other option than FHA financing just for these two reasons alone.

In a Nutshell…
FHA financing may not necessarily be the best fit for everyone in the home-buying market. However, these hallmark features of the FHA home loan – minimal down payment and reserve requirements, flexible sources of funds and availability of mortgage insurance – are far and away the primary reasons that many home buyers, particularly younger first-time home buyers, seek FHA financing. It’s clear to see why.

For more information contact Paul Gonzales, Manager, Countywide Mortgage Inc (760) 746-7388 or paulforloans@aol.com

This is the third in a series of four posts that deal with important aspects of FHA financing.  The first post provided an overview of the program while the second post detailed FHA credit requirements.  This post will discuss the income and employment requirements necessary to obtain an FHA home loan.

Income Documentation
For employees this is quite straightforward.  Copies of the most recent paystubs covering at least one month and W2s for the previous two years are required.  Complete Federal income tax returns for the previous two years may be required as well.

For self-employed people signed copies of personal tax returns for the previous two years are required.  If the business is a legal entity such as an “S” or “C” corporation, partnership or other legal entity then two years of business tax returns are also required.  A signed year-to-date Profit and Loss statement (P&L) will be needed to complete the income documentation.  FHA guidelines state that 25% or more ownership in a business is considered self-employment.

Types of Income for Employed People
The lender will review the paystubs together with the W2s and tax returns to establish a baseline amount of income as well as stability of the income.  In general, if base income is increasing they will likely be able to use the current income amounts.  On the other hand, income that is declining over the past two years will result in an averaging of the income.  A significant decline in base income will require a written explanation.

• Overtime – to be counted it must have been relatively constant for the past two years as well as currently.  There must be the prospect that it will continue and the employer will be required to state that it is likely to do so on a written Verification of Employment.  If used it will be averaged over time and added to the base income
• Bonuses – the rules are similar to considering overtime.
• Commissions – will be averaged over the prior two years and must demonstrate reasonable stability; tax returns will be reviewed and unreimbursed business expenses will be deducted from the income
• Child support, alimony and spousal maintenance – such income can be included provided that it can be shown to continue for at least the next three years.  It must be documented by a divorce decree, court order or separation agreement and actual receipt of the income documented by cancelled checks, bank statements or other positive means.
• Retirement income – Pension and Social Security income is acceptable and must be documented by award letters, IRS form 1099s and current “pay advices” (stubs).  Again, there must be the prospect of continuing for at least the next three years
• Insurance and government income – workman’s compensation, long-term disability or other similar income must be documented and expected to continue for at least three years

Self-Employed Income
Income and expenses will be analyzed from the past two years tax returns and current P&L.  The earnings will be averaged over this time period.  Income that appears stable or increasing will be considered, whereas declining earnings may not be considered acceptable.

Minimum Length of Employment
Stable employment in the same general field of work or business for two or more years is considered minimum.  Going from being an employee to self-employed, even in the same line of work, gets special scrutiny.  A person who has been self-employed for at least one year AND has at least two previous years of employed experience in the same field may be considered.  Formal training or education in the same line of work during the prior two years may be considered in lieu of employed experience.

The next post in this series will discuss the financial assets and down payment requirements for obtaining FHA financing.

For more information contact Paul Gonzales, Manager, Countywide Mortgage Inc (760) 746-7388 or paulforloans@aol.com

This is the second in a series of four posts that deal with important aspects of FHA financing.  The first post provided an overview of the program.  This post will detail the credit requirements necessary to obtain an FHA home loan.

Traditional Credit History
This describes the typical credit history that most people tend to establish over time.  As consumers utilize credit in its many forms (credit cards, car loans, student loans, mortgages etc.) detailed histories of how they have managed their credit responsibilities are collected by at least three credit bureaus.  In addition, each bureau also computes a composite credit score commonly known as your FICO score (stands for Fair Isaac Corporation, the company that created the current credit-scoring models).

The FHA lender will review the FICO scores as well as the details of the individual’s credit history to determine how well a Borrower has managed credit in the past.  NOTE: You may obtain a free credit report once each year, from each of the three major bureaus (Equifax, Experian and Transunion) by going to www.annualcreditreport.com.  There are many websites where you can obtain your FICO scores, usually for a fee.  One popular site is www.myfico.com.

Derogatory Credit
You knew we would get there eventually.  Derogatory, or negative, credit are the dents and dings that people can incur in their financial lives.  Here is a breakdown of how FHA lenders consider such items:

• all derogatory items within the last 24 months require a written and signed letter of explanation
• “minor” derogatory remarks older that 24 months do not require explanation
• all “major” derogs require written explanation, regardless of age (the FHA lender determines what is minor vs. major)
• collections are considered major derogs and must be explained; most FHA lenders will require them to be paid off
• judgments must likewise be paid off unless a verifiable repayment plan is in force and all payments have been made to-date
• a foreclosure must be at least 3 years old, but may be less than that for certain documented extenuating circumstances beyond the Borrower’s control (I.e. serious illness, death of a wage-earner).  Divorce will not normally be considered.
• Chapter 7 bankruptcy discharge must be at least 2 years old with no new derogatory credit issues after the discharge; may be less than 2 years with acceptable extenuating circumstances.  Less than 12 months not allowed
• Chapter 13 and/or Consumer Credit Counseling allowed with at least a 12-month history of on-time payments; permission of the bankruptcy court or counseling agency is required

Non-Traditional or Alternative Credit
The FHA allows for Borrowers without traditional credit histories to document their bill-paying behavior by showing on-time payment of other types of consumer bills such as rents, utility bills and car insurance.  Such documentation cannot be used to enhance an existing traditional credit report or offset other derogatory credit

A Final Word On Credit
As you can see, the FHA has certain minimum standards and requirements, yet also allows FHA-approved lenders a certain degree of discretion in some areas.  It is up to the lender’s underwriter to render a final decision on the creditworthiness of a particular Borrower.  Some lenders may add additional requirements as well, but can never ignore or toss out FHA guidelines.  Click here to go to the FHA’s consumer website.

The next post in this series, to be posted shortly, will discuss income and employment requirements for obtaining FHA financing.

For more information contact Paul Gonzales, Manager, Countywide Mortgage Inc (760) 746-7388 Ext. 315  or paulforloans@aol.com

This post will be the first of four brief articles covering the most important aspects of what has become the darling of the real estate market – the venerable FHA home loan.

Established in 1934, the Federal Housing Administration, as stated on its website “….  has served as an economic backstop working hand-in-hand with lenders to provide consumers with access to safe and affordable loans, even during times of tremendous market volatility as with the current subprime situation“.

This post will describe some highlights of the most common type of FHA financing, known as the Section 203(b) loan.

Subsequent posts will detail credit requirements; income and employment;  and finally assets, down payment and cash required to close.

Maximum Loan Amount

The current limit is the same as it was in 2009, varies county-by-county and is the lesser of 125% of the median house price in a given area, or the following amounts:

• Single family unit – $729,750
• Two family unit  – $934,200
• Three family unit  – $1,129,250
• Four family unit   – $1,403,400

Property Types Allowed

As noted above, FHA financing is available for single-family homes, condos and PUDs as well as 2 to 4 family properties provided that they are owner-occupied.  Second homes and investment properties are not allowed.  Condominiums must be FHA approved and HUD recently made it somewhat easier for a lender to initiate the approval process if necessary.

Other Notable Features

• Can be used to purchase or refinance a primary residence
• Minimum allowable down payment is 3.5% of the purchase price (for homebuyers with FICO scores below 580 the minimum down payment will be 10%)
• Down payment can be gifted
• For now the “Upfront Mortgage Insurance Premium” (UFMIP) is 1.75% of the purchase price; however this will be increased to 2.25% April 5, 2010.  FHA still allows this premium to be rolled (financed) into the loan
• Seller can credit up to 6% of the purchase price to closing costs (HUD plans to lower the maximum amount of Seller credit to 3% later this year, the date to be announced)
• No financial reserves required for 1 or 2 units, 3 months reserves for 3 to 4 unit properties
• Allows non-occupant co-borrowers (for example, Mom and Dad can be on the loan to help qualify, even though they will live elsewhere)
• Allows cashout refinancing to 95% of value ($417,000 maximum; 85% over $417,000)
• No prepayment penalties
• A borrower can have only one FHA loan at a time (fairly obvious since these are strictly owner-occupied loans and a person cannot have two “primary” residences.  Exceptions: you are relocating, selling your home to purchase a new home, or a divorce situation
• U.S. citizenship is not required:  the borrower must have a valid Social Security Number, hold Permanent Resident Alien status or be eligible to work in the United States and hold the appropriate work visas.

Watch for the next article in this series to be posted very shortly which will detail the credit requirements for obtaining an FHA home loan.

for more information contact Paul Gonzales, Manager, Countywide Mortgage Inc   (760) 746-7388  or  paulforloans@aol.com