What the New FHA Rules Mean to You

You may be concerned about the impact that the new financial reform legislation will have on you and your mortgage loan. The recent changes will have a positive impact for some, and a negative impact for others. This is a basic summary of how the new rules will affect your FHA loan or mortgage:

There is good and bad news regarding fees: Any fees that are charged at closing will not be able to exceed 3%. While this sounds good, there are several fees which were not included in the list. Some of these are third party fees including escrow and inspection fees. The URMIP (up-front mortgage insurance premium) and appraisal fees are also excepted from being calculated under the fee limit. The lesson is - make sure you’re dealing with a loan officer you can trust to give you the best deal - like me!

Good news for borrowers: In one move which will be to the greatest benefit of borrowers, it will no longer be legal for mortgage brokers to accept financial compensation for recommending extremely high cost loans. This means that mortgage brokers will be less likely to talk borrowers into taking out loans which are beyond their means.

Positive changes to documentation: There will be tighter restrictions on lenders regarding the documentation of their borrower’s assets and income. The new FHA guidelines will make it harder for these figures to be changed or tinkered with. Borrowers still need to be aware though; if a lender wants you to sign a blank application or requests that you lie about your income or assets, he or she will be in breach of these new restrictions.


New Flexible Approval Terms

The new FHA guidelines are geared towards helping middle to low income earners. Families with bad credit will also benefit from the new changes and will stand a better chance being able to buy and keep a home. Here is a summary of why:

The cost of down payments have decreased: FHA will now require only a 3.5% minimum down payment. Conventional mortgage loans are much higher at 20%. This will make a really positive difference to first homebuyers, low wage earners and struggling families.

Looser credit requirements: This is more good news for people struggling with bad credit. If a borrower does not meet the average required credit score of 620 or above, the FHA will now allow the borrower to produce alternative documentation. These could take the form of utility or rent receipts. This also applies to borrowers who may have little to no credit history.

New programs for unemployed homeowners: The new financial reform legislation appears to have taken the recent recession and high unemployment rates into account. Unemployed homeowners who are struggling to find a new job will benefit from the Home Affordable Modification Program.


Assistance with Buying a Home

HUD has also approved housing counseling and foreclosure avoidance programs: FHA loans are backed by the federal government, which means that FHA reimburses lenders for losses associated with mortgage default and foreclosure. In efforts to reduce such losses, FHA and its parent agency, HUD, have developed a network of approved housing counselors and foreclosure avoidance initiatives that can assist homeowners experiencing financial problems.

There is further good news for those struggling to get approved for home loans, and those who are struggling against foreclosure: Homeowners who are experiencing financial difficulties will feel more secure knowing that FHA home loans come with the backing of the federal government. This means that any losses to lenders will be reimbursed by the FHA. The FHA has also take further action to avoid losses such as foreclosure and mortgage defaults. These are all designed to help homeowners to buy and keep their houses.

So, overall, the changes to the FHA programs are pretty good for consumers. If you have questions about any of the new rules, or if you’re ready to get started with the loan process, contact me for an appointment. I’ll walk you through the process and help make it as painless as possible!

A Homebuyer’s Most Commonly Asked Mortgage Questions Answered

The most common questions of a mortgage loan are often a struggle for new and experienced buyers alike. Today, I answer those questions honestly to finally clear up the mystery.

1. Why does one lender charge one rate and another lender charge another?

This is actually a two-part answer. Every lender, small or large, sets certain margins on mortgage rates. Margins are essentially costs for the lender for doing business. The second part to that question is that every loan officer has control over the rates they offer. Listen carefully on this next part because most loan officers don’t want you to know this. The higher the rate, the more the bank pays the loan officer for selling a higher than market rate. So when looking at why rates are higher at some places than others depends on both the bank and loan officer. More often than not the Loan Officer is trying to make more money by charging a higher rate.

2. Why does the loan process seem to take forever?

The loan process is actually quite simple and easy. However, most Brokers and Bankers either work for big companies and/or send the loan to large companies where the file sits for days on end waiting in a line, like at Disneyland. This can seem very frustrating and it is key to go to a loan officer who knows how to work the system, but better yet understands the possible road blocks and how to manage the process.

3. It seem like all the documentation requests never end - why?

Most loan officers do a poor job managing your expectations. Much like in the above point, the loan officer is in the middle between the client (YOU), and the bank they work for. Most often the loan officers don’t sit down or over the phone and gather everything possible. Most rely on a processor to request documentation from the clients. This adds days, and often the processor is not intimate about all the loan details and finds out weeks later when the underwriter request more documents last minute. This can all be avoided by going to an educated loan officer who not only manages the flow and process but manages the expectations of documents needed and collects them upfront.

4. How fast can I get my appraisal?

Most loan officers who work for brokers are not allowed to order the appraisal. They have to send in a full file and that can take a long time to get an appraisal done. Most loan officers who work for a mortgage banker, that closes and funds their own loans have the ability to request right away. Most often than not, most loan officers fall in the above category. They rely too much on the processor to order that for them. This can delay days and sometimes weeks.

Be careful of the above traps. They don’t seem like much, but they can add time and money in terms of the cost of your mortgage loan. Some simple questions that you can ask your lender in return can save you at the end when you are crazy scrambling for last minute documents or waiting in a never ending line to get your loan documents. Asking a few questions on the front end could save. Here is the best question to ask: “Do you need anything from me to start the loan?” If they say, “No, my processor will ask you for some information later, but we are good for now,” RUN to another loan officer. If they defer a lot of work on others, they aren’t doing their job and could cost you time and money. Another critical question is: How long will this take? If they say over 30 days, run. Most loan officers that get all the required info upfront can process, underwrite, and fund your loan in 2-3 weeks. This is the time you should expect. Add another week for a refinance for the recession period, a three day waiting period after you sign your docs and before you can fund.

I hope all this information helps you in your next mortgage loan. Please feel free to contact me to discuss your mortgage situation.

TAX CREDIT EXTENSION MEANS NOTHING…

If you were not already under contract. The Homebuyer Assistance and Improvement Act of 2010, HR 5623, is really a copout for all the big banks and slow mortgage brokers (who sell their loan to the big banks) who couldn’t close a loan in 60 days. They lobbied hard to the lawmakers to grant an extension for all their back logged clients. Why are the media and the law makers making a big deal about this credit extension? If you were not under contract by April 30th, it means absolutely nothing for you. I am glad they passed the bill, as I feel sorry for those clients who have been waiting to close on their homes for months and haven’t been able to. I am sure these people have been paying penalties on the contract for every day over. So I am glad that they have extended it. For most good mortgage loan officers (like myself), we have closed all of our loans from April. I know my clients wouldn’t have accepted taking over 60 days to close on their houses. So I puzzled on why I see the report everywhere that the tax credit has been extended. If anything, I get calls from clients excited about the opportunity to cash in on the tax credit through Sept. Of course I have to tell them that for new buyers this means nothing.

BIG BANKS CONTROL WASHINGTON. BE CAREFUL WHEN USING THEM TO GET A MORTGAGE.

This is a clear reminder that the big banks and lobbyists are controlling the lawmakers. Be careful when you call your big bank to close your mortgage loan. Here are a few points to be aware of.

#1 Big banks, like BofA, Wells and Chase have downsized their operations since the downturn in the economy and would rather have exacerbated turn times than offer quick loan processing and closings.

#2 Mortgage loan officers the banks employ don’t have to be licensed. Loan officer licensing went into effect July 1st in Arizona. All the loan officers who couldn’t pass the mortgage licensing test or didn’t have the money to take the test are now working at banks that are exempt from the rules.

#3 Banks spend a lot of money on lobbying law makers to make laws that only favor their ability to make more money. They in turn offer higher cost mortgage loans at higher rates. They have to, in order to cover their large overhead.

#4 Customer service at these banks is a thing of the past. I have worked with client after client who tells me that no one returns calls, and the person they were speaking to sends them off to someone else, and they can never get answers.

What does this all mean? Be careful when choosing a mortgage loan originator. Pick one that is licensed, and preferably a mortgage banker. A mortgage banker is different from a broker. Mortgage bankers close loans in their companies’ names, they control the processing, underwriting and funding of the loans. Brokers are subject to big banks’ horrible customer service and lackluster turn times. You want your mortgage originator to be with you throughout the process, especially if you are a first time homebuyer. You want a licensed expert to walk you through the processes that have taken all the necessary education to be able to educate you the client on the ever-changing mortgage landscape.