FHA, Convenional and VA Mortgages - What?

Do you know what type of financing you are looking for?
Here is some helpful information about the three most "popular" financing options:

FHA Loans

• Insured by the FHA (Federal Housing Administration)
• Upfront and monthly mortgage insurance
• Low down payment (3.5%)
• Competitive interest rates
• Primary Residences only

Conventional Loans

• Not government insured
• No private mortgage insurance (with 20% down payment)
• Fluctuating Interest Rates
• First and Second Mortgage options

VA Loans

• Insured by the VA (Veterans Administration)
• No down payment requirement and no mortgage insurance
• 100% Financing available for military (requires a certificate of eligibility)
• Competitive Interest Rates

Special programs are also offered to assist home buyers. If you need down payment assistance or are interested in specialty financing, please visit one of the following websites:

• http://www.bothands.org/
• http://www.nacog.org/
• http://www.usda.gov/

Updated FHA Guidelines for "Short Sale" and "Short Pay Off" Loans

We have heard about short sales and short pay offs,

but what are they and how can they affect borrower eligibility?

In response to the 09-52 letter released by HUD last week, here is how I would explain to clients and/or real estate agents about the impact of short sales and short pay offs on borrowers:

Short Sale: a previously owned property sold for less than what was owed

Short Pay Off: when there is a principal write down of indebtedness that cannot be refinanced into a new mortgage


SHORT SALES
Borrower s are eligible for an FHA mortgage 12 months from the date of the pre-foreclosure sale (if mortgage was current at the time of the short sale).

Borrowers are eligible for an FHA mortgage 3 years from the date of the pre-foreclosure sale (if mortgage was in default at the time of the short sale).

Borrowers are not eligible for a new FHA mortgage if:
1. they short sale their home to take advantage of the declining market condition, or
2. they purchased a new home at a reduced price within a reasonable commuting distance from the property they short sale.

Lenders may make exceptions if:
1. the mortgage in default was due to circumstances beyond the borrowers control (such as death of primary wage earner, long-term illness, etc.), or
2. the review of the credit report indicated satisfactory credit prior to the circumstance beyond the borrowers control that caused the default.

SHORT PAY OFFS
Borrowers must be current on their mortgage in order to be eligible for refinancing with a short pay off.

FHA will insure the first mortgage (where the existing mortgage holder write off the amount of indebtedness that cannot be refinanced into a new FHA-insured mortgage) if:
1. the amount short that is written off is due to the home not having enough value based on a current appraisal, and/or
2. borrowers have experienced a reduction in income and do not have the capacity to repay the existing loan.

If the existing mortgage holder does not agree to write off the indebtedness, they may execute a second mortgage for the difference. In this case, borrowers must qualify within FHA income ratios for the program since the second mortgage will be added to the total. *This policy applies to no cash-out refinances with short pay offs.


*Please keep in mind that guidelines are subject to change without notice.
Update from HUD provided 12-16-2009.
Information obtained from the Mortgagee Letter 09-52.

Home Buyer Tax Credit

Formerly known as the "First-Time Home Buyer Tax Credit", the Home Buyer Tax Credit is like a gift certificate that you can use to pay your taxes. Here is how it works:

Do you fit the criteria?
A "first time home buyer" is defined as someone who has not owned a home in the last three years. If you are a "first-time home buyer", your tax credit will amount to 10% of the purchase price of your new home not to exceed $8,000.

A "long-time resident" is defined as someone who has lived in the same primary home for 5 out of the past 8 years. If you are a "long-time resident", your tax credit will amount to 10% of the purchase price of your new home not to exceed $6,500. *This is a "move-up" tax credit, so the resident must be selling their home and purchasing a new one.

What else do I need to know?
Single taxpayers with incomes up to $125,000 and married couples with income up to $225,000 qualify for the full tax credit. *If you are married, both spouses must qualify for the credit.


You cannot purchase the home from a related party like a spouse, direct ancestor, or direct lineal descendant (child or grandchild); however, you can still qualify for the credit if you purchase a property from siblings, nephews, nieces and others (i.e. non-relatives).

The credit applies even if you have co-signers on your mortgage loan.

The credit applies to 1 - 4 unit homes as long as you live in one of the units as your primary residence.

When does the tax credit expire?
The home must be purchased for less than $800,000 before May 1, 2010. *If you sign a binding contract to purchase a home before May 1st, you would need to close on the transaction before July 1, 2010.

How do I receive my refund?
For information about obtaining the Home Buyer Tax Credit (if you purchased a home or are purchasing a home before May 1, 2010), please contact your CPA or visit http://www.irs.gov/.