Saturday, February 27, 2010

USDA Direct Mortgage Guidelines

Many people are aware of USDA Rural Development's Guaranteed mortgage program that offers 100% financing.  The Guaranteed loan focus is on buyers in the median income level which is derived from the income in a particular country.

On the other hand not many people are aware of the USDA Direct Loan program which is also 100% financing.  The Direct mortgage program focuses on buyers with low to very low income.

Low income is defined as 50 to 80% of the median income for that county.  Very low income is 50% or less of the median income.  You can see that the direct program makes housing available to a group of people that don't have a chance of getting a mortgage in the traditional market.  Even people on a fixed income can qualify for this program.

This program also lowers the bar on credit worthiness.  Direct loans allow for alternative credit sources if the buyer does not have credit.  The underwriters are also tolerant to some collections if there is justification.  I should tell you though that they do not overlook collections for cell phone companies or cable companies and similar stuff so make sure these are paid off.

The homes that USDA will finance must be in an eligible rural area.  That usually means areas with less than 10,000 population.  You can check the eligibility of a property address from the following website:

To find out if you qualify for the USDA Direct loan you should contact your closest USDA office and they will send you a pre-qualification application.  It is short and easy to fill out.  If for some reason you do not qualify they will counsel you so that you will qualify in the future.  You can locate your office from the website I just gave you.  It is a good deal.  Check it out!

You can find out more about the Guaranteed loan program from the following website:  Rural Development mortgage guidelines

If you have any questions about the loans just leave a comment and we will respond to your inquirey.
Good Luck.

Monday, February 15, 2010

FHA Mortgage Lenders

FHA Mortgage?  Be Careful About Your Lender.

Jane is from California and had been approved for an FHA loan on a single family residence. Her lender had told her that she needed two months reserves in the bank before closing or the loan would not close. She was confused by this last minute requirement and came to me for clarification.

Well, I was confused too! FHA does not have a requirement for reserves (unlike conventional loans). The only reserve requirements with FHA are if a buyer is purchasing a 3-4 family unit. If purchasing a 3-4 unit, the reserves required are three months.

The answer here was a no-brain-er and is actually available on the HUD website. There is however, a really big issue here. Can you see it? Bear with me, here is another example.

Another couple was approved for an FHA loan in March of 08 and the company they were working with said the couple had to pay their 2007 taxes before the lender would close the loan. Hello, 2007 taxes aren't due until April 2008. These nice people asked if there was a law that required them to pay something that was not due. Well, NO! There is not even an underwriting guideline that calls for it.

What is going on here? Do you see the big issue yet?

I have a web site where I answer Mortgage questions from home buyers, sellers, real estate agents, loan officers, and yes, even underwriters. These underwriters and loan officers are from some well know companies. This isn't about my web site, ... I'm not even going to give you the URL. I only bring it up because that is why I see a big picture that others can not. I receive questions every day from all over our country,... and other countries in the middle east.

I have several major issues with this information so far but I'm only going to cover two.

First, Why don't Loan Officers and Underwriters know basic FHA underwriting guidelines? Simple, they have no experience or training on FHA! FHA loans are and always have been a terrific option for people that didn't quite fit into conventional guidelines. Best of all the interest rate is considerably lower compared to a sub-prime loan and as I write this today FHA rates are equal to par on a Fannie Mae. It doesn't get any better than that, right?

Well, FHA loans are fairly complicated to put together and they used to have stringent appraisal and inspection requirements. So, if a borrower didn't fit into Fannie or Freddie it was easier and quicker to slap them into a sub-prime instead of FHA. Sub-prime was a slam dunk, ... and so what if the rates were higher on a sub-prime, few consumers understood their options anyway. (That mentality is why I built my site in 2002.)

Another reason companies didn't do FHA loans was because they had to be HUD approved which meant they had to have a minimum net worth and pass a costly Audit every year. So again, why bother when sub-prime was so easy and available.

Now, of course the sub-prime days are almost a thing of the past or at least not as "sub" as they use to be. The savior? ... FHA Loans of course, except that very few, including underwriters have any experience with them or understand the differences between FHA and Fannie. Thus, in the two examples above, underwriters and LOs are just making stuff up or worse case, running scared because of all the flack in the industry right now.

In defense of the underwriter (as in example two) I will say that they have the authority to require what ever they deem necessary to improve a portfolio. Many of the questions I have received from underwriters seem to reveal that it is usually a case of inexperience and over caution.

The mortgage industry professionals are struggling to catch up/learn FHA guidelines. If you are a consumer you must be very careful to find someone that has been HUD approved for at least two years. And Do Check, seriously. Some companies are doing FHA loans and they are not HUD approved. They are under the dis-illusionment that HUD will allow a non-HUD approved broker, to broker, to another HUD approved broker! Sounds a little flaky, no?

How in the world did we ever get in this mess? We can throw most of the blame to the politicians and presidential candidates that are hyping it up for their own agenda. It is not as bad as they say but they are speaking so loudly that the rest of the world is now listening. Did you read what is going on in the UK's market today? Good grief.

I don't believe in bailing out our large lending companies and here is why. Back in this article I mentioned getting questions from India and other countries in the middle east. Now I ask myself, why would a mortgage underwriter in India, who I can hardly understand due to "no speaking good English", be calling me on the telephone at 3:00am about a loan in Texas??

Go Figure!

(Update: Jan. 2012)  This article applies today but now we all know what really happened and why.  It is still going on.  Worse, the Government is still doing Sub-prime, subsidised loans on the tax payer's dollar. (USDA Rural Developments 502 Direct home loans)  These loans are sooo sup-prime that up until a few months ago food stamps were actually used as repayment income in the DTI calculation.

I received a phone call from a gentleman last week that is opening up a mortgage company and is looking for staff to run it.  The company wants to originate and close loans, ... and package them to sell to investors in the middle east.  ????

Connie Sanders receives questions from consumers and mortgage professionals every day. Find out more about FHA Guidelines at:
Occupation: Certified Mortgage Specialist
Connie Sanders is a strong advocate for educating the consumer about mortgage loans before they apply for a loan. Connie put together a mortgage information web site at: Mortgage Underwriters and can be contacted there with any questions you may have.

Saturday, February 13, 2010

H.R.3548 Home Buyer Tax Credit Extended and Revised

The First Time Home buyer Tax Credit was Extended by the President in Novemver of 2009.  This is not breaking news by any means.  However, there is a lot of confusion by consumers and lenders.  I guess the confusion is because H.R. 3548 was also revised or change to include current home owners.

I have the facts listed below along with points of confusion and creative thoughts you may want to avoid.

  • The bill extends the present $8,000 tax credit (up to 10% of purchase price) for first-time home buyers through April 30, 2010.  A first time home buyer is one that has not owned a home in the last 3 years.
  • The bill has been revised to allow Current homeowners a $6,500 tax credit (up to 10% of purchase price) through April 30, provided they have lived in the home they are selling, or have sold, as principal residence for five consecutive years in the past eight years.
  • The April 30th deadline is very confusing for some. If the potential home buyers have a binding contract on or before April 30th, they will have until July 1st to close the transaction.
  • Income limits for eligible home buyers are expanded to $125,000 for single buyers and $225,000 for couples.
  • The purchase price of the home cannot exceed $800,000. To help guard against fraud, buyers are required to attach documentation of purchase to their tax return.
  • Home types include: single family home, condos, town homes, mobile homes, house boats and co-ops.
  • The tax credit is not a deduction. The refund is paid to you in excess of taxes owed.
  • There is no repayment required as long as you live in your new home for a minimum of 3 years.
  • The HUD-1 or settlement statement/statements must be submitted with your tax return. (form 5405)
  • This is important, ... you must by 18 years or older and NOT be claimed as a dependent by another tax payer.
  • Don't get bitten by this provision. Your purchase CANNOT BE from a fimily member such as parents, children, siblings, or spouse.
Sounds simple doesn't it?  Maybe not so much..  I caution you not to wait till the last minute.  Most lenders do take two to three months to close a loan right now.

Good Luck.

Sunday, February 7, 2010

I don't have a clue

This is scary.  We have several sites on the net and we get a lot of questions from borrowers and from underwriters.  What is going on in the mortgage industry?

The underwriters tell me that they are over cautious because of the Feds.  That is the scary part.  I mean that it is over the top!  I'm not going to go there because I would never stop.  I'm sure you have followed it in the news.  If you haven't send me an email and I will send you some news links and Government mandates.

We get questions about appraisals and resale dates and credit and income.  These questions would blow you away because they are all with in the guidelines but their loans are being turned down.

Even FHA is setting a minimum credit score.  They did not have one in the past.  What is so out of line about this new requirement is that it is so brain dead or out of touch with the real world.

Their new guideline is that applicants with a credit score below 580and below will be required to have a 10% down payment.  What is so out of touch is that no lender will do an FHA loan if the score is lower than 620.  It's like DUH?

I am very concerned about what is happening and so are the lenders and underwriters.  I'll be getting some insider info in the future and will share it here.  By insider I don't mean government stuff.  I hear all that is behind closed doors anyway.