For all of your prospective buyers planning to purchase a home using an FHA loan, (or for any currently in process) please be aware of the following recent & important FHA changes:
Down Payment Assistance
The Senate has just passed a new all encompassing housing bill and it is going to the House on Saturday, 7/26 for a vote. It is expected for the bill to pass. Included in the bill is the elimination of seller funded down payment assistance programs such as Ameridream, Nehemiah & Partners in Charity. The reasoning for the ban is that FHA statistics show that seller-funded down payments present the single biggest challenge to its solvency. Borrowers who take part in these arrangements go to foreclosure at nearly three times the rate of borrowers who put their own money down, according to the agency. It's unclear how quickly the new policy would kick in if it's enacted. If you have any buyers using one of these programs to purchase a home, we encourage them to act quickly and get under contract.
Up-front & Monthly MIP (Mortgage Insurance Premium)
All FHA loans used to be standardized with a 1.5% upfront MIP and a .50% factor for monthly mortgage insurance. This has changed. Both upfront MIP and monthly rates are on a tier system based on down payment, loan term (15 or 30 years), credit score and use of traditional or non-traditional credit. Upfront MIP now ranges from 1.25% to 2%. The monthly factor now ranges from .25 - .55%. Remember, up-front MIP can be financed into the loan or paid in cash up front by buyer or seller. Monthly mortgage insurance is required on all FHA loans, regardless of down payment amount. Please contact us if you would like charts outlining the change detail. A reduction in upfront MIP "may" be available for first time homebuyers who complete an approved Homebuyer Education course.
Property Flipping - REO's Exempt
FHA requires that the seller of the property being financed by an FHA loan be in title for a minimum of 90 days. Therefore, a new contract with FHA financing must be written no earlier than the 91st day. Due to the number of foreclosures, properties with a recent foreclosure are now exempt from the 90 day requirement. This is a temporary waiver that is in effect until June 8, 2009. The waiver applies only to the initial sale of a foreclosed property and does not extend to a subsequent sale of that property.
REO Appliances & Escrow Holdbacks
FHA no longer requires that a free-standing stove be in place in the property at the time of closing. However, built in ranges/appliances would still be required to be installed prior to closing. On a case-by-case basis, escrow holdbacks may be allowed for the installation of appliances or minor repair items in an FHA financed home. However, the buyer must deposit the full cost of the repair or appliance into escrow (cannot be financed), provide proof of contract to install or proof of purchase, be able to complete the work within 7-10 days and receive underwriter approval. This is limited to smaller items required for the functioning of the home and does not extend to cosmetic repairs. Pools are required to be filled and functioning. For larger rehab or repairs, and FHA buyer should consider the FHA 203K Streamline rehab loan, available at Wells Fargo. Please contact us for information.
Utilities must be on and operating at the time of FHA appraisal. If the utilities are shut off, it is best to meet the appraiser at the home and turn them on during the appraisal process. If not, a reinspection will need to be done by the appraiser prior to funding to ensure working utilities.
FHA no longer automatically requires a termite report on all loans. A clear termite will be required if a) the contract calls for it, b) buyer is using a DAP (down payment assistance program) that requires it , c) the appraiser comments on potential termite evidence. Please verify with your lender and their policies if not using Wells Fargo. Although it is a good idea to do a termite inspection on all homes in Arizona, it could also create unnecessary issues if the report was not needed, but comes in showing earth to wood contact or moisture. If a termite report comes in "un-clean" and is presented to the lender or title company, a clear termite will then be required even if the original loan did not require one. If a clear termite is required on the loan, it is prudent to do ASAP at the beginning of the contract term so there is time to make corrections if necessary. Learn how to read your reports and learn what lenders are looking for before you send the report to title or your lender.
FHA used to have a 12 month look back for credit accounts and not deny credit to any buyer with insufficient traditional or non-traditional credit. The look back period for credit accounts has increased to 24 months and new guidelines are established for the type of amount of credit required to be approved for an FHA loan. These guidelines are lengthy. The point is to make sure that all buyers using an FHA loan are either pre-approved or "fully underwritten" prior to contract. Many lenders will not fully underwrite a file prior to contract.
Sunday, July 27, 2008
I received the following in an email from a lender.