A parent can be the non-occupant co-borrower for a child with an FHA home loan

No. Well, yes. Sort of. Mortgages can have co-borrowers. Instead of getting all wrapped up in the differences and similarities let’s simply cut straight to what a mortgage can have and when and how it is used. More specifically let’s look at the non-occupant co-borrower. In other words someone will be on the loan but not living in the property.

While a NOCB is not exclusive to FHA home loans that is the most common place to find them allowed. Some smaller lenders who portfolio or have special products may also allow them but generally this technique is permitted only FHA home loans.

The NOCB must have qualifying credit and so must the occupant borrower. The reason for using a NOCB is for income calculations. The upside is a borrower who does not have enough income to qualify on their own can have a family member or significant other help them to meet their monthly expenses. The non-occupant is equally responsible in making sure the mortgage is paid on time as is the occupant.

Non-occupant co-borrowers cannot overcome bad credit on the part of the occupant borrower. In fact if the occupant borrower is not credit qualified a non-occupant is moot because the loan will not be approved.

An ideal situation for a NOCB would be if the occupant is a student and has good credit scores but limited income and the parents would serve as the co-borrowers to make sure the debt-to-income ratio is within specifications. In this case the credit of both and the income of both will be used and the income of the child (occupant) can be zero provided the parent’s income is high enough to cover all of their existing obligations and well as the new mortgage.

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So you find the home that really fits everything in your list – location, size, price range – except it needs a few upgrades or repairs. Conventionally you would need to be able to (a) get the house approved for purchase even with the necessary repair, (b) be able to fund the repairs out of pocket and (c) deal with the entire transaction with a lender who knows little or nothing about rehab purchases. Problem solved if I may be so bold.

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If you are purchasing a home Georgia that needs $35,000 or less in rehab this is a simple loan to close. It does require good to excellent credit, 3.5% down of the purchase price plus the rehab amount, steady income and no foreclosures in the last 3 years, as well as a couple of other lesser qualifying points. It is available only for owner occupied properties and condominiums that have been or can be FHA certified.

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FHA MMIP increases - click for larger view

FHA Mortgage Insurance Premiums Increase

We have enjoyed several months of the lowest FHA UFMIP (Upfront Mortgage Insurance Premiums) and MMIP (Monthly Mortgage Insurance Premiums) in recent history. With monthly rates being at .9% payments have been lower resulting in higher debt-to-income ratio for home buyers and owners who have refinanced. With our dollars being stretched because of a damaged and weakened economy this has helped sales and refinances to remain higher than they would have been with higher rates.

Effective with all FHA loans at 95% LTV (Loan To Value) and higher starting with new casefile ID numbers being issued on and after April 18, 2011, the monthly rate is increasing to 1.1% per month. Here is how that stacks up on a $180,000 loan;

On a $180,000 home mortgage loan the increase in the FHA monthly mortgage insurance premium from .9% (of the principal balance) to 1.1% will mean nearly $35 more per month cost added to the mortgage. This multiplies to nearly $420 for the year.

While these numbers may not be astronomical you can see how this may make the difference to a family or single homeowner already working on a stretched budget. If income taxes are increased, deductions decreased, property taxes or home owner’s insurance increases, any of these need to be considered when purchasing a new home or refinancing.

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HUD has issued Mortgagee Letter 2010-28 changing the Upfront and Annual Mortgage Insurance Premiums effective with case numbers assigned on or after October 4, 2010 as follows:

Upfront Premiums

Annual Premiums

These premiums are effective with case numbers assigned on or after October 4, 2010.

In 2008 the Federal Housing Administration, in a move to try and get permission from congress to insure 100% home loans, were able to get most private third party down payment assistance programs eliminated from the process. Government and civic organizations are still able to operate but some of the largest DPA companies are out of the business of helping home owners with their required contribution to the loan process.

Since that date the only way to get down payment assistance is from generally higher priced government assistance programs or from a gift from a family member or employer. According to the HUD Handbook, chapter 2-10(C):

“Gift Funds.An outright gift of the cash investment is acceptable if the donor is the borrower’s relative, the borrower’s employer or labor union, a charitable organization, a governmental agency or public entity that has a program to provide homeownership assistance to low- and moderate-income families or first-time homebuyers, or a close friend with a clearly defined and documented interest in the borrower.”

There is much more to it than simply having the funds available. Not only does the gift money have to exist. The paper trail, evidence of the donor’s ability to give and proof of the relationship also has to be verified.

Gift funds must come with a “Gift Letter” which meets the requirements of HUD and must include the following 10 items:

1 ) The dollar amount
2 ) Name of the donor
3 ) The donor’s signature
4 ) The donor’s address
5 ) The donor’s telephone number
6 ) Relationship to the borrower
7 ) The borrower must be named
8 ) The borrower’s signature(s)
9 ) The letter must state that no repayment is required
10 ) Include language asserting that the funds were not made available to the donor from any person or entity with an interest in the sale of the property.

What the FHA underwriter will look to see is if there is any way any of the funds could have possibly come from an interested third party who would benefit from the sale. This group would include a builder, agent, seller, or other beneficiary of the proceeds of the sale.

Many donors do not appreciate the fact they will need to show where the funds came out of their account by providing a withdrawal slip specifically showing the donor’s account number. Even then the underwriter may ask for a copy of the bank statement from the donor with their name printed on it. According to HUD the minimum requirements are, “a copy of the donor’s withdrawal slip or canceled check, along with the borrower’s deposit slip or bank statement showing the deposit to the borrower’s account.”

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In the event the gift funds being provided are given in the form of a cashier’s check the?documentation?should include, “evidence that the funds used to purchase the cashier’s check came from the donor. A withdrawal slip, specifically showing the donor’s account number from which the funds were obtained, would be sufficient evidence, along with a copy of the cashier’s check.”

Gift funds can only be used toward down payment and closing costs. If there are any payment reserves required those cannot be provided by gift funds and must come from the borrower’s own funds as evidenced by the documentation provided to the underwriter for the approval process.

Donors generally must be a family member, a friend with a valid interest in the borrower, a credit union, or a current employer. There is no limit to the amount of the gift and the donor can borrow the gift so long as it has not come in any manner from any party to the sale or beneficiary of the proceeds of the sale.

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For many years the Up Front Mortgage Insurance Premium, established and priced by the Federal Housing Administration, has been at 1.75% of the loan amount on purchases and non-streamlined refinances. Due to increased costs and losses in the Administration a new level for the UFMIP has been established and will go into affect on April 5, 2010.

The UFMIP is not the same as the Monthly Mortgage Insurance Premium but rather is paid in full at the time of consummation of the loan. In other words the date the final loan documents are paid and monies exchange hands.

The HUD Mortgagee Letter 2010-02, issued by David Stevens, Secretary of HUD, issued on January 21, 2010 gave notice to lenders and the public of this change. Increases on FHA insured loans include an increase to 2.25% on purchases and streamlined refinances and an increase to 2% on HOPE for Homeowners refinancers and Home Equity Conversion Mortgages also known as “reverse mortgages”.

Annual mortgage premiums, also expressed as MMI from above, will not be affected at this time. The decision to increase UFMIP only was based on the effect of raising a home owner’s debt ratio above acceptable levels by increasing their monthly housing cost.

If you are unfamiliar with FHA mortgage insurance it is exclusively to encourage lenders to make loans. FHA mortgage insurance provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner’s default. Loans must meet certain requirements established by FHA to qualify for insurance.

Regardless of the industry there are certain buzzwords or words that seem like they are created simply to confuse the outsider. Near the bottom of the list for business goals should be confusing customers. Unfortunately it does happen and the one who stands the highest chance for damage is the most valuable of all; the customer.

Mortgage professionals throw around terms like an alphabet soup that would frighten even Vanna White. Words like ten oh three (1003) and respa (RESPA – Real Estate Settlement and Procedures Act) fall out of their mouths like jelly beans out of a pinata.

Making it even a little more confusing for you different agencies use the same term to apply to different meanings and vice versa. Streamline and streamlined for example.

The Federal Housing Administration (FHA) makes available a couple of different “streamline” loans. Freddie Mac (FHLMC) has their “streamlined” loan. Essentially they are the same product and if you phone an FHA lender and ask for a “streamlined” loan they will neither laugh at you nor hang up on you.

For all practical purposes streamline loans, whether a streamline refinance or otherwise, indicate something less is required or they go faster than a standard loan. For the FHA streamline refinance a little less documentation is required and sometimes less evidence of value is required.

Streamline refinances from FHA are available in two distinct offerings. One version of the FHA streamline refinance does not require an appraisal to be performed and requires more documentation about the borrower while another version of the FHA streamline refinance does require an appraisal on the property but less documentation on the borrower. Lender rules may overlap or augment FHA insurance requirements.

Offered also from FHA is the FHA 203k streamline loan for properties being purchased or refinanced and the loan including rehab or upgrade costs. The FHA 203k streamline loan does require all of the normal borrower and property documentation but because the upgrade or rehab costs are limited to thirty-five thousand dollars the loan process itself is less complicated than for a full FHA 203k which allows a higher amount of rehab.

Veterans can take advantage of the Veterans Administration’s Interest Rate Reduction Loan (IRRL). Like most other streamline loan types the VA IRRL require less documentation and can, usually, be closed a little more quickly than other types of loans.

The best way to find out about the streamline loan which is best for your needs, if you and your property qualify for a streamline loan and any other particular questions to be answered about a streamline loan for you the best way to get answers is to contact a seasoned mortgage professional in your area.

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January 28, 2010

There is little secret about the devastation delivered to the real estate industry in the Atlanta area over the last twenty-four months. Values plummeted in 2009 as more properties made their way to the market through increasing numbers of foreclosures leaving banks and investors holding inventory unlikely to resell in months if not years.

Making matters worse many of the foreclosed properties are not in prime condition with many of them needing repairs to return them to livable condition. Add to this trouble the number of properties which have been vandalized while vacant and those continue to set in a deteriorating state further impacting the values of other properties in the area.

The Department of Housing and Urban Development, through their Federal Homeowner’s Association, established a special loan in 1978 using revisions to the National Housing Act (NHA). Since that date FHA 203K loans are available to help America restore and preserve its existing housing inventory even when the homes need upgrades or repairs.

Allowing for almost all repairs except structural repairs the FHA 203K loans, more specifically the Streamlined version thereof, are helping sellers like banks and servicers including HUD to sell housing inventory that otherwise would likely not be sold. The loan is good not only for repairs but for upgrades as well.

Real estate professional and mortgage executive Jesse Kight of Marietta says, “the solutions provided by the FHA rehab loan are helping HUD and banks accept offers on properties with only the standard 3.5% down payment required by FHA to insure the loan. Since all other qualifications are the same anyone who qualifies for any FHA loan is eligible for the rehab version.”

For more information on the FHA 203k Streamlined loan in Georgia contact Ken Cook at 678-439-8683

Home buyers and home sellers across America have a friend and ally they may not be aware of. For many buyers the “perfect” location may not be the “perfect” home. Due to the recent downturn in the economy, which many agree will level out this year in spite of Congress’s best efforts to destroy it, there are many homes for sale either by private owners or lenders who have taken?possession.

Real estate owned is the common term for bank owned properties which many investors are well familiar with as REOs. The foreclosing lender rarely, if ever, will perform any upgrades or maintenance to the average home before putting it on the market. For buyers with 20% down and plenty of cash to cure the issue this is not a major concern. However with the increasing number of buyers using FHA for their fairly liberal 3.5% down payment this is an issue.

FHA guidelines do not allow a property to be purchased as is where the property needs repairs. Cold damaged plumbing or out of code is a major concern for FHA buyers.

Meet the FHA 203k Streamlined Rehab/Purchase Loan

The key asset of the FHA 203k Streamlined is that it allows the buyer to finance in the cost of repairs up to $35,000. The loan includes the sale price plus the rehab and the total cannot exceed the FHA maximum loan amount for the area in which the property is located.

Repairs covered by the FHA 203k Streamlined loan can include cosmetic repairs, improvements that do not involve structure (such as adding on a room), plumbing and electrical upgrades, and other repairs and improvements. They cannot include landscaping or additional living space.

Many home loan mortgage programs have different requirements for maximum income levels by borrower and or household. Each state has different areas and often a single MSA or AMI may cover multiple counties. It is always best to consult with your home loan mortgage professional but, only as a guideline, here is the HUD AMI (Area Median Income) list for Georgia as of November 2, 2009. In Georgia call Ken Cook at 678-439-8683

This information, based on data provided to Fannie Mae by FHFA, is provided solely for convenience and not for purposes of verifying the accuracy of or determining the income limits. Fannie Mae shall have no liability or responsibility for any errors or omissions or liability in connection with the use, misuse, release, or distribution of this information.