FHA Streamline Refinances - Some things to know...

FHA Streamline

The FHA Streamline is a refinance mortgage loan available to homeowners with existing FHA mortgages. The program simplifies home refinancing by waiving the documentation typically required by a bank, including income and employment verification, bank account and credit score verification, and an appraisal of the home. Homeowners can use the program to reduce their FHA mortgage insurance premiums (MIP).

NOTE: FHA mortgage guidelines change often. Make sure to check with your lender for any new changes...

What Is An FHA Streamline Refinance?

The FHA Streamline Refinance is a special mortgage product for homeowners with existing FHA mortgages.

FHA Streamline Refinances are the fastest, simplest way for FHA-insured homeowners to refinance their respective mortgages into today's mortgage rates.

The FHA Streamline Refinance program's defining characteristic is that it does not require a home appraisal.

Instead, the FHA will allow you to use your original purchase price as your home's current value, regardless of what your home is actually worth today.

In this way, with its FHA Streamline Refinance program, the FHA does not care if you are underwater on your mortgage. Rather, the program encourages underwater mortgages.

Even if you owe twice what your home is now worth, the FHA will refinance your home without added cost or penalty.

The "appraisal waiver" has been a huge hit with U.S. homeowners, allowing unlimited loan-to-value (LTV) home loans via the FHA Streamline Refinance program.

Homeowners in places like Florida, California, Arizona and Georgia have benefited greatly, as have homeowners in other states and cities affected by last decade's housing market downturn.

Beyond this "no appraisal" feature, however, the FHA Streamline Refinance behaves very much like any other loan product.

It's available as a fixed rate or adjustable mortgage; it comes as a 15- or 30-year term; and there's no FHA prepayment penalty to worry about.

Another big plus is that FHA mortgage rates are the same in the FHA Streamline Refinance as with a "regular" FHA loans. There's no penalty for being underwater, or for having very little equity.

FHA Streamline : No Verification Of Job, Income, Credit

Another big plus is that the FHA Streamline Refinance is fairly easy for which to qualify.

Earlier this decade, in an effort to help U.S. homeowners, the FHA abolished most of the typical verifications required to get a mortgage. So, today, as it's written in the FHA's official mortgage guidelines :

1. Employment verification is not required with an FHA Streamline Refinance
2. Income verification is not required with an FHA Streamline Refinance
3. Credit score verification is not required with an FHA Streamline Refinance

There's no need for a home appraisal, either, so when you put it all together, you can be (1) out-of-work, (2) without income, (3) carry a terrible credit rating and (4) have no home equity. Yet, you can still be approved for an FHA Streamline Refinance.

That's not as crazy as it sounds, by the way.

To understand why the FHA Streamline Refinance is a smart program for the FHA, we have to remember that the FHA's chief role is to insure mortgages -- not "make" them.

It's in the FHA's best interest to help as many people as possible qualify for today's low mortgage rates. Lower mortgage rates means lower monthly payments which, in theory, leads to fewer loan defaults.

This is good for homeowners that want lower mortgage rates and for the FHA -- but mostly for the FHA.

Are You FHA Streamline Refinance Eligible?

Although the FHA Streamline Refinance eschews the "traditional" mortgage verification of income and credit score, as examples, the program does enforce minimum standards for applicants.

The official FHA Streamline Refinance guidelines are below. Note that not all mortgage lenders will underwrite to the official guidelines of the Federal Housing Administration.

Perfect, 3-Month Payment History Is Required

The FHA's main goal is to reduce its overall loan pool risk. Therefore, it's number one qualification standard is that homeowners using the Streamline Refinance program must have a perfect payment history stretching back 3 months. 30-day, 60-day, and 90-day lates are not allowed.

One mortgage late payment is allowed in the last 12 months. Loans must be current at the time of closing.

210-Day "Waiting Period" Between Refinances

The FHA requires that borrowers make 6 mortgage payments on their current FHA-insured loan, and that 210 days pass from the most recent closing date, in order to be eligible for a Streamline Refinance.

Employment And Income Are Not Verified

The FHA does not require verification of a borrower's employment or annual income as part of the FHA Streamline process.

There is no Verification of Employment, nor are there paystubs, W-2s or tax returns required for approval.

You can be unemployed and get approved for a FHA Streamline Refinance so long as you still meet the other program requirements.

Credit Scores Are Not Verified

The FHA does not verify credit scores as part of the FHA Streamline Refinance program. Instead, it uses payment history as a gauge for future loan performance.

This means that FICO scores below 640, below 620, below 580, and below 500 are eligible for Streamline Refis.

The Refinance Must Have "Purpose"

Streamline Refinance applicants must demonstrate that there's a Net Tangible Benefit in the refinance; a legitimate reason for refinancing.

Loosely, Net Tangible Benefit is defined as reducing the (principal + interest + mortgage insurance) component of the mortgage payment by 5 percent or more.

Another allowable Net Tangible Benefit is to refinance from an adjusting ARM into a fixed rate loan. Taking "cash out" to pay bills is not an allowable Net Tangible Benefit.

Loan Balances May Not Increase To Cover Loan Costs

The FHA prohibits increasing a Streamline Refinance's loan balance to cover associated loan charges. The new loan balance is limited by the math formula of (Current Principal Balance + Upfront Mortgage Insurance Premium). All other costs -- origination charges, title charges, escrow population -- must be either (1) Paid by the borrower as cash at closing, or (2) Credited by the loan officer in full.

The latter is called a "zero-cost FHA Streamline".

Appraisals Not Required

The FHA isn't concerned about home value -- it's insuring your loan regardless.

Therefore, the FHA does not require appraisals for its Streamline Refinance program. Instead, it uses the original purchase price of your home, or the most recent appraised value, as its valuation point.

Homes that are underwater are still FHA Streamline-eligible.

FHA Streamline Refinance Mortgage Insurance Requirements

The FHA Streamline Refinance is an FHA-insured mortgage, and FHA borrowers are required to make two types of mortgage insurance payments -- an upfront mortgage insurance payment paid at closing, plus an annual payment split into 12 installments, paid with your mortgage payment each month.

With respect to mortgage insurance premiums, homeowners using the FHA Streamline Refinance program are split into two classes :

1. Homeowners whose new loan replaces an FHA-backed mortgage endorsed prior to June 1, 2009
2. Homeowners whose new loan replaces an FHA-backed mortgage endorsed on/after June 1, 2009.

Homeowners in the first class -- those with "old" FHA mortgages -- are assigned different mortgage insurance than newer FHA homeowners.

FHA Streamline MIP For Loans Endorsed On/After June 1, 2009

If you are refinancing an FHA mortgage via the FHA Streamline Refinance program and your existing FHA mortgage was endorsed on, or after, June 1, 2009, your mortgage insurance premium schedule on your new FHA loan is as follows.

Upfront Mortgage Insurance Premiums (UFMIP)

For an FHA Streamline Refinance replacing a loan endorsed on, or after, June 1, 2009, the FHA upfront mortgage insurance premium is equal to 1.75 percent of your loan size, or 175 basis points.

This is $1,750 for every $100,000 borrowed. The FHA automatically adds the $1,750 premium to your loan balance for you -- it's not paid as cash. However, not all refinancing households will pay the full amount.

For FHA-backed homeowners refinancing within the 3 years of their existing loan's start date, the FHA provides a refund on your previously-paid upfront MIP.

The size of the refund diminishes as the 3-year window elapses.

For example, a homeowner who refinances an FHA mortgages after 11 months is granted a 60% refund on his initial FHA UFMIP. 30 days later, the refund drops to 58%. After another 30 days, it drops to 56%, and so on.

This is why is rarely a good idea to "wait to refinance" with the FHA. With the FHA Streamline Refinance program, the sooner you refinance, the bigger your refund, and the lower your total loan size. This lowers the monthly payment and preserves the home equity -- two huge positives.

Annual Mortgage Insurance Premiums (MIP)

The annual MIP schedule for an FHA Streamline Refinance which replaces a loan from on, or after, June 1, 2009 is as follows :

• 15-year loan terms with an LTV over 90%: 0.70 percent annual MIP
• 15-year loan terms with an LTV under 90%: 0.45 percent annual MIP
• 30-year loan terms with an LTV over 95%: 0.85 percent annual MIP
• 30-year loan terms with an LTV under 95%: 0.80 percent annual MIP

Note that these MIP costs may be lower than what you're paying currently.

In January 2015, the FHA lowered its mortgage insurance premiums on 30-year loans, making it less expensive to carry an FHA home.

If your current FHA MIP is higher than what's shown above, consider starting a refinance immediately to benefit from a new, lower FHA MIP.

FHA MIP Cancellation Policy

The FHA requires some homeowners to pay mortgage insurance for as long as their loan is in effect.

If your FHA Streamline Refinance replaces a loan from on, or after, June 1, 2009, the rules on your FHA MIP cancellation are as follows:

• LTV of 90% or less at the time of closing: MIP is required for 11 years
• LTV greater than 90% at the time of closing: MIP required for life of loan

The FHA MIP cancelation policy applies to 15-year loan terms and 30-year loan terms equally.

Note that refinancing homeowners are welcome to bring cash to closing in order to reduce their loan balance and change their MIP disposition. However, not everyone will have the cash to make such a move.

This is why, when exploring an FHA Streamline Refinance, you should also look other refinance programs including the conventional mortgage loan via Fannie Mae or Freddie Mac, which is available with nearly every mortgage lender.

The FHA allows its homeowners to refinance to cancel FHA MIP.

FHA Streamline Refinance MIP (For Loans Endorsed Before June 1, 2009)

If your existing FHA mortgage was endorsed prior to June 1, 2009, your mortgage insurance premiums have been "grandfathered".

You can refinance via the FHA Streamline Refinance program and pay reduced rates for both for upfront MIP and your annual mortgage insurance premium.

Upfront Mortgage Insurance Premiums (UFMIP)

For an FHA Streamline Refinance that replaces a loan endorsed prior to June 1, 2009, the new FHA mortgage's upfront mortgage insurance is equal to 0.01 percent of the loan size, or 1 basis point.

For example, if your new FHA Streamline Refinance is for $100,000 mortgage, the FHA will assess a $10 upfront mortgage insurance premium (MIP) to be paid at closing. The FHA automatically adds the $10 payment to your new loan balance.

Annual Mortgage Insurance Premiums (MIP)

Annual MIP is similarly cheap for older FHA loans. For an FHA Streamline Refinance replacing an FHA loan endorsed prior to June 1, 2009, the annual MIP is 0.55% annually, or 55 basis points.

The complete annual MIP schedule is as follows :

• 15-year loan terms with an LTV over 90%: 0.55 percent annual MIP
• 15-year loan terms with an LTV under 90%: 0.55 percent annual MIP
• 30-year loan terms with an LTV over 95%: 0.55 percent annual MIP
• 30-year loan terms with an LTV under 95%: 0.55 percent annual MIP

15-year fixed rate mortgages with LTVs of 78% or less pay no annual MIP.

What Are Today's Mortgage Rates?

FHA mortgage rates are low and homeowners typically close in less than 30 days. Remember: the faster you close, the bigger your FHA MIP refund.

Get a quote today. 

MEASURING THE BREAK-EVEN POINT ON REFINANCING

TWO WAYS TO MEASURE THE BREAK-EVEN POINT ON REFINANCING

According to recently released estimates, over 8 million American homeowners could benefit from refinancing at today’s low interest rates.  Here are three questions to ask yourself in order to figure out if refinancing makes sense for you:

1 – Interest & Cost Benefit:  What would be my interest and cost savings if I refinance into a lower interest rate?
For example, assume you could save $50 in monthly interest expenses if you paid $2,500 in closing costs to refinance.  In this case, it would take you 50 months to break-even ($2,500 costs / $50 monthly savings = 50-month break-even).

When you calculate your refinancing costs, you should include all the closing costs on the new loan, but you should not include the pre-paid interest or pre-paid items that go into your new escrow account.  That’s because you’ll get a refund of whatever is in your existing escrow account after you pay off the current mortgage.  In some cases, the lender may allow you to pay less closing costs in exchange for a slighter higher interest rate.
When you calculate your interest and cost savings, be sure to include the mortgage insurance that you may be able to reduce or eliminate by refinancing.  For example, assume your home value has increased from the time you purchased the home.  The mortgage insurance may be less if the mortgage balance only represents 85% of your current home value vs. 95% of your current home value.

2 – Cash Flow Benefit: How would my overall cash flow situation change if I refinance?
Here are three examples of when it could make sense for you to refinance even if your new interest rate is not that different from your current interest rate:

• Assume you took out a car loan or racked up some credit card balances that carry interest rates that may be higher than current mortgage rates. You may be able to benefit from a debt consolidation refinance.  In this case, be sure to compare your current blended interest rate scenario vs. the new refinance scenario.
• Assume you recently completed some home improvements, or you’d like to make some home improvements in the near future. Trading in your current mortgage for a new one through a “cash-out refinance” may be the way to go.  If you go this route, the IRS gives you a 24-month look back period and a 12-month look forward period to gain the coveted “acquisition indebtedness” tax deductibility status.  For more details, please ask me for my article titled,Three Things You Should Know if You’re Pulling Cash-Out for Home Improvement.
• Assume you have an upcoming large expense where it makes more sense to use a low-interest-rate mortgage vs. paying cash or liquidating other investments. In this case, you could use the funds from a “cash-out refinance” in order to preserve your cash and/or other investment assets.

Please contact me for details on any of these ideas, or to evaluate your mortgage options.

Applying for a Mortgage: 3 Things Millennials Should Do First

Some real estate professionals believe that millennials (18-29 year olds) have little interest in purchasing a home. However, research by the Demand Institute found that about 75 percent of millennials believe that owning a home is an important long-term goal. The reality is that this younger generation faces unique challenges, such as difficulty when it comes to successfully applying for a mortgage. If you’re a millennial, and you’re ready to dive into home ownership, here are three tips to follow before you apply for a mortgage:

1. Deal With Your Credit

Most mortgage programs require a credit check and have minimum FICO score requirements. To see where you stand, check your credit score. You can order your report (from all three major bureaus) for free online. If your score is under 620, you may have difficulty applying for a mortgage.

One cause of low credit scores in younger applicants is the lack of credit history. Millennials tend to use credit less than preceding generations, and it’s understandable that a post-recession generation would shun credit. However, lenders want to be sure that you have some experience managing debt before trusting you with a six-figure loan. You can head off this problem by applying for credit cards about six months before buying a home and using them responsibly.

It’s also acceptable if you don’t have a credit score yet. In that case, lenders are required to manually create a credit report using rent, utility payments and other records. And if your credit is thin, but not bad, having a cosigner may help you be approved for a mortgage.

2. Consider Your Job History

Standard mortgage lending guidelines require applicants to provide at least a two-year job history. For example, here are guidelines from the Federal Housing Administration (FHA):

To be eligible for a mortgage, FHA does not require a minimum length of time that a borrower must have held a position of employment. However, the lender must verify the borrower’s employment for the most recent two full years, and the borrower must explain any gaps in employment that span one or more months.

Self-employed applicants or those whose income is commission-based do need at least two years on the job to qualify in almost any program.

You many not want to quit or change jobs right before applying for a mortgage unless it’s a promotion, in the same field, industry or company, paying as much or more than your previous job.

3. Nail Your Down Payment and Closing Costs

If you’re a first-time homebuyer, there are many programs to help you with your down payment. Many are sponsored by the government and charitable organizations. To find programs in your area, look to the U.S. Department of Housing and Urban Development, which lists many helpful sources for first-time buyers.

You also might be able to negotiate to have the seller cover some, or all, of your closing costs. One thing you should do yourself, however, is save at least two months of reserves. These savings can help you pay your mortgage if you temporarily lose some or all of your income. Even if your lender doesn’t require it (though many do), reserves can prevent foreclosure if you experience a financial emergency.

Before taking the steps listed above, make sure that buying a home is the best option for you right now. Ilyce Glink, award-winning syndicated real estate columnist, advises, “Don’t buy if you’re unsettled about money. It just adds a lot of stress. You may want to rent if your personal life isn’t quite settled. The time to buy is when you know you’re going to be in the same home for at least the next five years.” 

Using your Real Estate Agents "Preferred" Lender - Choose Wisely

Do You Have Your Pre-Approval Letter Yet?

There is one item nearly every home buyer needs before viewing a property they want to buy.

It’s a pre-approval letter.

Most real estate agents won’t take you inside a home without that little piece of paper.

They require this so that they only show you properties that you can afford, and to see how serious you are about purchasing a home.

If you are not already pre-approved, or even if you are, the agent may strongly encourage you to work with his or her in-house mortgage lender -- the one that works from inside the agent's office.

Should you work with the recommended mortgage company? Does the agent have ulterior motives?

Maybe not, but it is good to be aware of how in-house lenders work and if you can get the best mortgage rates and service from these "preferred" mortgage providers.

Your Agent's Lender Isn't Automatically The Wrong Choice

An in-house lender is simply one that sits in the real estate agent’s office to field questions and offer loans to the agents’ clients.

The individual could work for any mortgage company that has struck a deal with the real estate company to have a presence inside the office.

There is nothing inherently wrong with lenders who share office space with real estate firms or who have a relationship with your agent.

In fact, there may be some advantages.

Having a lender and agent affiliation may be more convenient for you if you only have to communicate with one party. In addition, the following may be advantages for you.

• The lender is local and understands the area’s housing market
• You may score incentives from an in-house lender in new developments
• There will be constant communication between your agent and lender

If you’re buying in a new condominium community, you may have to use the in-house lender. New condos often don’t meet Fannie Mae or FHA condo guidelines, so a single mortgage lender will agree to lend there.

In this case, compare your loan rate and terms to market rates. It may not be worth paying a higher rate for a specific condo when there are other properties that do conform to standard lending rules.

Consider The Drawbacks Of An In-House Lender

It may not be in your best interest to work with a lender that has such close ties to your agent.

Some agents choose their preferred lenders because they get deals closed quickly and reliably. That’s also good for buyers, but the missing element in this equation is the loan cost.

The in-house lender may feel that they have you “buttoned up” as a customer. They may feel they no competition for your business. That confidence typically doesn’t prompt them to get you the best loan type, mortgage rate, and closing costs.

Maybe even more important, make sure the lending company offers the mortgage programs that suit you best.

If you have military experience, ask the lender if they offer VA home loans. If you have a lower credit score, an FHA loan can help you get approved more easily.

Home buyers in rural and suburban areas should ask about the 100% financing USDA loan that is specially designed for moderate-income borrowers in less-dense areas.

It’s a good idea to shop around for rates and loan programs, even if you think you are getting solid value from your real estate company’s lender.

No Obligation To Go With A "Preferred" Lender

Your agent could ask you to get pre-qualified or pre-approved with the in-house lender before home shopping. It’s okay to use this lender to get the initial pre-approval letter, even if you have no intention of using their services.

The additional credit check won’t hurt your credit score as long as you do all your mortgage shopping within a 14-day period.

You’re not obligated to finance your purchase with that lender, and no builder or seller can force you to use an in-house or preferred lender.

Even if you’re getting “special” incentives for using an in-house lender, it pays to compare the offer with those from other lenders – that deal might not be as “special” as you think.

Before applying for a home loan, let the preferred lender try to earn your business along with everyone else.

You can let them know when pre-qualifying you that you won’t decide on a lender until you’ve had a chance to compare several loan quotes.

No real estate agent is going to care about saving money on your mortgage as much as you do. And mortgage rates can vary a great deal between competing lenders.

Consider the in-house lender’s quote just one of many that you will receive before making a decision.

What Are Today’s Rates?

Interest rates on home loans have hit multi-year lows recently. Shopping around can get you even lower rates than the average.

Get a quote today, especially if you need a pre-approval in a hurry. The process takes just minutes to get started, and all quotes come with your live credit scores.

Find out which mortgage is for you? Comparing Conventional, FHA and VA loans

Learn more on these 3 loan types before you go mortgage shopping.

1. Conventional loans

Who they're for: Conventional mortgages are ideal for borrowers with above average credit.

How they work: Conventional mortgages are "conforming" home loans under $417,000 loan limit. They follow fairly conservative guidelines for:

• Borrower credit scores.
• Minimum down payments as low as 3% down.
• Debt-to-income ratios.

Debt-to-income ratio

Percentage of monthly income that is spent on debt payments, including mortgages, student loans, auto loans, minimum credit card payments and child support.

Cost: Closing costs, down payments, mortgage insurance and points can mean the borrower has to show up at closing with a sizable sum of money out of pocket and how to save money.
What's good: Conventional mortgages generally pose fewer hurdles than Federal Housing Administration or Veterans Affairs mortgages, which may take longer to process.
What's not as good: You'll need 620 credit score or higher to qualify for the best interest rates.

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2. FHA loans

Who they're for: Federal Housing Administration mortgages have flexible lending standards to benefit:

• People whose house payments will be a big chunk of take-home pay.
• Borrowers with lower than average credit scores.
• Homebuyers with small down payments and refinancers with little equity.

How they work: The Federal Housing Administration does not lend money. It insures mortgages.
The FHA allows borrowers to spend up to 56% of their income on monthly debt obligations, such as mortgage, credit cards, student loans and car loans. In contrast, conventional mortgage guidelines tend to cap debt-to-income ratios at around 45% and sometimes less.
For many FHA borrowers, the minimum down payment is 3.5%. Borrowers can qualify for FHA loans with credit scores of 580 and even lower.
Cost: Each FHA loan has 2 mortgage insurance premiums:

• An upfront premium of 1.75% of the loan amount, paid at closing.
• An annual premium that varies from a low of 0.45% to a high of 0.85%. This premium is rolled into the monthly mortgage payment for the life of the loan. See how the premiums vary by loan term and amount of equity.

What's good: FHA loans are often the only option for borrowers with high debt-to-income ratios and low credit scores.
What's not as good: FHA mortgage insurance premiums are for the life of the loan and to get rid of FHA mortgage premiums, you must refinance the loan.

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3. VA loans

Who they're for: Most active-duty military and veterans qualify for Veterans Affairs mortgages. Many reservists and National Guard members are eligible. Spouses of military members who died while on active duty or as a result of a service-connected disability may also apply.
How they work: No down payment is required from qualified borrowers buying primary residences. The VA does not lend money but guarantees loans made by private lenders.
Cost: The VA charges an upfront VA funding fee, which can be rolled into the loan or paid by the seller. The funding fee varies from 1.25% to 3.3% of the loan amount.
The VA allows sellers to pay closing costs but doesn't require them to. So the buyer might need money for closing costs. Borrowers may also need money for the earnest-money deposit.
What's good: VA borrowers can qualify for 100% financing. Veterans do not have to be first-time buyers and may reuse their benefit.
What's not as good: There are limits on loan amounts. The limits vary by county.


Learn More...

3% Down Conventional Mortgages

2 Options: Conventional 97 and HomeReady

The Conventional 97 is a low down payment mortgage program which allows first-time home buyers and repeat buyers to make down payments of just 3%. The Conventional 97 can be used for primary residences where the mortgage loan size does not exceed the national conforming loan limit of $417,000.

The "3% Down Mortgage" From Fannie Mae

For buyers looking for a low-down payment mortgage option that's not backed by the FHA, Fannie Mae has two options -- the HomeReady™ mortgage and the Conventional 97.

HomeReady™ is limited to certain low-income census tracts; and areas with high minority concentrations. By contrast, Conventional 97 is available for use everywhere.

The Conventional 97 program is meant to help home buyers who might other qualify for a loan but lack the resources -- or the desire -- to make a five percent down payment or more.

The 97% LTV Mortgage And Other Low-Down Payment And No-Down Payment Mortgage Options

With the introduction of the Conventional 97 home loan, the U.S. government is making it easier for potential buyers to become homeowners.

Fannie Mae and Freddie Mac join the FHA, VA, and USDA in offering low-downpayment loans to buyers nationwide.

The Conventional 97's aggressive terms have helped it to grab market share from the FHA loan, which is another low-down payment option available in today's market.

The FHA loan has its place, though.

FHA loans require down payments of 3.5% and home buyers with less-than-perfect credit may find FHA loans to be more cost-effective than the Conventional 97. Especially because FHA mortgage rates are lower than rates for a comparable conventional loan.

Borrowers with better-than-average credit scores, though, typically save by using the Conventional 97.

VA loans are another popular comparison product for the Conventional 97.

Available to veterans and active members of the military, VA loans allow for 100% financing and never require borrowers to pay mortgage insurance.

VA mortgage rates are lower than rates for a comparable conventional loan and VA loans are backed by the Department of Veterans Affairs.

USDA loans are a third comparison option.

USDA loans are guaranteed by the U.S. Department of Agriculture and, although they're sometimes called "Rural Housing Loans", USDA loans can be used in many suburban locations, too.

USDA loans offer very low rates and allow for 100% financing. They also require just a small mortgage insurance premium as compared to other low- and no-down payment loans.

Today's home buyer has plenty of financing options.

Conventional 97 Mortgage Eligibility FAQ

Is the Conventional 97 loan the same program as HomeReady™?

No, the Conventional 97 is available to everyone. HomeReady™ is only available in low-income census tracts, to low-income borrowers, in areas of high minority concentration, and in regions declared a disaster area.

Can first-time buyers use the Conventional 97 program to purchase a home?

Yes. The 97 percent program can be used by first-time buyers. It can also be used by repeat buyers.

What is the definition of a "first-time home buyer"?

A first-time home buyer is defined as a person who has not owned a home in the last three years. If you previously owned a home, but have not owned a home since three years ago, you are considered to be a "first-time home buyer".

Is the Conventional 97 the same as the MyCommunityMortgage® program?

No, MyCommunityMortgage® is a different program. That program is aimed at certain members of the community including teachers, police and firefighters; and which may offer more flexible underwriting standards than a traditional mortgage program.

Are down payments larger than 3% allowed with the 97% LTV program?

Yes, there is no limit to the size of your downpayment with the Conventional 97. With a downpayment of five percent or more, though, you will no longer be using the Conventional 97.

Is the low-down payment mortgage program via Fannie Mae and Freddie Mac better than a FHA loan?

There is no "best" low-down payment mortgage program. What's best for one home buyer may not be what's best for another. Each program is unique just like you and has its benefits.

What mortgage products are available via the Conventional 97 mortgage program?

The Conventional 97 mortgage program allows mortgage applicants to use the 30-year fixed rate mortgage only. 15-year and 20-year fixed rate mortgages are not available.

Can I use an adjustable-rate mortgage (ARM) with the Conventional 97?

No, the Conventional 97 allows mortgage applicants to use 30-year fixed rate mortgages only.

What is the loan limit on the 3% down program through Fannie Mae and Freddie Mac?

The 3% downpayment program is limited to loan sizes of $417,000 or less. Loans in high-cost areas are permitted, but loan sizes remain capped at local conforming loan limits.

What is the maximum number of units for a home under the 3% down payment program?

The 3 percent down payment program is for single unit homes only. This includes single-family detached homes and single-family attached homes such as condominiums and town homes. 2-unit homes, 3-unit homes, and 4-unit homes cannot be financed via the program.

Are vacation homes eligible under the Conventional 97?

No, the 3% downpayment program is for primary residences only. Vacation and second homes are not allowed.

Can Conventional 97 be used for investment properties?

No, the 3 percent down payment program is for primary homes only. Investment properties are not allowed.

Does the Conventional 97 mortgage program require home buyers to attend home-buyer counseling?

No, there is no home-buyer counseling requirement with the Conventional 97 mortgage program.

Is private mortgage insurance required with the Conventional 97?

Yes, mortgage applicants are required to pay private mortgage insurance (PMI) as part of the Conventional 97. Your lender will arrange for your mortgage insurance policy at the time of application.

Can I refinance a non-Fannie Mae loan with Fannie Mae under the 97% LTV program?

No, Fannie Mae requires loans refinanced under the 97% program to be Fannie Mae-backed.

How do I determine whether my loan is a Fannie Mae-backed loan?

To determine whether your loan is backed by Fannie Mae, you can ask your lender or use Fannie Mae's loan lookup tool.

Are cash-out refinances allowed with the 97% mortgage program?

No, the 97% mortgage program does not allow cash-out refinances. Borrowers may do a rate and term refinance or a "limited cash-out" refinance only.

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Buying and Financing a Home with Solar Panels

Solar panels can play a factor into a buyer’s ability to purchase a solar home in Southern Nevada.  Solar home sales can be financed with either a conventional, FHA (Federal Housing Administration), or VA (Dept of Veteran Affairs) mortgage.  

Conventional loans refer to mortgage loans that are underwritten by guidelines published by Fannie Mae or Freddie Mac, secondary mortgage lenders that securitize mortgages on the secondary market.  Conventional loans range from as little as 3% percent down and can be 15 or 30 year terms.  The maximum conventional loan as of the publishing of this article in Clark County is $417,000.

Both Fannie and Freddie require appraisers to use the “Residential and Green Energy Efficient Addendum” for appraisals on homes that have solar panels, assuming that the solar system is not leased.

Fannie did release a statement that they will not fund on a home if the home owner purchased solar panels under the PACE program (Property Assessed Clean Energy).  For Nevada homeowners, this does not apply since the PACE program is a California program.

Fannie and Freddie require long term leases to be included in the borrower’s debt to income ratios if the remainder of the term of the lease exceeds 10 months.

FHA home loans, or mortgages insured by the Department of Housing and Urban Development (HUD), offer a low down payment option for home buyers without the strict adherence to guidelines that conventional loans require.  FHA loans are often known for their more lenient credit guidelines and allowing the down payment to be gifted by family members or government/non-profit organizations.  The maximum FHA loan for the Clark County area is $287,500.

The main FHA mortgage guidelines that affect solar comes from FHA guidebook 4150.1 Rev 1, section 12-14 that states allows for mortgage amounts that exceed 20 percent of the maximum allowable FHA home loan for the area if the increase is used to pay for the installation of solar owned system on a home.

FHA does have specific loans geared towards energy efficiency, including solar electric systems on a home.  With an FHA Energy Efficient Mortgage (EEM), a home buyer can finance up to $10,000 in energy efficiency improvements into a home with as little as a 3.5% percent down payment.

FHA also offers Title I loans to home owners with little to no equity in their property to finance the cost of energy efficiency improvements.  While this is not generally used for purchase situations, Las Vegas home owners looking for solar may be able to qualify to purchase a solar system for their home instead of leasing a solar electric array.

FHA does require long term leases to be calculated into a borrower’s debt to income ratios if the remainder of the term of the lease exceeds 10 months.

VA home loans are guaranteed home mortgages for qualifying military veterans that require no money down.  By far, VA home loans are one of the best types of loans in today’s marketplace.  The maximum VA home loan with $0 down is $417,000 in the Clark County area.

VA Pamphlet 26-7 outlines the VA criteria for appraisal and qualifying issues with solar electric systems.  Appraisal guidelines for valuing solar systems are under Chapter 11, section 12.  Like other mortgage products, a solar system will only add value to a home if it is a fixture of the property and not leased property.

VA does have an energy efficient mortgage similar to FHA but most lenders in the Vegas area do not offer this product.

VA does require long term leases to be calculated into a borrower’s debt to income ratio and residual income ratio if the remainder of the term of the lease exceeds 10 months.

Solar Panel Leases, Selling Your Home and Home Loans

A number of homeowners have chosen to get solar on their homes in Southern Nevada, with the choice of leasing versus purchasing them.  Solar power is great and whether to buy or lease the panels depends on the needs of the individual.  However, if you plan on selling your home in the near future here are some things to consider about solar leases pertaining to the ability for the potential buyer to obtain financing on your home:

Lenders could require to request an exception because of the solar and there is the minimum documentation/debt calculation requirements.  Additional requirements may be required by the specific investor.

1. The solar company will place a lien on title most of the time.  This lien MUST be subordinated to the new financing obtained by the buyer to purchase the home.  

2. A copy of the lease documentation will need to be provided to the buyer's lender and must show that the lease is transferable.

3. The lease payments must be considered as debt when calculating the buyer's debt to income ratio (this may put the buyer over the allowable debt to income ratio for qualifying in some cases).

4. The appraisal must include comparables with solar panels (This can be a difficult task for the appraiser to find a home in the area that recently sold with panels. Some lenders will require more than one comp with similar features)

As you can see a solar lease on your home will require you and the buyer to jump through some extra hoops to obtain the necessary financing to complete your transaction.  When considering solar panels homeowners should consider how long they plan to stay in the home.  Of course circumstances change but if your planning on selling your home with solar leased panels, it could be a hinderance and limit your buyer pool.  FHA's solar lease requirements are far less clear but a letter from your solar company certifying that they meet all CFR 24-203.41 requirements will go a long way in helping your house sell with FHA financing if you have leased panels.

Contact us for more information.

Aundrea Beach-Greco

NMLS 333739

702-326-7866

info@aundreabeach.com 

www.iLendLasVegas.com

Can I get a VA loan higher than $417,000 (Clark County, NV) loan limit?

Yes.  A common misconception with VA Loans is that you cannot borrow above the county limit with minimum down.  In the past this was true, but VA Loan changes have improved the picture.  VA loans and VA Jumbo Loans are available much higher than $417,000, the standard VA Loan Limit.

VA Loans at loan amounts above $417,000 are called VA Jumbo Loans, VA High Balance Loans, or VA Super Conforming Loans.  While many counties in the country are limited to the $417,000 amount, that isn’t the highest VA loan available for that particular county.  What changes is the amount of required down payment or home equity.   Each case is unique depending on your VA County Loan Limit and your Home’s purchase price or value for VA refinance.

In counties where the loan limit is lower than your purchase price or refinance loan amount, you may have to have equity (for a VA Jumbo refinance) or put a down payment (for a VA Jumbo Purchase).

So what is the benefit of using a VA loan in this scenario? – Lower down payments than conventional alternatives, fixed rates, no Mortgage Insurance, ability to combine a first and second mortgage, or get cash out up to 90% of your homes value.

Let’s say you live in a county where the VA loan limit is $417,000 (such as Fresno, Riverside or Los Angeles counties in California).   You want to purchase a home that is $450,000 with a little of down payment possible.   Assuming that you have full VA eligibility & fully restored VA Entitlement, we will allow a VA loan in this scenario up to $441,750, requiring just $8,250 down payment, or 1.83%.

The goal of the VA calculation is the reach a guarantee figure of 25% of the loan amount. This can be a combination of the Entitlement and a down payment.

Here is the math to figure this out:
1. Take your county loan limit (in this case $417,000) and multiply times 25% to reach your maximum entitlement and guaranty available ($417,000 x .25 = $104,250)
2. Take your purchase price and multiply times the minimum guaranty required. ($450,000 X .25 = $112,500)
** since this figure is higher than your maximum guaranty and entitlement from #1, we must now figure out how to handle the shortage.
3. Take #2, the Minimum required guaranty ($112,500) and subtract the available guaranty and entitlement for you ($104,250) and it yields us $8,250.

$8,250 represents the required down payment for purchasing a $450,000 property in a county with a VA loan limit of $417,000 for a Veteran or Active Duty Service Member with full Entitlement available. $8,250 is a 1.83% down payment. Now that is a huge benefit for our Veterans. This is far superior to the conventional loan alternatives or even FHA loans.

CMG Financial is a VA Direct Lender offering VA Loans such as VA purchase loans, VA Streamline Refinance, VA IRRRL, VA Refinance Loans, VA Jumbo purchase loans, VA Jumbo Refinance Loans, VA Jumbo Streamline Refinance loans, VA Jumbo IRRRL , VA Mortgages of all types.

We are a Direct Lender specializing in Government Loans. We also offer FHA Loans such as FHA Purchase loans, FHA Refinance, FHA Streamline Refinance, FHA 203K Streamline Rehab loans, FHA Jumbo, FHA Jumbo Purchase, FHA Jumbo Refinance, FHA Jumbo Streamline Refinance, FHA mortgages of all types. 

When your bank tells you that you need to put down 10% or even 20% for a conventional loan, call us direct and go with a VA loan instead. You will be glad you called. 

Aundrea Beach-Greco
NMLS 333739
702-326-7866  
www.iLendLasVegas.com

Is Your Self-Employed Income Enough to Buy a Home?

When applying for a mortgage, the lender will make sure the borrower can afford the new mortgage payment. This process is determined by comparing the borrower’s proposed housing payment and current monthly income.

But for some borrowers, monthly income isn’t exactly easy to calculate. For instance, when the borrower doesn’t get a pay stub.

Many freelancers, business owners and other independent workers are considered “self-employed”. Their income is determined by looking at things like profit-and-loss statements, 1099s and tax returns.

This article will show you how to calculate your self-employment income just like the lenders do so you know whether you can buy or refinance a property.

Two Year Minimum for Self-Employment

The first consideration is the two year self-employment requirement. A lender will make sure that you’ve been in business in a self-employed capacity for at least two years. How do you prove that? You can provide a copy of your business license to start, but lenders will also want to see two years’ most recent federal filed income taxes, signed and dated.

Lenders have another definition for a self-employed borrower: anyone who receives more than 25 percent of their income in non-salaried pay can be considered self-employed. This primarily includes those who work on commission or bonus.

The lender’s definition of self-employed excludes those who own less than 25 percent of a business. A common example might be a partnership or LLC where the individual owns, say, 10 percent of the company. In this instance, the borrower is not considered self-employed.

You Might Be Self-Employed If….

• You own your own business
• You are a partner with at least 25% ownership in a business
• You receive more than 25% of your income in bonus or commission income
• You are a contract worker, even if you work for only one company
• You receive 1099 forms instead of W2s
• The bulk of your income is dividends and interest
• You are primarily a landlord
• You receive royalties

Required Documentation for Self Employed Borrowers

If you are self-employed, you will have to hand over more documentation than a salaried borrower would. Here are a few extra items you’ll need to provide:

• 2 years’ personal tax returns with all schedules
  • 1099s
  • W2s from your self-employed business (if you pay yourself a salary)
  • Schedule C, D, E, F
• 2 years business tax returns with all schedules
  • K-1s
  • 1120 (Corporate Tax Returns)
  • 1120S (Partnerships and S Corps)
• Year to date profit and loss statement showing current income is on track with previous years
• CPA letter stating you are still running your self-employed business
• Explanation letter if you receive most of your income at a specific time of year. In this case, it can look like your profit and loss statement is on track for lower income than in previous years.

If you are part of a business that has many owners, make sure all controlling parties agree that you can have access to business tax returns and can turn them over to a lender.

Self-employed Business Structures

There are many ways you may be self employed, and underwriters look at each structure differently. Here are some common business structures.

Sole Proprietorship: One person owns and controls the business. Income is reported on schedule C of your personal tax return. An example would be the single owner of a landscaping company. Generally sole proprietorships are smaller companies.

Partnership: Two or more people own and control the business. Profits from the business are split between the owners.

Corporations: Stockholders own the business. Usually these are larger companies. A borrower who is 25% owner of a corporation is pretty rare to see on a mortgage application, but it happens. Getting the corporate tax returns can be difficult, since many parties may be involved in releasing them.

S Corporations: This is a corporation with a limited amount of stockholders. If you are owner of an S Corp, you’ll need to supply your 1120S tax return.

IRS Tax Return Schedules for Self-employed Borrowers

Schedule C: Reports income or loss from a sole proprietorship.

Schedule D: Reports income from capital gains or losses. This type of income comes from sale of stock or real estate typically. Usually these are one-time events and can’t be counted toward ongoing income. However, day traders, property flippers and the like may be able to use schedule D income if they prove three years’ worth of consistent income.

Schedule E: Income and loss from leased and rented real estate is reported on this form. Borrowers who maintain a full time job while owning rental properties will have net income or loss from schedule E. The lender will add or subtracted this income from their employment income. Depreciation claimed on the schedule E can typically be added back to the borrower’s income.

Schedule F: This schedule is used for farming income.

Self-employed Tax Return Snafus

There are several things that can trip up a self-employed borrower when applying for a home loan and providing tax returns to the lender. Here are some of the most common:

Expenses. A lender will consider what a business made in net profit, not gross profit. For instance, a pet shop owner pulled in $80,000 last year in revenue. Not bad, right? But the business also had to pay rent, supplies, utilities and insurance to the tune of $30,000 last year. So a lender will only consider $50,000 in profit as real income.

Sometimes, business owners write off too many expenses. A laptop here, business mileage there – pretty soon the entire profit of the business can be written off.  If your business makes $100,000 but you write off $90,000, guess how much the lender will say you made? Yep, $10,000 or just $833 per month. And you can’t qualify for much house with that.

Writing off legitimate business expenses is a wise move yet there are occasions where there are so many write-offs the business appears to make no money at all. If you plan to apply for a mortgage in the next 3-4 years, don’t go overboard on your write-offs.

Your Side Business. Many people work full time, yet have a side business, for which they file schedule C on their tax returns.

Note that if you plan not to disclose your side business for whatever reason, your lender will find out about it anyway. The lender will pull transcripts (called 4506 transcripts) directly from the IRS which will show income or loss from a schedule C business.

When you apply for the mortgage, be sure to tell your loan officer about your side business, and how much it made or lost during the last 2 years.

Many side business owners simply have a side business to write off expenses. If this is you, keep in mind that the lender will count your business loss against you.

For instance, if your tax returns show that you lost $12,000 in the prior year, your lender will reduce your qualifying current monthly income by $1,000.

Unlike positive business income, you don’t have to have the business for 2 years for it to count against you. If you just opened your side business, a loss for just one year will need to be considered.

If you closed your business after filing the previous year’s tax return, it’s possible for the underwriter to disregard the business loss. Write a letter saying how, why, and when you closed the business, and provide any documentation backing up the business closure.

Employee Expenses. Even if you’re not self-employed, you can claim non-reimbursed business expenses including mileage. You claim these on form 2106. These deductions are counted against your total W2 income. An example of employee business expenses are tools and supplies not provided by the company, non-reimbursed mileage to work-related meetings, and cell phone charges if you use your personal cell phone for work.

Two-Year Self-employed Average Income: When a lender reviews business income, they look at not just the most recent year, but a two year period. They calculate your income by adding it up and dividing by 24 (months). For example, say year one the business income is $80,000 and year two $83,000. The income used for qualifying purposes is $80,000 + $83,000 = $163,000 then divided by 24 = $6,791 per month.

Declining Self-employed Income: But the lender also looks at something else when reviewing years one and two: consistency. The example above showed consistent income from year to year. What if the income looked more like this:

• Year 1:  $80,000
• Year 2:  $40,000

When you calculate a monthly income with these numbers, the amount is $5,000 per month. But a lender probably won’t approve this loan. Why? There is a serious decline in income and could indicate a failing business. Part of the income review process is determining the likelihood the income will continue and a business suffering from declining income can indicate the likelihood of continuance is in serious doubt.

However, there is no hard and fast rule regarding a specific decline in income, it’s up to the judgment of the underwriter approving the loan. A slight variance of say $80,000 to $70,000 might raise some questions but with a proper explanation the application will still be approved.

There may be a legitimate reason for the lower income. The business owner took some time off to take care of a new baby. This easy-to-document occurrence can show why the income took a slight dip. In this instance, the underwriter might ask for three year’s tax returns instead of just two.

Cash Flow. A lender will also look at bank statements to examine the cash flow of the business. Is there enough monthly income to service debt? Some businesses rely on daily purchases of their goods and services such as a café or retail store. Others rely on just a few transactions per year.

When reviewing income, a lender wants to make sure there are enough funds in an account to pay the bills.

Using Business Accounts for your Down Payment and Closing Costs

In some cases, you can use funds from your business accounts from your down payment.

Sometimes, though, the underwriter will ask you for a letter from your CPA saying that taking money from the business won’t jeopardize ongoing health of the business. Your CPA may or may not be willing to write this letter.

The underwriter wants to verify that your business won’t be short on cash and be forced to take out loans or shut its doors due to lack of funds. After all, your business is the source of your income, and if your income stream stops, you may default on your loan.

Any business funds used for closing costs or the down payment on a home should be excess money that the business will not need for the foreseeable future.

Calculating Self-employed Income is Complicated

If you’re self-employed, you may disagree with the final income the underwriter determines for you. This is a common feeling experienced by many self-employed individuals.

Self-employed income calculations can sometimes boil down to judgment calls by the underwriter, especially for borrowers who have multiple businesses or properties, or whose business ventures are a bit outside-the-box.

If there’s any doubt how much the underwriter will calculate in your case, give your tax returns to a mortgage professional for review. Also, most lenders offer an underwriter income review for more complicated tax returns, sometimes even before you officially apply for the mortgage.

This review gives everyone involved a starting point, since the underwriter comes up with qualifying income ahead of time.

The self-employed borrower does endure more scrutiny that the standard paystub/W2 employee. If you go into your loan application with the proper expectations, you’ll close your mortgage loan with very few surprises.

Call me I will be happy to assist you.