The financial community is remarkably inventive at developing new programs to allow borrowers to qualify for real estate loans. Many of these loan products are apt to be as new to realtors as they are to the public. So, it falls to mortgage brokers to alert and educate both realtors and borrowers as to their features and benefits.
Because so many people are already familiar with such evergreen programs like FHAs and VAs,
I mention them here not just to refresh ones understanding of their guidelines, but to provide some perspective as to their relative benefits and features.
Also, some of the loan programs I will introduce, today, are variants of FHAs. To differentiate these programs I have color-coded them.
FHAs owe much of their current popularity to their relatively low 3.5% down payment requirement and their inclusiveness. Citizenship is not required, so permanent and non-permanent aliens are also eligible. Nor is the program limited to first-time homebuyers. Requiring a FICO score of 620 (though 640 is now more the norm), and liberal guidelines have also contributed to their appeal. FHAs have high and flexible qualifying ratios with Debt-To-Income (DTI) ratios of 31%/43%, some as high as 45% - 50% (with a few lenders). In addition, all borrowers' income and debt are used to qualify, even non-occupants. Further, there are no reserve requirements. One-hundred percent of gift funds are allowed and seller concessions up to 6% are permitted toward closing costs. Owner occupied properties of 1-4 units, PUDs and condos are eligible. Both fixed and adjustable rate mortgages are available with both 15- and 30-year terms. Rates currently range from 3% up to 4.75% at present and buy downs are available, too. Loan amounts range as high as $697.5k in San Diego and even higher in LA and Orange County ($729,750). Some lenders do not even require tax returns, pay stubs, W-2s, or asset documentation. Still others allow debt/income ratios to be blended. Most have also waived the 90-day flipping regulation.
NO DOWN PAYMENT or an LTV of 100% on loans up to $729,750 is a unique feature of VA loans. Because the Veterans Administration guarantees 25% of the loan up to the county limit there is no minimum down payment per se for loans in excess of $729,750. FICO scores of 640 are required though a few lenders will entertain scores as low as 620. Debt-to-income ratios are set at 41%, with occasional exceptions to 43%. There are no reserve requirements for a 1-unit property or a loan below $417k. Since both VAs and FHAs are government sponsored programs many of the same guidelines apply: Citizenship is not required, nor are VAs limited to first time homebuyers,100% of gift funds are allowed, seller concessions up to 6% are permitted. Owner occupied properties of 1-4 units, PUDs and condos are eligible, but non-owner occupied purchases are not. Both fixed and adjustable rate mortgages are available as are 15 and 30 year terms. Rates currently range from 3.25% up to 4.75%, at present, and 2/1 buy downs are available, too. A major benefit of VA loans is that there is NO MONTHLY MORTGAGE INSURANCE. Minimum FICO scores of 620 are necessary (though, again, 640 is now more the norm). VAs are assumable, a rarity among loans these days. A veteran can use his or her entitlement multiple times. Reservists also qualify for VA benefits. A seller can pay off debt for a borrower. Impounds are required
LOAN PROGRAMS THAT ARE NEW (at least to many of you)
Now that we have dealt with the most common government sponsored programs, let's look at the lesser known as well as some little known conventional ones. There are seven that I will discuss today and two of them are essentially clones of their more famous siblings.
The first of these are the HomeSteps and HomePath loan programs. Since foreclosures still comprise about 25-35% of all real estate sales, Fannie Mae and Freddie Mac have devised two specialized loan programs to help sell off their burgeoning foreclosure inventory. The HomeSteps loan program is solely for Freddie Mac foreclosures and HomePath is perhaps Fannie Mae's more famous equivalent sister program. One of the biggest obstacles to recent real estate sales has been low appraisals. A unique feature of both of these programs is that NO APPRAISAL is required. With as little as 3% down for an owner-occupied purchase and only 10% down for non-owner occupied purchases, these two programs are considerably more cost-effective than FHAs. To sweeten the deal further, up to 6% in seller credits are allowed for owner-occupied properties. There are few restrictions regarding eligible properties - single family residences of 1-4 units, PUDs or condos are AOK. As with most all loan programs, fixed and ARM mortgages are available, as are 15 and 30 year terms. Rates currently range from 3.5% to 4.875% depending on the length of the fixed rate and the loan amount. FICOs as low as 620 are permitted if the LTV is less than 80% and a 660 is needed when the LTV is above 95%. Gifts for down payments and closing costs are also permitted.
Another very desirable feature of both programs is that there is NO MORTGAGE INSURANCE REQUIRED with either program.
The list of HomePath eligible properties is located at: http://www.homepath.com/search/CA_073.html?ps=10
A list of HomeSteps foreclosures is available at: http://www.homesteps.com/featuresearch.html
Open Access & DU Refi Plus are also sister programs. Again, Fannie Mae's DU Refi Plus is the better known program while Freddie Mac's Open Access is its lesser lesser known equivalent. These programs are specifically designed to benefit borrowers who are upside down on their property, but who would like to refinance at today's lower rates. It allows borrowers to refinance their 1ST mortgage up to 105% of the property's current appraised value. There is no maximum Combined Loan To Value (CLTV) with a few lenders and a few others limit the CLTV to 125%. Owner occupied homes from 1-4 units, 2nd home, investment properties are all eligible. Again, the maximum loan amount is tied to the county limit - $697.5k in S.D. ($729,750 in L.A. and O.C). For 4 units, the loan amount increases up to $1M. A FICO score of 620 is required.
Both fixed and adjustable rate mortgages are available with 15 and 30 year terms. The rates currently range from 3.5% to 5% depending on fixed versus variable and the loan amount.
The only stipulation is that the current loan must be owned or guaranteed by Fannie Mae or Freddie Mac. Seventy-five percent of all loans are owned by one or the other entity.
Fannie Mae loans are verifiable at: http://loanlookup.fanniemae.com/loanlookup/
Freddie Mac loans verifiable at: https://ww3.freddiemac.com/corporate/
Loans with Mortgage Insurance (MI) are not eligible. If a home owner is upside down on their loan they will still be upside down, but a mortgage with a rate of 4% or 5% is much more affordable than one at 6% or 7%.
The Home Ownership Accelerator HOA.
This loan program enables a borrower to pay off a 30-year loan in about half the time (16.4 years) with no change in their spending habits and, no, this is not a bi-weekly program. It is elegantly simple in the way that it functions. Unlike a conventional mortgage wherein one pays one's interest first and whatever is left over is applied toward principal reduction, the HOA reverses the process. Instead with the HOA, one pays one's principal balance down first and because the principal is dramatically reduced, less interest accrues which helps to negate the effect of compound interest over time. It sounds simplistic, but it works so well such that one young couple for whom I arranged this loan in 2005 had retired their debt on a $350,000 loan by March of 2010 such that they owned their home free and clear in a scant 5 years!
The HOA is a 1st position home equity line of credit combined with a checking account. You know how your money earns virtually NO interest in your checking and savings accounts? With the Accelerator, your checking is connected to your mortgage, so instead of earning no interest, the money in your checking account is offsetting the 3.5% (base) interest of the HOA. It is ideal for a small-business owner, the self-employed, retirees, or anyone with positive cash flow wishing to pay off their mortgage in half the time because a borrower can save tens of thousands in interest. It is also very flexible. Unlike with a conventional mortgage, when you make your mortgage payment that money is gone forever more. With the HOA, if you need to access your credit line for whatever reason all you need do is write a check.
There are two notable restrictions regarding this program: one, the max LTV is 75% and two, this program applies to only primary residences, no 2nd homes or investment property. The maximum loan amount is up to $2,500,000. Borrowers can qualify at the Interest Only payment. The hallmark of this program is its simplicity: There are no cash out requirements. A Good Faith Estimate (GFE) is not required either because this program is not subject to RESPA. A 700 FICO score, however, is required.
Note: There is 3.5% FLOOR RATE. This is a variable rate mortgage that is tied to the 1-month LIBOR. The 1-month LIBOR is currently 0.261%. One has a choice of 3 margins: 2.85%, 3.1% or 3.35%. Depending on the margin chosen the FULLY-INDEXED RATE could be as little as 3.111%, 3.361% or 3.611%.
To learn more about this program go to: http://www.homeownershipaccelerator.net/ (Direct link to the 5 minute HOA Movie)
My Community Mortgage (MCM) is a Fannie Mae (FNMA) loan program for first-time homebuyers, buyers with disabilities and public service employees. The My Community Mortgage program also expands the eligibility for teachers & educational institution employees, police officers, firefighters, health care workers and persons with disabilities by allowing the use of part-time income to qualify for the loan.
The program allows homebuyers to qualify for a mortgage at conforming interest rates and lower Private Mortgage Insurance (PMI) premiums. Similar to the government's FHA program, MCM currently requires only a 3% down payment. FNMA is also flexible on the source of down payment. It can be the borrower's cash on hand, gift from a relative, or even from the employer. No minimum contribution from the buyer's own funds is required. No reserves are required for 1-2 units and only 2 months for 3-4 units. MCM allows for debt-to-income ratios of 43%, gifted reserves, and consideration of part-time and overtime income with 12-month history to qualify for a bigger loan amount. Underwriting requires at least a 640 FICO score for 1-2 units. A 680 FICO is needed for 3-4 units with an LTV of 95%. The Combined Loan To Value (CLTV) may go up to 105% with community seconds. Owner occupancy is required.
To qualify for a My Community mortgage, the borrowers' income may not exceed the program's income limit. However, for homes located in neighborhoods designated as "underserved," there is no income limit. Up to 30% of qualifying income can come from boarder income or occupying co-borrower. MCM also provides additional advantages for nurses, paramedics, fire fighters, and police officers as well as anyone who works in an educational institution. The My Community Loan Programs also allow for reduced PMI premiums in some cases as well. This reduces your monthly mortgage payment significantly if you qualify.
A 30 yr. fixed is currently @ 4.875%
Another program for first-time home buyers that is designed to enhance affordability is the CalHFA Loan for borrowers with low or moderate incomes. (A borrower is considered a first-time homebuyer if they have not owned and occupied a home in the past three (3) years). The 1st loan is provided via the California Housing Finance Authority. Because of the extremely low down payment requirements and low interest rate (set by CalHFA) income and sales restrictions apply. The CalHFA FHA offers financing up to 96.5% of the purchase price or appraised value whichever is less. To make owning your first home more affordable, down payment and closing cost assistance may be obtained by combining a CalHFA 1st mortgage with a 2nd via the California Housing Downpayment Assistance Program (CHDAP). The Combined-Loan-To-Value (CLTV) may go as high as 101.5% when paired with a 2nd. The maximum loan amount is $417K.
Eligible properties include Single Family Residences (SFRs), PUDs, condos, but it must be the borrowers' primary residence. One-month's cash reserves are required. A borrower must have a 620 FICO. In order to qualify the borrowers' DTIs must not exceed 31% for PITI and 43% in addition to consumer debt. There are minimal fees to borrowers. The seller can pay a buyers non-recurring closing costs including mortgage insurance. The trick with this loan is for the borrower to fit into the rather narrow income and sales niches.
The one lender I have for this program offers only a 30 yr. fixed rate term @ 4.375%. If, however, a borrower has a 2nd through the California Homebuyer's Downpayment Assistance Program (CHDAP) the CalHFA FHA 1st drops 0.125% to @ 4.25%. A CHDAP 2nd is @ 3.25%. The maximum loan amount of a CHDAP is equal to 5% of the sales price.
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