The Mortgage Porter

FHA Question from a Mortgage Porter Subscriber

I love receiving emails like this one:

Hi Rhonda. Thank you for your helpful information on your website. The Gov's FHA site is not very user friendly!

I hope to be a first time homebuyer in the next year or so. I am working on repairing my damaged credit and know I need at least a solid year of "good payment history, etc" to demonstrate I'm a good buyer.

I realize the higher the credit score the better...but what is the minimum score one could have to be considered for this type of loan? And what is the min down payment I could expect to pay? I'm hoping to purchase a condo in Kirkland for under $350K and just need to see what I should plan for. Thank you!

Here's my response:

• FHA does require the last 12 months of a borrowers credit to not have late payments.  As far as credit scores, FHA is not credit score sensitive--however some lenders will charge you a higher rate if your mid credit score is under 620.  You can actually have no credit scores or shallow credit and possibly qualify with FHA by alternative credit.

• 3% is the minimum investment required by FHA currently except this is changing on January 1, 2009, thanks to the new law passed yesterday, to 3.5%.  Based on a sales price of $350,000, the new required investment would be $12,250 (instead of $10,500).   

• You may want to make sure that the condo is FHA approved or that it qualifies for a "spot approval" if it is not on HUD's list. 

Last, even if you're considering buying twelve months from now, I recommend contacting a qualified Mortgage Professional (like me) who works for a HUD endorsed lender (like my company, Mortgage Master) to make sure you're on the right track with improving your credit.

Mortgage Porter Super Hero Trading Cards

Last week, in San Francisco at RE Bar Camp, the attendees were surprised with their very own super hero trading cards.  Somehow, my trading card didn't make the order with the other "super bloggers" (which is easy to understand since this huge feat was pulled off in just a couple days before the event).   A huge thank you goes to Gia Freer, VP and Community Manager of RealSeekr (aka Principessa di Proprieta) for creating my super hero trading card!   

On a much more serious note, please check out my article on Rain City Guide about The Housing Rescue Bill which was signed off by President Bush yesterday.

Next Week is Seattle Night Out

On Tuesday, August 5, 2008, neighborhoods around Seattle will celebrate "Seattle Night  Out".  Its a great opportunity for neighbors to meet and help promote safety in our neighborhoods. 

From the Seattle Police Department's website:

“Night Out” is a national Crime Prevention event. It is designed to heighten crime prevention awareness, increase neighborhood support in anti-crime efforts, and unite our communities. It is a great chance to learn about crime prevention, while also celebrating your community and spending time with your neighbors.

The deadline to register your neighborhood in Seattle for this event is August 2, 2008.   Night Out is a national event.    For more information, click here.

To find out events in your neighborhood, contact your local police department.

I am back!

Seems like I've been gone much longer than I have.  On Tuesday morning (July 22, 2008)  I went to San Francisco for Inman Connect and Real Estate Bar Camp.   Both events were fantastic and I met many wonderful people (I won't even try to list everyone).   I did take advantage of being in that neck of the woods (and airfair) by extending my trip to include some Sonoma wine country with my husband.  Posts and photos will follow.

This is just a quick note to let you know that I am back in Washington and back to business to usual.   If you or someone you know need help with a mortgage (new or, if you would like me to manage--or adopt--your existing mortgage) please let me know.

Update:  Here are some of my notes from Bloggers Connect that I've posted over at my R TEAM Blog:

Leaving a Digital Footprint

Growing Pains: Taking Your Blog to the Next Level

Blogging Pittfalls: How NOT to get sued.

Case Study: How Four Bloggers are closing sales

I'm also working on a post about Flickr from a class I attended at Real Estate Bar Camp taught by Teresa Boardman.   

Financing an Investment Property

Update 7/31/2008: Fannie Mae guidelines have been updated for investment properties since this post was written.

This post is originally from Rain City Guide.  I thought I would share it with you while I'm on a blogging vacation.  To read the original post with comments, click here.

Obtaining a mortgage for a non-owner occupied propery is much different than buying one you will reside in.  For starters, qualifying is tougher and mortgage interest rates are higher as it’s a riskier transaction for the lender.   Here are some quick tips to help get you started if you’re considering buying an investment property.

Plan on using at least 20% for your down payment plus closing costs.   With a 25 or 30% down payment, you will receive a slightly better interest rate.   Just to give you an idea, here is a sample of some current rates based on a single family dwelling with a sales price of $450,000 for a 30 year fixed mortgage and a minimum 720 credit score:

Owner Occupied with minimum 20% down:  5.75% priced with 1% origination/discount point (APR 5.904%)

Non-Owner Occupied (NOO) with 20% down: 6.375% with 1% point (APR 6.537%)

NOO with 25% down: 6.250% with 1% point (APR 6.413%)

NOO with 30% down: 6.125% with 1% point (APR 6.289%)

Of course, you can always pay more in points to have a lower rate.   This is just to provide you with an apples to apples comparison.

There are two camps for qualifying for an investment property:  those who are proven at managing rentals and those who are buying a rental for the first time or who have less than 2 years history.  If you have less than a 2 year history, then it’s likely that you will not be able to use rent credit from the proposed purchase.  Lenders allow 75%  of the rent to be used for qualifying purposes.   Proving you’re a financially successful landlord to the underwriter will take your last two year’s complete tax returns including the Schedule E’s.   If you can qualify for the full PITI payment on the investment property along with your current PITI payment on your residence, then the underwriter may only require a regular appraisal.  Otherwise, count on the appraisal costing almost twice as much as a typical appraisal for conventional financing.   Fannie and Freddie also require a minimum of 6 months reserves (cash assets after closing) for NOO borrowers. 

Odds and Ends

• FHA can be a great way for first time buyers to get into the investor market when they’re buying a 2-4 unit home.  The buyer must occupy in one of the units and the mortgage will be treated as an “owner occupied” transaction.   You will have upfront and monthly mortgage insurance and can buy with as little as 3% down payment.
• Second homes are sometimes treated as investment properties.  This is really up to the underwriter.  Typically if the home is located within 50 miles of the borrowers residence or if it does not make sense as a second or vacation home, the underwriter may determine that it’s an investment which means tougher underwriting and the NOO rate.
• Fannie Mae programs exist that help family members buy properties that don’t meet the second home requirements without treating it as an investment purchase (Family Opportunity Mortgage).

As always, I highly recommend that you meet with your local Mortgage Professional as soon as possible if you’re even just considering obtain a mortgage for any reason (investment property, residencial purchase or refi, vacation home, etc.).

How Much Home Can You Buy with $17,550 Down

I'm taking a brief blogging break.  This is a reprint from Rain City Guide.  To read the original post and 100 plus comments, click here.

My purpose for this post is to hit it home what a great window of opportunity we have with FHA Jumbo mortgages which are only around until December 31, 2008 unless Congress passes an extension of some sort (which is a possibility-but not guaranteed).

For the remainder of this year, you can use $17,550 to buy a home priced at $585,000 using FHA Jumbo with 3% down.    FHA requires the buyer to invest 3% into the transaction (which can be a qualified gift).  3% of $585,000 = $17,550.  (With roughly 5% down, utilizing FHA Jumbo, you can puchase a home for $600,000).  The Seller can contribute up to 6% towards closing costs and prepaids as long as the buyers 3% required investment is met.  With this scenario, the Seller is contributing around $14,000.   The loan amount is just under the maximum allowed FHA Jumbo for King, Snohomish and Pierce County of $567,500.   

With FHA there are no income limitations and much easier on credit scoring than conventional mortgages which ding you if your score is 719 or lower.   Effective January 1, 2008 2009 (as things currently stand) the FHA loan limit will be reduced to their actual loan limit of $362,790 for King, Snohomish and Pierce Counties. 

Of course, you’re not limited to FHA if you only have around $17,550.  There’s also Fannie Mae Flex (someone please knock on wood fast before Fannie shelves decides to put this product on the shelf) which allows lower down payment–currently as low as 97%.  However the highest loan amount allowed is the true conforming of $417,000.   Utilizing a Fannie Flex program, you could purchase a home priced around $434,000 with the seller contributing about $12,000 towards your closing costs and prepaids.

So we’re talking $585,000 sales price using FHA Jumbo (while supplies last!) or $434,000 with Fannie Flex97 (while this product is still available) if you have $17,550 for a down payment.   Can you see why I’m so crazy about FHA Jumbo?  This is a window of opportunity for those who qualify for the payment but may be shy on the down payment that’s scheduled to close on December 31, 2008

Blake Island

Just a hop, skip and a jump from West Seattle is Blake Island.   Last weekend, after our  "drive by" earlier this month, we decided to cruise over with our kids to this State Park and go tent camping.   Our campsite (#34) had views of Mount Rainier, Vashon and Southworth along with the ferry runs.   We saw seal, otter, eagles and other birds along with hundreds of jumping fish.  The Ranger came by to worn us that if we didn't lock up all our food (the provide locking garbage cans--you should not store the food in your tent) we would lose it raccoons and otters.  I guess they will actually unzip your tent and come on in if they think you're hiding goodies.

There are all types of boats from kayaks, sailboats, Tulley's and yachts.   I did not venture far from our campsite on the south side of the island.  I enjoyed doing nothing at all and being "unplugged" under the tall Madrona's.  Our teens took the wooded trail to Tillicum Village where there is a snack shop with ice cream, breakfast and lunch as well as ice, wood and matches (camping necessities).

Our one night and 3 mile journey from home felt like a different world.   After last Friday...I needed it!  (Photo on the left is the view from my tent).

Rates Rising with Inflation

Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties).  The conforming rate quote below is based on owner occupied, "full doc" purchase with a sales price of $500,000 and a loan amount of $400,000.  This scenario includes reserves (taxes & insurance) not being waived.   Rates quoted are priced based on a 45 day lock with no origination or discount points (for your personal rate quote with or without points, please contact me) and there are no prepayment penalties on any of the rates quoted below. 

30 Year Fixed @ 0 Pts: 6.750% (APR 6.818) ~ 0 Pts 1 Pt:  6.500% (APR 6.664%)

30 Year Fixed with 10 Year Interest Only @ 0 Pts: 6.625%  (APR 6.775%)

15 Year Fixed @ 0 Pts: 6.250% (APR 7.104%)

5/1 ARM - LIBOR @ 0 Points: 6.000% (APR 7.104%).  Priced @ 1 Point: 5.500% (APR 7.001%)

Conforming-Jumbo Rates. Pricing is based on the same criteria above (including zero points) except where the loan amount is $417,001 - $567,500 for properties in King, Snohomish or Pierce Counties.  (For other conforming-jumbo loan limits in Washington state, click here); specifically priced for a sales price of $650,000 and a $520,000 loan amount.

30 Year Fixed @ 0 Pt:  6.750% (APR 6.808%)   

30 Year Fixed with 10 Year Interest Only @ 0 Pts:  7.125% (APR 7.181%) 

5/1 ARM - LIBOR @ 0 Pt:  6.250% (APR 7.195%) ~ Priced at 1 Pt: 5.875% (APR 7.141%)

JUMBO (Non-Conforming) Rates. Pricing is based on the same criteria above (zero points), with the exception that the loan amount is $417,001-$650,000 (20% down).   The specific scenario used to price the rates below is a sales price of $850,000 with a loan amount of $680,000.

30 Year Fixed @ 0 Pt:  8.125% (APR 8.188%)

30 Year Fixed @ 1 Pt:  7.750% (APR 7.916%)

FHA.  Pricing based on credit score of 620 or better and loan amount of $362,790 for FHA in King, Snohomish and Pierce Counties with 1 discount/origination point.

30 Year Fixed @ 1 Pt:  6.625% (APR 7.421%). 

FHA-Jumbo. Pricing based on 1 discount/origination point and loan amounts from $362,791 - $567,500 for King, Snohomish and Pierce Counties.  For other loan limits in Washington State, click here. 

30 Year Fixed @ 1 Pt: 6.750% (APR 7.541%)

VA. Pricing based on credit scores of 620 or better based on loan amount of $417,000.   For VA loan amounts over $417,000, please contact me.

30 Year Fixed @ 1 Pt:  6.625% (APR 6.958%)

Prime Rate (what HELOCs are based on):  5.000%

To view these rates priced with a 1% discount/origination fee, please click here.

This is just a small sample available of rates and products.  Rates are as of Friday, July 18, 2008 at 8:00 a.m. and may change at any time.  Available programs may change at anytime as well.   This is not a guarantee nor is it a commitment of interest rate. 

Mortgage rates continue to be very volatile.  Stay tuned with what's going on in the market by subscribing to Mortgage Porter (upper left corner) and Mortgage Porter Twitter for live rate updates (click Follow). 

You Don't Want to Miss this Conversation

Dustin Luther of Rain City Guide and 4realz has been hosting weekly "radio shows" where people can call in, chat via the internet or do both while guest have a conversation with a panel selected by Dustin.   As a contributor to Rain City Guide, I've participated in a couple of these interesting sessions.  Recently we had a great discussion about the proposed changes to how appraisals are ordered for conforming mortgages...tomorrow's conversation promises to be just as informing when Dustin interviews Lawrence Yun, Chief Economist for the National Association of Realtors.  The conversation is centered around the Effect of the FDIC/Treasury Actions on Homebuyers and the Real Estate Industry.

Tune in tomorrow, July 17, 2008 at 5pm PST.

I'm planning on being a part of the conversation--if you would like to learn how you can attend, click here.

Update:  If you missed the live broadcast, you can hear the discussion here:

New Risk Based Pricing for FHA Mortgage Insurance

Update: the passage of HR 3221, The Housing and Economic Recovery Act of 2008, placed a 1 year moratorium on risked base pricing for FHA mortgage insurance.  This will not go into effect until October 1, 2008.

Effective July 14, 2008, FHA has implemented risked based pricing for monthly and upfront mortgage insurance.  Previously, upfront mortgage insurance on FHA insured loans was always 1.5% of the loan amount and the monthly mortgage insurance was 0.5% of the base loan amount.   Now, depending on the borrowers down payment and credit score, the amount of upfront and monthly mortgage insurance required for FHA loans is staggered.   

Here is a quick breakdown of the new formula for FHA mortgages with 30 year terms (includes FHA ARMs):

Loan to value of 90% or less (minimum 10% down payment)

600 or better mid credit score = 1.25% upfront mortgage insurance (MI) and 0.50% monthly MI.

599 - 560 mid credit score and non-traditional credit = 1.50% upfront MI and 0.50% monthly MI.

559 - 500 mid credit score = 1.75% upfront MI and 0.50% monthly MI.

Loan to value of 90.01% - 95% (5% - 9.99% down)

640 or better mid credit score = 1.25% upfront MI and 0.50% monthly MI.

639 - 600 mid credit score = 1.50% upfront MI and 0.50% monthly MI.

599 - 560 mid credit score and non-traditional credit = 1.75% upfront MI and 0.50% monthly MI.

599 - 500 mid credit score = 2.00% upfront MI and 0.50% monthly MI.

Loan to value greater than 95% (less than 5% down)

850 - 680 mid credit score = 1.25% upfront MI and 0.55% monthly MI.

679 - 640 mid credit score = 1.50% upfront MI and 0.55% monthly MI.

639 - 600 mid credit score = 1.75% upfront MI and 0.55% monthly MI.

599 - 560 mid credit score and non-traditional credit = 2.00% upfront MI and 0.55% monthly MI.

559 - 500 mid credit score = 2.25% upfront MI (may be reduced to 2.00% upfront MI if it's a first time home buyer who participates with HUD-approved counseling) and 0.55% monthly MI.

Credit scores are determined by the middle of three credit scores when three scores are available.  If a borrower only has two scores, then the lower of the two scores will be used.  When there are more than one borrower, the lowest "mid score" of all borrowers will be used to determine the required amount of mortgage insurance.  For information on non-traditional credit (weak credit history), click here.

NOTE: although FHA is offering mortgage insurance on lower credit scores, most lenders have their own price adjustments on FHA mortgage loans with credit scores under 600 and will not provide a FHA mortgage when a mid score is under 580.

All FHA insured loans have private mortgage insurance--even if the borrower is putting 50% down and will remain on the mortgage for a minimum of 5 years AND 78% of the original loan balance.

Check out the article I wrote at Rain City Guide on these changes which has examples of how this impacts a mortgage loan payment.