The Mortgage Porter

FHA Loan Limits for homes located in Washington State for November 18, 2011 and 2012

A few days ago, HUD confirmed the 2012 FHA Mortgage limits which have been restored to the higher "temporary" higher loan limits effective November 18, 2011. This morning, HUD's site is reflecting the revised loan amounts.   

Here are the 2012 FHA loan limits which are retroactive for case numbers obtained November 18, 2011 or later for homes located in Washington:

King County, Snohomish County and Pierce County

• 1 Unit: $567,500
• 2 Unit: $726,500
• 3 Unit: $878,150
• 4 Unit: $1,091,351

Benton and Franklin Counties:

• 1 Unit: $275,000
• 2 Unit: $352,050
• 3 Unit: $525,550
• 4 Unit: $528,850

Chelan and Douglas Counties:

• 1 Unit: $342,700
• 2 Unit: $438,700
• 3 Unit: $530,300
• 4 Unit: $659,050

Clallam County:

• 1 Unit: $384,100
• 2 Unit: $491,700
• 3 Unit: $594,350
• 4 Unit: $738,650

Clark and Skamania Counties:

• 1 Unit: $418,750
• 2 Unit: $536,050
• 3 Unit: $648,000
• 4 Unit: $805,300

Island County:

• 1 Unit: $381,250
• 2 Unit: $488,050
• 3 Unit: $589,950
• 4 Unit: $733,150

Jefferson County:

• 1 Unit: $437,500
• 2 Unit: $560,050
• 3 Unit: $677,000
• 4 Unit: $841,350

Kitsap County:

• 1 Unit: $475,000
• 2 Unit: $608,100
• 3 Unit: $735,050
• 4 Unit: $913,450

Kittitas County:

• 1 Unit: $328,750
• 2 Unit: $420,850
• 3 Unit: $508,700
• 4 Unit: $632,200

Mason County:

• 1 Unit: $310,000
• 2 Unit: $396,850
• 3 Unit: $497,700
• 4 Unit: $596,150

San Juan County:

• 1 Unit: $593,750
• 2 Unit: $760,100
• 3 Unit: $918,800
• 4 Unit: $1,141,850

Skagit County:

• 1 Unit: $373,750
• 2 Unit: $478,450
• 3 Unit: $578,350
• 4 Unit: $718,750

Thurston County:

• 1 Unit: $361,250
• 2 Unit: $462,450
• 3 Unit: $559,000
• 4 Unit: $694,700

Whatcom County:

• 1 Unit: $375,000
• 2 Unit: $480,050
• 3 Unit: $580,300
• 4 Unit: $721,150

Adams, Asotin, Cowlitz, Ferry, Garfield, Grant, Grays Harbor, Lewis, Lincoln, Okanogan, Pacific, Pend Oreille, Spokane, Stevens, Whakiakum, Walla Walla, Whitman and Yakima Counties:

• 1 Unit: $271,051
• 2 Unit: $347,009
• 3 Unit: $419,425
• 4 Unit: $521,250

Related post:

2012 Conforming Loan Limits

How Disputes on Your Credit Report May Impact Obtaining a Mortgage

Reviewing your credit report and disputing information that is being wrongly reported about you is your right under the Fair Credit Reporting Act. Obtaining your credit report and making sure that it's accurate is financially responsible and your duty to protect your credit. And the Federal Trade Commission provides you tips on how to dispute items on your credit report.  Did you know that lenders may not accept a credit report where it indicates there is a disputed item? 

It doesn't matter if you have perfect credit or a low loan to value, Fannie Mae and Freddie Mac guidelines are forcing lenders to provide a credit report without disputes. I've recently had transactions where the borrower doesn't recall disputing anything and the debtor doesn't have record of the dispute yet this "dispute" needs to be removed from the credit report or the lender/bank will not accept the loan. This is one reason why anyone considering a mortgage for refinancing or purchasing a home should obtain a copy of their credit report very early on. It can take a great deal of time to have disputes removed if a borrower does this on their own.  

The other option is for a "rapid rescore" which whittles down the process to days. The irony in this is that rapid rescore is not free and it is the credit bureaus and reporting agencies who profit when this service is done - I really have a problem with this when my client and the creditor state there are no disputes of record yet somebody has to pay to have these items quickly removed to accommodate a closing date. Often times, the lender absorbs the cost of the rapid rescore however this eventually drives up the overall cost of doing business and eventually, the consumer pays.

In my opinion, this is something that Fannie Mae and Freddie Mac need to change pronto. Well qualified borrowers should not have to go through these hoops or have their mortgage denied. A simple written letter of explanation signed by the borrowers and possibly the creditor *should* suffice instead of requiring the credit report not show any sign of a dispute. Apparently back in 2009, Fannie was reviewing their policy however, I'm not aware of any significant changes.  

If our government wants to help the housing industry and our economy, this practice needs to stop now.

The Low Down: Comparing FHA to Fannie Mae Homepath Mortgages

If you're thinking about buying a home with minimum down payment requirements in the greater Seattle area, you may be considering a property that is owned by Fannie Mae and eligible for the Fannie Mae Homepath Mortgage or using an FHA insured loan which most properties qualify for.  When home buyers contact me about a Fannie Mae Homepath mortgage, they often ask how it compares to an FHA insured loan. Both are great programs and the benefits may vary depending on credit score, down payment and the type of property.   

Rates quoted are as of 8:45 am on September 13, 2011 and are subject to change and are based on mid-credit scores of 740 or higher and a sales price of $340,000.

Fannie Mae Homepath. Currently Fannie Mae is offering an incentive to buyers of 3.5% towards their closing cost and prepaids for transactions that close by October 31, 2011 on qualifed Homepath properties.  With this scenario, a 3.5% contribution towards closing cost is generous enough to buy down the mortgage rate with discount points.  Fannie Mae Homepath mortgages do not require appraisals.  Fannie Mae Homepath Mortgages are only avalable on homes designated by Fannie Mae.

• Rate: 4.500% for 30 year fixed rate priced with discount points of 0.817% paid by the seller's buyer incentive (apr 4.709%).
• Payment: $1,671 for principal and interest. There is no private mortgage insurance for credit scores over 660.
• Minimum down payment (3% of sales price): $10,200.

FHA. Sellers can contribute towards closing cost and prepaids with an FHA transaction as well as l1ong as it's agreed to in the purchase and sales agreement. FHA loans are available on most homes that do not exceed loan limits and HUD approved condos. Unlike the Homepath Mortgage, FHA mortgages DO require an appraisal.  FHA mortgages may be assumable to qualified buyers in the future and FHA mortgage insurance will drop off after 60 payments AND the loan reaches 78% loan to value.

• Rate: 3.750% for 30 year fixed priced with 1.107% rebate credit (apr 4.476%).
• Payment: $1,846.48 for principal interest ($1,534.68) and mortgage insurance ($311.80).
• Minimum down payment (3.5% of sales price): $11,900

Which scenario is best for you depends on your personal financial scenario and goals. I'm pleased that I able to offer both programs to you if you're considering a home that's located anywhere in Washington state.  

If you have questions about any of these programs or are interested in a mortgage, please contact me.

Shallow Credit can leave you in the Deep End when Qualifying for a Mortgage

When in comes to qualifying for a mortgage, lenders are generally looking for borrowers who have established a history of paying their obligations on time. Ideally this would consist of four accounts that have been open and used for the last one to two years.  When someone does not have active accounts, or when their accounts are all new, their credit history appears "shallow" to some lenders.

You don't have to be a first time home buyer to have "shallow credit". 

Recently I helped a couple in Bellevue who were buying a "move-up" home using a jumbo loan for financing. They had excellent credit, plenty of savings and liked to pay cash instead using credit. When they did use credit, they would payoff and close the account immediately. You could see they had a credit history, they even had stellar credit scores, but they lacked having active trade-lines. One lender that we worked with actually declined the loan. Luckily we have several resources for non-conforming mortgages and we closed on the transaction after we switched to a different lender with less rigid guidelines.

Credit scores are impacted more dramatically for borrowers with "shallow credit" over those with established credit.

Because the borrower has less of a credit history to illustrate their borrowing and repayment patterns, their credit scores tend to be more sensitive to situations than a person with a long established good credit history. Don't get me wrong, an established credit user with great scores will suffer a ding if they make a late payment or open a new debt, however it tends not to be as damaging as it is for someone with a lighter history.  

What can you do to improve your credit history? Here are some tips for if you are considering getting a mortgage:

• Pay your debts on time. NOTE: paying off and closing an account where you have made a late payment will not erase the damage from the late payment...in fact, it might hurt your score more if that account was established...
• Do not close established credit accounts. Credit bureaus LOVE established credit history. If you have an older account, you may want to consider using it to buy a tank of gas or groceries and pay it off each month. If the account is not kept active, it will eventually be treated as a closed account and you will no longer receive points for that positive history.
• Do not obtain new debt. New cars and credit cards will drop your score.  Not only is it a new debt "ding", you're also getting dinged for having a debt at 100% of it's credit line.
• Keep your debts below 50% of the credit limit (30% is even better).  For example, if you have a credit card that has a credit line of $1,000; try to keep your balance below $500 or 50% of that credit line. 
• WAIT to pay off collections. Sadly the scoring system factors this as new activity (kind of like getting a new collection) against your score. Often times it may be best to pay off the collection at closing if needed. Your Licensed Mortgage Professional can help you determine this.

Other tidbits about credit scoring...

• Size doesn't matter with credit scoring. Paying down a smaller credit card has the same impact as paying down a larger one. (I recommend starting with the accounts that will take the least amount of funds to pay down). And a $70 collection hurts your score just as much as a $700 or $7000 collection.  
• Charge-offs hurt. Many borrowers believe that because the creditor has written off a debt, they're in the clear when they actually still owe on the debt. When a charge-off is reported to the credit bureau, they are viewed (and scored) as a collection.  

If you are planning on buying a home in the next year or refinancing, it doesn't hurt to start very early with a mortgage professional who can help you review your credit and provide advice to help you be in the best position possible.  It's more important than ever with tighter underwriting guidelines and mortgage rates that are based on credit scores.  I often meet people who have tried to fix their own credit, believing they're doing what any normal person would believe are the right things (like paying off debt and closing accounts) only to discover they're scores have tanked. It takes time to repair or establish good credit.

If you, or someone you know, is considering buying or refinancing a home anywhere in Washington, I'm happy to help!

How much can Sellers contribute towards Closing Cost?

If negotiated in your purchase and sales agreement, a Seller may agree to chip in towards some or all of your bona fide closing costs, prepaids and reserves.  They cannot contribute towards your down payment.  The amount the seller can contribute varies depending on the program type and the amount of home buyer's down payment. The percentage is based on the sales price and if the credit exceeds the closing cost, the mortgage originator can often use it towards discount points to buy down the interest rate. 

Conventional: Fannie Mae/Freddie Mac - Owner Occupied

• 25% or more down payment = 9% allowed seller contribution
• less than 25% down and up to 10% down payment = 6% allowed seller contribution
• less than 10% down payment = 3% allowed seller contribution
• Fannie Mae Homepath:  less than 25% down = 6% allowed contributions; 25% down or more = 9% allowed contributions

Conventional: Fannie Mae/Freddie Mac - Second Home

• 25% or more down payment = 9% allowed seller contribution
• less than 25% down and up to 10% down payment = 6% allowed seller contribution

Conventional: Fannie Mae/Freddie Mac - Non-Owner Occupied/Investment (including Fannie Mae Homepath)

• 2% maximum seller contribution

FHA:

• 6% maximum seller contribution.  Seller contributions CAN include the upfront mortgage insurance premium.  NOTE:  There has been a lot of rumbling that the seller contribution is going to be reduced.  This has not happened as of this post.

VA:

• 4% closing cost contribution and an additional possible 4% sales concession (i.e. paying off debts)

USDA:

• No limit to how much sellers can contribute (is limited by actual closing costs/prepaids).   NOTE: When a home appraises higher than the sales price, closing costs can be financed with USDA rural loans up to the difference between the sales price and appraised value.

It's very important that you let your mortgage originator know if you're working with a seller contribution (or any contribution) towards closing cost.  It's also a good idea to have your real estate agent contact your mortgage originator before presenting an offer so that everyone is on the "same page" with the contributions that are potentially being proposed in a real estate transaction.  

The only time I've seen issues with closing costs contributions is when it has not been communicated to the the lender.  Contributions from real estate agents towards closing costs are treated the same as a seller contribution so it may be possible to have "too much credit".   When this happens, contributions are treated as sales concessions which is a different animal than a seller contribution.

Also be aware that some lenders may have their own guidelines (underwriting overlays) that reduce or impact the allowed contribution limits stated above. 

How Much Do I Need for Down Payment to Buy a Home?

When you buy a home, most loans require a down payment.  A "down payment" is the difference between the loan amount (what is being financed) and the sales price.   Down payment percentages are based on the sales price.  Be prepared for every dollar that is used for your down payment to be documented or sourced (including large deposits reflected on your statements).  In addition to the down payment, there may be closing costs and reserves.  

Closing costs can be paid by lender credit (via an increase in interest rate) and sometimes the seller can contribute to closing costs.  If the seller is paying for closing costs, there may be restrictions based on the program type and the amount of down payment you are making.  If the seller is paying your closing costs, it needs to be negotiated in the purchase and sales agreement.   Reserves are the savings the lender wants you to have in your account after closing typically measured by months of your proposed mortgage payments.   It's safe to plan on at least two months of proposed mortgage payments to be in your bank after closing for "reserves" whether your lender or loan program requries it or not. 

Some home buyers select their mortgage based on down payment requirements.  Here are some different programs beginning zero down payment options for homes that are owner occupied/primary residence.

VA Loans.  If you served our country, thank you.  You may qualify for a VA loan which allows zero down payment and the seller is permitted to pay 100% of your closing costs.   Zero down payment is available up to the VA loan limit, which in King, Pierce and Snohomish county is currently $481,250.   If your loan amount is above the current VA loan limit, your required down payment is 25% of difference between the loan limit and the sales price.   There is no mortgage insurance, however VA loans do have a one time funding fee.

USDA loans.  Homebuyers who are willing to live in a rural area and who meet income guidelines can also buy with zero down payment.  Like VA loans, there is no mortgage insurance and there is a one time funding fee.  Again, USDA loans have income and geographic restrictions.

FHA.  Currently FHA will allow a down payment as low as 3.5%.  Current FHA loan limits in the greater Seattle area is $567,500.  FHA loans do have mortgage insurance (upfront and monthly).  Sellers can currently contribute up to 6% of closing costs and prepaids, however this (and possibly the down payment) guideline are expected to change.  A family member can gift the down payment requirement of 3.5% which would effective make an FHA loan "zero down" for the home buyer.

Conventional.  Conventional programs are Fannie Mae and Freddie Mac programs.  If you're putting down 20% or more, you avoid private mortgage insurance.   Any purchase with less than 20% down payment will most likely have private mortgage insurance.  Seller contributions towards closing costs and gifts from parents vary depending on your amount of down payment.

Private mortgage insurance rates and guidelines vary based on the loan to value (the amount of your down payment), credit scores and programs.  The lower your down payment, the more expensive the cost and the tougher the guidelines are because the loan is more risk for the private mortgage insurance company.

Fannie Mae Homepath.  Fannie Mae's Homepath allows home buyers to purchase a foreclosed home owned by Fannie Mae with as little as 3% down payment, with no private mortgage insurance and no appraisal.  Fannie Mae often offers additional "special" incentive programs, including contributing towards closing cost.  This program is limited to specific homes that Fannie Mae currently owns.

Non-conforming/Jumbo loans. In the Seattle/King County area, any loan that is over $567,500 is a "jumbo loan".   The loan limit varies depending on what county the home is located in.  For homes that are not in a designted "high cost" area, a non-conforming loan amount is any loan $417,001 or higher. 

Plan on at least 20% down payment and having roughly six months reserves after closing depending on how many properties you currently own.  

I do have other resources that will allow a lower down payment of 10% down with a loan limit of $600,000 and "self insurance" (slightly higher rate in lieu of private mortgage insurance). 

What happened to piggy-back mortgages?   Every once in a while I'm contacted by a borrower who is interested in an 80-10-10 which would allow a borrower to put 10% down payment, using a second mortgage to make up for the difference between the first (primary) mortgage and the down payment.   Currently, most lenders are offering a maximum loan to value of 75 or 80% 85% which rules out the 80/10/10 scenario.  UPDATE August 25, 2011: Some of the lenders we work with are offering second mortgages up to 85% loan to value to well qualifed borrowers.

If you are considering buying a home located in Washington state, I'm happy to review your down payment options with you and help you develop your home purchasing plan.

Related post:

How to Buy a Home with $10,000

How Much Home Can I Afford?

Fannie Mae's HomePath Program

Fannie Mae's HomePath program is available to purchase qualified foreclosed homes (owned by Fannie Mae) with expanded conventional guidelines, competitive mortgage rates and often times, with special incentives.  

Here is some basic information about this program created to purchase Fannie Mae foreclosed homes:

• Property must be eligible.  You can find qualified Fannie Mae HomePath properties by clicking here.
• Up to 97% loan to value for owner occupied.
• Appraisals are not required (if there is no private mortgage insurance).  The property value is determined by the contract price.
• No private mortgage insurance if your credit score is 660 or higher.
• Available with High Balance Conforming loan limits.  In King, Pierce and Snohomish Counties, the current high balance loan limit for a single family dwelling is $567,500 $506,000.
• Available for non-owner occupied purchases with no pmi and no appraisal with as little as 10% down payment!

Fannie Mae is promoting a special offer  of up to 3.5% of the sales prices towards the buyers closing costs as well as a $1500 bonus to selling agents for transactions that close before December 30, 2010.   This offer is for owner occupied/primary residences only and Fannie Mae warns that transactions starting November 15 or later may not be able to close in time to qualify for this offer.

Read more about Fannie Mae's Homepath Mortgage here.

UPDATE April 15, 2011:  Fannie Mae is offering incentives again on transactions closing by June 30, 2011.

How to Buy a Home with $10,000

I recently had someone getting ready to buy their first home ask me if $10,000 would be enough for a down payment.  If she had served in the military, she could possibly qualify for a zero down VA loan; this was not an option for her.  USDA loans also offer 100% financing but the area she's considering is not classified as rural. 

An FHA loan will currently allow her to buy a home with as little as 3.5% of the sales price.  Until this summer*, sellers can contribute up to 6% of the sales price towards allowable closing costs and prepaids (*in a few months, this will be reduced to 3%).

So how much with $10,000 buy?  How about a sales price of $285,000.   Here's how that pencils out.

$285,000 x 3.5% required minimum down payment = $9,975.  This is the buyers minimum required investment if utilizing an FHA insured loan.   A parent can gift funds towards this amount, but the seller cannot.

Today's rate for an FHA insured 30 year fixed mortgage is 5.000% assuming we're closing in 30 days (APR 5.620) and priced with zero points to help keep the closing costs down.   Pricing the loan with zero points means that you're asking the seller to contribute $2,750 less than they would if your rate was priced with a point (1% of the loan amount).  This may make your offer more acceptable.

Based on this scenario, if the Seller contributes $5,500 towards allowable closing cost and prepaids, you'll wind up needing approximately $10,000 for your down payment and remaining closing costs.

I did use 6 months for property taxes, which will vary depending on when your first mortgage payment is due.  And I used 15 days of prorated interest which is based on closing in the middle of the month.   Closing towards the end of the month reduces the prorated interest (your cost)...of course the trade off is that you don't own the property until it's closed.

The total monthly payment, including PITI and mortgage insurance, is going to be around $2,000 (depending on interest rate, taxes and home owners insurance).  My scenario has a payment of $1981.  

In addition to your down payment, you may be required to have reserve funds after closing of at least two months proposed mortgage payments.  Based on this scenario, that would be around $4,000 in the bank (stocks, 401k, etc) after closing. 

Also of note, your first payment will not be due until the month after closing unless you close on an interest credit.  This is a great opportunity to "pay yourself" by putting that mortgage or former rent payment into your savings account.  Owning a home does come with expenses...some not always planned.

If you are interested in buying a home located in Washington state, I'm happy to help.   Please contact me or apply on-line by clicking the tab at the top this page.

15 Days Remaining for the Home Buyer Tax Credit

NOTE: this is a post from 2010 and this tax credit is no longer available.

If you are planning on taking advantage of the home buyer tax credit, either as a first time home buyer or a "repeat" home buyer (aka "long time resident"), you have fifteen days to be in a binding sales contract with mutual acceptance.    This means that both you and the seller have ironed out the negotiations which can sometimes take a few days to agree on...so in reality, you probably have less than 15 days unless you submit the "perfect" offer to the seller and they decide to accept it with no counter offers.

If you are hoping to claim the home buyer tax credit, you should check in with your mortgage professional to make sure that your preapproval is still valid.  In the Seattle-Bellevue area, listing agents and sellers expect a preapproval letter to accompany the purchase and sale agreement before they will consider the offer. 

Preapproval letters may expire if your paystubs, bank statements or credit report are outdated.   The terms stated on the preapproval letter should match with the terms of the offer being presented to the seller.  Mortgage rates have been volatile and if your debt to income ratios were "pushed" to the limit, you may or may not be qualifed for what you once were.

If your offer is countered past April 30, 2010 because you didn't have all your ducks in a row with your lender, you may not qualify for the home buyer tax credit.

And before you try to get into a mutual contract before the deadline--it's a good idea to make sure that you actually qualify for the tax credit.  

You may be disqualified from the home buyer tax credit if:

• the government has deemed you make too much money--modified adjusted gross incomes up to $125,000 for a single taxpayer, or $225,000 joint, qualify for the full credit.  Those with MAGI up to $145,000 for a single taxpayer   and $245,000 joint qualify for reduced credit.
• if the purchase price is over $800,000 (better write that offer for $799,950 if your income qualifies).
• if the home being purchased is not going to be your primary residence.
• family members are not eligible (you cannot buy the home ancestors or dependents)
• if the contract is accepted after April 30, 2010
• if the transaction is closing after June 30, 2010

Remember, I'm your mortgage expert for homes located in Washington.  I am not a tax expert--please consult your CPA or tax advisor for more information.

Did You Know that FHA Mortgages are Assumable?

One benefit of FHA insured mortgages is that they are assumable to qualified buyers.  This means that if you have an FHA insured mortgage at today's low rates and you're selling your home during a higher mortgage rate environment, being able to offer a lower rate to potential buyers could provide a distinct advantage over other competing listings.

With how low mortgage rates have been and considering the the potential for inflation, odds are mortgage rates will be higher.  Being able to offer a rate in the 5% range by allowing a buyer to take over your existing mortgage instead of obtaining a new one at a much higher rate could make the difference between a buyer selecting your home over another when it comes time for you to sell.

However there are some things you need be aware of.  Should you allow your mortgage to be assumed by an approved buyer, you may continue to be liable for the mortgage unless you obtain a release of liability from your mortgage servicer (who  you make your mortgage payments to).   Should your buyer, for any reason, not be able to make the mortgage payments on your former mortgage, you may be responsible for payments and your credit impacted without the proper release of liability. 

The Approval of Purchaser and Release of Seller (Form HUD-92210-1) is a form that you, the person allowing the person to assume your FHA insured loan, will want to keep a copy of once your lender completes it.  This is the only way to protect yourself in the event of a "worse case scenario" with the person who assumes the FHA mortgage.   The risk is too significant to the person allowing their mortgage to be assumed with this document.

To obtain a lower than current market mortgage rate is a win for qualified buyers too.  In the Seattle-Bellevue area, the current single family loan limit for FHA insured mortgages is $567,500 and FHA loans have become more popular in our current mortgage climate.

So if you have an FHA insured mortgage, count yourself lucky...when you go to sell your home in the future, you may have an advantage over homes you will be competing with...just be sure to protect yourself with the proper release of liability.