Monday, December 29, 2008

FHA issues two new mortgagee letters

FHA issues two important ant mortgagee letters
Mortgagee Letter 08-40 This changes or in effect for case numbers order on or after Jan 1, 2009. This mortgagee letter discusses Refinance Calculation for calculating loan amount and other Refinance issues.

Mortgagee Letter 08-41 Termination of FHASecure Program.

Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Wednesday, December 10, 2008

Streamline Loans and Condo's

Another FHA Streamline tip: If you have an FHA loan that propetty type is a condo that is no longer approved with FHA you can streamline it without an appraisal even though it is no longer FHA approved. Steeamline loans with an apprisal must be FHA approved

Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Tuesday, December 9, 2008

FHA changes Q and A site

FHA will begin using a new Frequently Asked Questions (FAQ) service as of December 8, 2008. This change required some modifications to the look and feel of the FAQ site ( ) as well as the need to use a new primary email address for email inquiries to FHA. (This link is also on the left hand side of my FHA Menu Blog)

The new primary email address for FHA is now: (
In addition, clients may also utilize the "Contact FHA" tab on the FAQ site to submit questions directly to FHA.

FHA believes these changes will improve our ability to communicate with our clients and look forward to responding to your needs.

Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Monday, December 8, 2008

What is the LTV/CLTV for streamline loans

Tips on FHA Streamline Loans
What is the LTV/CLTV limit on a Streamline Loan? A Streamline loan without an appraisal has no LTV limit. Your max calculation is based on the previous loan amount + new upfront mip (see my link in the FHA menu for Streamline loan without an appraisal worksheet link). A streamline loan with an appraisal at the begging of the year can not exceed the LTV of 100% with MIP. There is not CLTV limit in regards to either a streamline loan with an appraisal and without.
Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Wednesday, December 3, 2008

Mip on FHA Streamline Loans

Effective with case numbers issued on or after October 1, 2008, through September 30, 2009:
Upfront MIP Streamline Refinance (all types) 1.50%
(UFMIP) Annual (Monthly) - Based on LTV*
(excluding UPMIP) and loan term
> 15 Year Term
Streamline Refinance (all types) > 95.00 = .55
< 95.00 = .50 > < 15 Year Term 90.00 = .25
< 90.00 = None
* LTV must be computed to two decimals (e.g., 95.65)
• Enter "9999" for credit score in Pronto

Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Tuesday, December 2, 2008

FHA Refinance Tools

The current rates will bring a lot of Refinance business: Here are some tools that should help you
FHA has four worksheets you need when you refinance a loan. Choose between them for your scenario. These links are also on my blog in the FHA Menu on the left hand side of the screen under forms.
No Cash-Out/Non Streamline – Refinance Maximum Mortgage Worksheet #1
Cash-Out/Non Streamline - Refinance Maximum Mortgage Worksheet # 2
Streamline Refinance Without Appraisal - Maximum Mortgage Worksheet # 3
Streamline Refinance With Appraisal - Maximum Mtg. Worksheet #4

Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Friday, November 28, 2008

When is a loan eligable for a streamline refinance

The loan you are refinancing must be an FHA Loan (can not have been a FHA Secure Loan). The old and new terms must fall under one of the following scenerio's

ARM-ARM Immediate payment reduction required and the maximum interest rate of the new mortgage doesn't exceed the maximum interest rate of the old.
ARM-Fixed Interest rate on the new Fixed will be no greater than 2% above the current rate of the ARM
Fixed-ARM Interest rate of the new mortgage is at least 2% below the interest rate of the current mortgage
Fixed-Hybrid ARM Immediate payment reduction is required

The loan being refinance must be FHA insured and you can not increase the term of the loan more than 10 years.

Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Thursday, November 27, 2008

What Documents are needed to do a Streamline loan

Putting together a FHA Refinance streamline loan is simple. You generally do not need to document credit, income or appraisal value. There are exceptions and I will go into that at a later date. The following documents are needed for a streamline loan:
Old case number
Original note
12 month Mortgage Rating, if the loan is new document from the time of the new loan(MLHL allows 1x30 days late in the last 12 months)
Application (short version)
– Name, address, social security and phone
– Current employment, phone
FHA Streamline worksheet
New FHA Transmittal
Netting Authorization from FHA Connection
Verification of Social Security number
Borrowers authorization form signed

Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Tuesday, November 11, 2008

HUD Homes can help homeowner strapped for down payment

With the market getting tighter the need to find a 100% loan is becoming increasingly harder to find. Don't forget HUD homes. The borrower finds a realtor that deals with HUD homes and makes a bid on a property that is owned by HUD. If the bid is accepted the down will be specified in the sales contract usually the down is $100, $500. If you want to know more go to

About Buying HUD Homes

Property Searh
Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Monday, November 10, 2008

FHA announces 2009 Loan Limits

FHA issues Mortgagee Letter 08-36 announces 2009 Loan Limits

Attachment I -- FHA Loan Limits for Areas AT CEILING AND ABOVE

Attachment II -- FHA Loan Limits for Areas BETWEEN CEILING AND FLOOR

Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Wednesday, October 29, 2008

Calculating Income to qualify for a mortgage

Processing Tip
The credit freeze has made underwriting more particular than ever. Here are a few pointers to help you get your loan approved the first time. Loans that loose their Accept status when they are underwritten usually loose this because the underwriter calculates the income differently than you did. Many times if the underwriter knew how you calculated the borrowers income they would accept it. If I was processing a loan I would always include the calculation of income in my loan file. Make sure you know the guide lines regarding the income calculation. If you want an exception from the guidelines be sure and state the reason you feel the borrower deserves this exception. Example: overtime usually always requires a two year history. Your borrower has only been on the current job 12 months. However they had overtime in the previous job. In this scenario include a VOE of both jobs documenting a two year history. Don’t assume because an employer requires over time that they underwriter will accept that as a reason to have less than two years.

I also find this IRS web site in determining what income is tax deductable or how it should be reported to be helpful - IRS Frequently Asked Questions . Attached is an income worksheet that you could use to calculate income and include in your loan file

Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Wednesday, October 22, 2008

Hope for Homeowners

Effort continues to be made to help homeowners to avoid foreclosure. HUD releases two mortgagee letters for Hope for America Homeowners 2008-30 and 2008-29. Currently no lender is offering this program but here is a recent article that says some are signing up
Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Monday, September 29, 2008

Don't forget Oct 1, 2008 changes

What is happening today in mortgage lending: The Federal Housing Administration (FHA) has developed form HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary (LT) to replace both mortgage credit analysis worksheets, HUD-92900-PUR and HUD-92900-WS (MCAWs ) remember that this new forms will be required October 1, 2008. The form HUD-92900-A, Addendum to Uniform Residential Loan Application, has also been updated with minor revisions also required October 1, 2008. This information can be found in MTG letter 2008-15Seller paid DPAs will be gone by October 1, 2008 however most lenders have already announced they are no longer accepting new applications with a DPA. If you have some time to spend you can go to this grant website and find a grant. FHA does still accept grants. You can also access this web site by going to my blog clicking on “FHA Tips” on the right hand side, from the FHA Tip page you can find on the left hand side “Helpful FHA Websites” and click on "FHA Allowable Grants". I do want to caution you it would be labor intensive task.The down payment for FHA is scheduled to change January 1, 2009 from 3% to 3.5%The new FHA loan limit will be the greater of $271,050 or 115 percent of an area's median home price, up to $625,500, the temporary limits are still good until Dec. 31, 2008.

Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Tuesday, September 2, 2008

Now DPAs are gone, now what?

Now that DPA’s are pretty much gone. How can your borrower come up with the down payment?

There is always the option to save for the down payment, which seems hard for many borrowers. Other options are:
1-Gifts from a relative, borrowers employer, charitable organization, government agency or public entity or a close family friend (transaction must be documented).

2-Collateralized loans (i.e. borrower has a loan against an auto would be acceptable transaction must be documented as well as the value of the auto)

3-Sale of personal property (i.e. sale a car again the transaction must be documented as well as the original ownership and value of the car).

4-The borrower can borrower from his 401K or IRA the transaction must be documented.

5- Side jobs a borrower would have to document that they received the income and performed the work and could not be done for someone that is involved in the transaction. It could not be used as qualifying income only for down payment.
6-Employer assistance programs (must be documented)
7-borrower focus on paying off other monthly debt and save future payments towards down payment
8-Commission from sale if the borrower is a licensed real estate agent or a family member the commission can apply towards down payment
9-Sweat Equity this only applies to new homes and must meet requirements of the 4155
10-Cash value from a life insurance policy
11-Rent Credits-this is the cumulative amount of the rental payment that exceed the appraised estimate of fair market rent this is only for lease with option to buy. Must have copies of cancelled checks.

Can you think of any other options?

Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Thursday, July 17, 2008



The 1 and 3-year FHA ARMs are the best ARMS out there right now. As you know there is no pre payment penalty. The index is the Weekly average yield on U.S. Treasury Securities adjusted to constant maturity of one year.

The FHA 1-, and 3-year ARMs allow up to a one percentage point annual interest rate adjustment after the initial fixed interest rate period and up to a five percentage point interest rate cap over the life of the loan. Most ARMS can adjust 2% a year and 6% over the life of the loan.
The FHA 5-, 7-, and 10-year ARMs allow up to a two percentage point annual interest rate adjustment after the initial fixed interest rate period and up to a six percentage point interest rate cap over the life of the loan.The other day I was noticing that a 30 year Fixed rate was paying the same yield at 6.375 as was the 3/1 ARM. If we were to do a loan on the 3/1 arm vs. the 30 year with the loan amount at $100,000 and assuming that worst case on the ARM adjustments, this is what the next five years would look like:

30 year PI payment would be $623.86 at the end of three years the balance on the loan would be $96,336 at the end of four years the balance would be $94,951 and the borrower would have paid a total of $29,945

The 3/1 Arm The first three years the borrower would make payments of $559.97 at the end of the third year their balance would be $95,633. Assuming worst case at the end of the third year and the rate went up 1 % their new payment would be $619.31 and their balance at the end of the fourth year would be $94,258. Lets say the end of the fourth year the rate went up again 1% the new rate would be 7.375 and their payment would be $679.79 it take until the fifth year for the payment to be higher than on the 30 year fixed. The total they would pay out over the four years would have been $27,589 still less than the 30 year fixed. Its going to take several years even after the payment becomes higher than the 30 year fixed before the consumer pays out what they do on a 30 year fixed.

If the borrower made the 30 year fixed payment towards the 3/1 ARM loan the savings would be Hugh by the time they reached the end of their fourth year the balance on the loan would be $91,548. I think the 3/1 ARM is a great program.

Remember if the LTV is higher than 90% on the 1 year arm you have to qualify 1% above the start rate. "You may want to check my math but I think the idea is close"

Want to learn more about ARMS? Try this link out

Wednesday, June 25, 2008

Friday, June 13, 2008

Mortgagee Letter 08-16 FHA Changes MI

If you are doing FHA loans you must read this mortgagee Letter

Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Thursday, May 29, 2008

FHA News

FHA just issued Mortgagee Letter 08-15. This mortgagee letter announces that the MCAW is being replaced with form HUD92900-LT. You may begin using this from June 9th and must use it by October 1, 2008.

FHA Single Family Implements Risk-Based Mortgage Insurance Premiums
Implements risk-based premiums for most Title II single family mortgage insurance programs, enabling mortgage lenders to offer borrowers FHA-insured financing with a range of mortgage insurance premiums based on the risk the insurance contract represents. Effective July 14, 2008.

Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Wednesday, May 28, 2008

FHA Tip: FHASecure Program

FHA Tip: FHASecure
Did you catch mortgagee letter 2008-13 that I sent out a few weeks ago?
The FHASecure program was designed to help borrowers who are facing Non FHA ARMS that are getting ready to reset.
FHA now allows the borrower to have had 2x30 or 1x60 days lates in the prior 12 months before the reset of the ARM.

FHA also allows: Borrowers who are delinquent on their non-FHA ARMs due to a rate reset or the occurrence of an extenuating circumstance but experienced no more than one 90-day late payment or no more than three 30-day late payments prior to the rate reset or extenuating circumstance that caused the delinquency provided the loan-to-value on the FHA insured first mortgages does not exceed 90 percent

Remember your upfront MI is different on this program. Please review Mortgage letter 2008-13 for complete details

Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Monday, May 26, 2008

FHA TIP CABO Standards allow for higher ratios

Did you know that if your property meets CABO standards(Council of American Building Officials) you can have higher ratio's in a manual underwrite?

The ratios can be33/45 for ENERGY-EFFICIENT HOMES (EEH). The benchmark qualifying ratios may both be exceeded by up to 2 percentage points when the borrower is purchasing or refinancing an EEH. These higher housing expense- and obligations-to-income ratios are justified due to the anticipated energy costs savings and become 33 percent and 45 percent, respectively. The appropriate HOC determines if a property qualifies for EEH designation. The original documentation attesting to energy efficiency is required on resales.
All properties meeting the Council of American Building Officials (CABO) 1992 Model Energy Code (MEC) are considered energy efficient and eligible for the two percentage points increase in the qualifying ratios.
You would need the Builder's Certification completed and the builder would need to certifys that the property meets CABO standards. The builder Certification can be found at HUD Clips form number 92541

Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Monday, May 12, 2008

FHA Tip: Properties Under construction or Existing Construction Less Than One Year Old

Properties Under Construction or Existing Construction Less than One Year Old Maximum Financing May Not be Allowed unless...

Properties not meeting the criteria shown below are considered as under construction or existing construction-less than one year old and are limited to 90 percent financing, i.e., 90 percent of the lesser of the appraiser’s estimate of value or sales price, plus or minus the adjustments required by paragraph 1-7, A-C. For a property to be eligible for greater than 90 percent financing, whether or not it has been previously occupied, it must meet one of the criteria described below. Otherwise, the property is classified as "under construction" or "less than one year old" and is limited to 90 percent financing.

1. Construction was completed more than one year preceding the borrower's signature on the Addendum to Uniform Residential Loan Application (form HUD-92900-A, page 2); or

2. The dwelling's site plans and materials were approved by the Department of Veterans Affairs (VA), an eligible DE underwriter, or a builder under FHA's builder certification procedures, (see HUD Handbook 4145.1 REV-2) before construction began; or

3. The local jurisdiction has issued both a building permit (prior to construction) and a Certificate of Occupancy or equivalent. (NOTE: This paragraph does not apply to condominiums or manufactured housing because of the special circumstances regarding their approval.); or

4. The dwelling is covered by a builder's ten-year insured warranty plan that is acceptable to HUD; or

5. The dwelling will be moved to a new location and the property is eligible for an insured mortgage at the new location by one of the methods described in 2 above.

Shirley Nault has been a mortgage professional for over 20 years. Visit her other mortgage web sites go to or

Sunday, May 11, 2008

FHA Tip Max Financing Allowed When Building on Own Land if

FHA Tip "Max Financing Allowed when Building on Own Land" The secret is that the borrower can not receive any cash out in order to obtain maximum financing. Read the 4155

Building on Own Land. If the borrower acts as a general contractor, and builds a house on land that the borrower already owns, or acquires land separately, maximum financing is available if the borrower receives no cash from the settlement. The appropriate LTV limits are applied to the lesser of:
1. The appraised value; or
2. The documented acquisition cost of the property, which includes: (a) the builder's price, or the sum of all subcontractor bids, materials, etc.; (b) cost of the land (if the land has been owned more than six months or was received as an acceptable gift, the value of the land may be used instead of its cost); (c) interest and other costs associated with any construction loan obtained by the borrower to fund construction of the property; (d) the closing costs to be paid by the borrower; and (e) reasonable discount points.
Equity in the land (value or cost, as appropriate, minus the amount owed) may be used for the borrower's entire cash investment. However, if the borrower receives more than $250 cash at closing, the loan is limited to 85 percent of the sum of the appraised value and allowable closing costs. Replenishment of the borrower's own cash expended during construction is not considered as "cash back," provided the borrower can substantiate with cancelled checks and paid receipts all out-of-pocket funds used for construction.

Thursday, May 8, 2008

FHA Tip Max Financing not always allowed on 3-4 unit properties

We have been talking about transactions that do not qualify for maximum financing for FHA programs. There are some situation when a owner occupied 3-4 unit will not qualify for max financing. According to the 4155...
Three- and Four-Unit Properties. Regardless of occupancy status, the property must be self-sufficient (i.e., the maximum mortgage is limited so that the ratio of the monthly mortgage payment, divided by the monthly net rental income, does not exceed 100 percent). The mortgage calculations described below are in addition to the calculations detailed in paragraphs 1-6 and 1-7.
1. The monthly payment is the principal, interest, taxes, and insurance (PITI), including mortgage insurance, plus any homeowners' association dues, computed at the note rate (no consideration for buydowns may be given).
2. Net rental income is the appraiser’s estimate of fair market rent from all units, including the unit chosen by the borrower for occupancy, less the appraiser’s estimate for vacancies or the vacancy factor used by the jurisdictional HOC, whichever is greater.
This calculation is used only to determine the maximum loan amount. Borrowers must still qualify for the mortgage based on income, credit, cash to close, and the projected rents received from the remaining units. The projected rent may only be considered as gross income for qualifying purposes; it may not be used to offset the monthly mortgage payment.
3. The borrower must have reserves equivalent to three months' PITI after closing on purchase transactions. Reserves cannot be derived from a gift

Wednesday, May 7, 2008

FHA Tip Maximum Mortgage Calculations for non occupying borrowers

We have been talking about transactions that FHA defines THAT AFFECT MAXIMUM MORTGAGE CALCULATIONS. We talked about an Identity of Interest transaction and how it might effect your max financing now lets talk about Non Occupying Borrowers and their possible impact on the maximum mortgage calculation.

"Non-Occupying Borrowers. When there are two or more borrowers, but one or more will not occupy the property as a principal residence, the maximum mortgage is limited to a 75 percent LTV. However, maximum financing, as described in paragraph 1-7, is available for borrowers related by blood, marriage or law (spouses, parent-child, siblings, stepchildren, aunts-uncles/nieces-nephews, etc.), or for unrelated individuals that can document evidence of a family-type, longstanding, and substantial relationship not arising out of the loan transaction. All borrowers, regardless of occupancy status, must sign the security instrument and mortgage note. If a parent is selling to a child, the parent cannot be the co-borrower with the child on the new mortgage unless the loan-to-value is 75 percent or less.
To reduce risk exposure, mortgages with non-occupying co-borrowers are limited to one-unit properties if the LTV will exceed 75 percent. While we do not object to legitimate transactions in which non-occupant borrowers assist in the financing of the property–such as when parents help their children buy a first home–this arrangement may not be used by non-occupant borrowers to develop a portfolio of rental properties. The degree of financial contribution by the non-occupant borrower, and the number of properties similarly owned, may indicate that an investor loan has become the practical reality and that, in effect, family members are acting as "strawbuyers." FHA does not impose additional underwriting criteria on such transactions, such as specific qualifying ratios the occupying-borrower must meet individually." this is per the 4155

Monday, May 5, 2008

FHA May not allow max financing on your deal?

FHA defines TRANSACTIONS THAT AFFECT MAXIMUM MORTGAGE CALCULATIONS. Certain types of loan transactions affect the amount of financing available and the calculation of the maximum mortgage. I would like to review these this different scenerio this week. Let's first talk about "Identity-of Interest Transactions"

" Identity-of-Interest Transactions. Identity-of-interest transactions on principal residences are restricted to a maximum LTV ratio of 85 percent. Identity-of-interest is defined as a sales transaction between parties with family relationships or business relationships. However, maximum financing above 85 percent LTV is permissible under the following circumstances:

1. A family member purchases another family member's home as a principal residence.
If a property is sold from one family member to another and is the seller's investment property, the maximum mortgage is the lesser of either:
a. 85 percent of the appraised value, or
b. The appropriate LTV ratio percentage applied to the sales price, plus or minus required adjustments. The 85 percent limit may be waived if the family member has been a tenant in the property for at least six monthimmediately predating the sales contract. A lease or other written evidence must be submitted to verify occupancy.

2. An employee of a builder purchases one of the builder's new homes or models as a principal residence.

3. A current tenant purchases the property that he or she has rented for at least six months immediately predating the sales contract. (A lease or other written evidence must be submitted to verify occupancy.)

4. A corporation transfers an employee to another location, purchases that employee’s home, and then sells the home to another employee." This is per the 4155.1

Friday, April 25, 2008

Did you know a family Memember can Lend the borrower their downpayment and closing cost? Read the 4155

Family Member Lending-Family members (defined below) may help with the costs of acquiring a home in the form of a gift or a loan. All such gifts must also meet the requirements of paragraph 2-10(C). FHA permits family member to lend on a secured or unsecured basis, up to 100 percent of the homebuyer's required cash investment. This lending may include the downpayment, closing costs, prepaid expenses and discount points. If the money lent by the family member is secured against the subject property, whether borrowed from an acceptable source or from the family member's own savings, only the family member provider(s) may be the note holder. FHA will not approve any form of securitization of the note that results in any entity other than the family member being the note holder, whether at loan settlement or at any time during the mortgage life cycle.
Further, if the funds that are lent by the family member are borrowed from an acceptable source, the homebuyer may not be a co-obligor on that note (e.g., the son and daughter-in-law may not be co-obligors on the note used to secure money borrowed by the parents that in turn was lent for the down payment).

The following financing terms and conditions also apply:

1. The maximum insurable mortgage is not affected by gifts or loans from family members.

2. The combined amount of financing may not exceed 100 percent of the lesser of the property's value or sales price, plus normal closing costs, prepaid expenses, and discount points. While the family member may lend 100 percent of the cash investment requirements, cash back to the homebuyer (beyond refund of any earnest money deposit) at closing is not acceptable.

3. If periodic payments of the secondary financing are required, the combined payments may not exceed the borrower's reasonable ability to pay. The secondary financing payments are to be included in the total debt-payment-to-income ratio (i.e., the "back-end" ratio) for qualifying purposes.

4. The second lien may not provide for a balloon payment within five years from the date of execution.

5. If the family member providing the secondary financing borrows those funds, the source may not be any entity with an identity-of-interest in the sale of the property, including the seller, builder, loan officer, real estate agent, etc. Mortgage companies that have retail banking affiliates may have that entity make a loan to the family member, providing the secondary financing for the home purchase. However, the lending institution may not make such financing available under terms and conditions more favorable than to other borrowers (i.e., there may not be any special considerations provided in connection between making the mortgage and lending funds to family members to be used as secondary financing for the purchase of the home).

6. An executed copy of the document outlining the terms of the secondary financing must be maintained in the lender’s file. An executed copy of this agreement also must be provided in the endorsement binder.

For the purposes of this paragraph, a “family member” is defined as a child, parent, or grandparent of the borrower or borrower’s spouse. Included in this definition are legally adopted sons or daughters (and a child who is a member of an individual's household, if placed with such individual by an authorized agency for legal adoption by that individual), and foster children. The term "child" means a son, stepson, daughter, or stepdaughter.

Thursday, April 24, 2008

FHA Tip: Down Payment can be borrowerd?

Did you know that there are circumstances where your borrower can borrower the down payment? This is per the 4155
Collateralized Loans. Funds can be borrowed for the total required investment as long as satisfactory evidence is provided that the funds are fully secured by investment accounts or real property. Such assets may include stocks, bonds, real estate (other than the property being purchased), etc.
In addition, certain types of loans secured against deposited funds, such as signature loans, the cash value of life insurance policies, loans secured by 401(k)s, etc., in which repayment may be obtained through extinguishing the asset; do not require consideration of a repayment for qualifying purposes. However, in such circumstances, the asset securing the loan may not be included as assets to close or otherwise considered as available to the borrower.
An independent third party must provide the borrowed funds. The seller, real estate agent or broker, lender, or other interested third party may not provide such funds. Unacceptable borrowed funds include signature loans, cash advances on credit cards, borrowing against household goods and furniture and other similar unsecured financing

Wednesday, April 23, 2008

FHA Tip: FHA only allows a borrower to have one FHA loan except..

HUD only allows a borrower to have 1 FHA loan. Unless... according to the 4155 there are 4 scenerios that allow an exception to this rule:

"A.Relocations. If the borrower is relocating and re-establishing residency in another area not within reasonable commuting distance from the current principal residence, the borrower may obtain another mortgage using FHA insured financing and is not required to sell the existing property covered by a FHA-insured mortgage. The relocation need not be employer mandated to qualify for this exception. Further, if the borrower returns to an area where he or she owns a property with an FHA-insured mortgage, it is not required that the borrower re-establish primary residency in that property in order to be eligible for another FHA insured mortgage.
B. Increase in Family Size. The borrower may be permitted to obtain another home with an FHA-insured mortgage if the number of legal dependents increases to the point that the present house no longer meets the family's needs. The borrower must provide satisfactory evidence of the increase in dependents and the property’s failure to meet the family's needs.
The borrower also must pay down the outstanding mortgage balance on the present property to a 75 percent or lower loan-to-value (LTV) ratio. A current residential appraisal must be used to determine LTV compliance. Tax assessments, market analyses by real estate brokers, etc., are not acceptable as proof of LTV compliance.
C. Vacating a Jointly Owned Property. If the borrower is vacating a residence that will remain occupied by a co-borrower, the borrower is permitted to obtain another FHA-insured mortgage. Acceptable situations include instances of divorce, after which the vacating ex-spouse will purchase a new home, or one of the co-borrowers will vacate the existing property.
D. Non-Occupying Co-Borrower. A non-occupying co-borrower on property being purchased with an FHA-insured mortgage as a principal residence by other family members may have a joint interest in that property as well as in a principal residence of their own with a FHA-insured mortgage. (See paragraph 1-8 B for additional information).
Under no circumstances may investors use the exceptions described above to circumvent FHA’s ban on loans to private investors and acquire rental properties through purportedly purchasing "principal residences." Considerations in determining the eligibility of a borrower for one of these exceptions are the length of time the previous property was owned by the borrower and the circumstances that compel the borrower to purchase another residence with an FHA-insured mortgage. In all other cases, the purchasing borrower either must pay off the FHA-insured mortgage on the previous residence or terminate ownership of that property before acquiring another FHA-insured mortgage "

Keep in mind scenerio B is very hard to prove.

Monday, April 21, 2008

FHA Tip Counting Future Raise

FHA allows a borrower to use a raise if it is documented by the employer and received 60 days from the date of closing. Remember that the underwriter will look at the over all risk and make sure that this makes sense. Sometimes underwriters will require that the paystub is received showing the raise before closing. Make sure you know what the 4155.1 says so that you can communicate this with your underwriter and discuss the risk that the file could have with out the documentation. This information is found in 4155.1 Rev 5 Paragraph 2-7

Tuesday, April 15, 2008


requires that condo's be approved by FHA. You can check the condo approvals by going to this web site Here you will find your Condo ID.

If you Condo is not approved you can refer to Mortgage Letter 8-1-96 and possibly do a spot approval. You will need the Home Owners Association to complete items 1-13. This will be submitted with you loan and the DE underwriter has the authority to approve Spot condo's

The section of the act for condo's is 234(c). The ADP code if it is a Fixed rate is 734, if it is an ARM 731 and if it is a buy down it is 797

Town homes and PUD fall under the FHA section of the ACT 203b and do not have to be approved by HUD.

The MIP is calculated the same as on the 203b program (previously this was not the case but changed with Mtg letter 2005-38)

Wednesday, March 26, 2008

The 6% Seller Contribution can pay for...?

We have already addressed that FHA allows up to a 6% seller contribution (this does not take in to account and contribution that seller may make to a DPA) . The 6% contribution is the accumulation of fees paid by the seller, builder or realtor on behalf of the borrower. The 6% can not go towards down payment but it can cover:
Discount Points
Buydown Fees
Buyers closing Costs
Up-Front MIP (must cover all or none)
Can pay one years HOA fees or property taxes.

If these fees were to go toward upgrades in the property this would be considered an unacceptable concession, unless it was required by the property inspection or appraisal (in this case however it would not be necessary to the count these cost towards the seller concession fee).

However up grades can be made but payment must go to a third party and is not considered part of the seller concession even if not required by the appraisal or inspection. This scenario would require that it is part of the REPC stating the improvements made and who the third party funds will go to. The upgrades must usually be complete prior to closing and confirmed as completed by the appraiser or inspector. Even in this case the cost of improvements need not be considered as part of the 6% contributions.

Tuesday, March 25, 2008

What is the Section of the ACT and ADP Code?

What is the Section of the ACT and ADP Code?
FHA applicable Section of the act and ADP code is required to be on the Loan Application and the MCAW.

What is the Section of the Act? FHA loans are authorized by Congress. The ACT that Congress approved the program is referred to the Section of the ACT. In addition there are sub categories that fall under ADP codes. An example of this is a Standard 30 year fixed FHA loan falls under the section of the act 203(b) and if it is not a condo the ADP code is 703. If it is an ARM the section of the ACT is the same but the ADP code is 729. Make sure you always use the correct section of the act and ADP code. Please find an attached table breaking these down.

FHA Section of the Acts and ADP codes
Loan Description -Section of the ACT -ADP Code*
Fixed Rate -203(b)- 703
Arm Rate 203(b)- 729
Buydown- 203(b) -796

Fixed Rate Rehab Program-203(k) -702
Arm and Type -234 (c ) -734
ARM Condo -234 (c ) -731
Fixed Rate Condo-234(c)-734
Condo Under $50,000-234 (c ) -749
Condo-Buydown -234 (c ) -797

Buydowns and under priced homes take presidents
*Direct endorsement if FHA processed the 700 is replaced with 200

Thursday, March 20, 2008

Self Employed Income

Self-Employed borrowers -FHA considers a borrower owning 25% or more of a business as being self employed. If someone has 1099 income this does not make them self employed. However the documentation requirements are the same if more than 25% of the borrowers income is from commission income.

Why is this important to identify if someone is self employed or not if the documentation requirements are the same? When using the AU systems many times self employed status adds an extra layer of risk and you can loose an approval and get a refer.

FHA considers income from self-employed stable if they have been self employed for two or more years.
Between One and Two Years- an individual self-employed between one and two years must have at least two years of documented previous successful employment (or combination of one year of employment and formal education or training) in the line of work in which the borrower is self-employed or in a related occupation.
Less than one year-The income from a borrower self employed Less than one year may not be considered effective income.

The following documentation is needed for self employed borrower.

Two years Personal and business signed tax returns with all scheduled including W2's 1099's and K1's (Accept loans don't require Business tax returns if 1040's show increasing self employed income over the past two years, and funds to close are not coming form business accounts and the transaction is not a cash-out transaction)

A P&L is not required on a loan that gets an Accept. A P&L on Manuel underwrites is required. Refer require a P&L if

  • 7 months have elapsed since the business tax years ending date and income and
    Income to the self-employed borrower from each individual business is greater than 5% of his or her stable monthly income.

Analyzing Self employed income-The lender must establish the borrower's earnings trend over the previous two years but may average the income over three years, if all three years tax returns are provided. If the borrowers provides quarterly tax returns, the analysis can include income through the period covered by the tax fillings. If the borrower is not subject to quarterly tax fillings or does not file quarterly returns (form IrS 1040 ES), the income shown on the P&L statement maybe included in the analysis, provided the income stream based on the P&L statement is consistent with previous years earnings (I read this and have always said what would be the point than) If the P&L submitted for the current year show an income stream consistently greater than what is supported by the previous years tax returns, the analysis of income must be predicated solely on the income verified through the tax return..

Underwriters will have a problem with income that is declining from year to year. You would need to have a reasonable explanation for declining income and support that the income trend is no longer declining.

Wednesday, March 19, 2008

Manuel underwriting and Ratio's

FHA allows Manuel underwriting although I would always send my loan through DU/LP first (we'll talk about that later). If you do get a Refer you can still do a Manuel underwrite. Remember when having a Manuel uw you must be within FHA ratio guidelines which are 31/43 (new construction meeting CABO requirements can go to 33/45). Compensating factors can help support a higher Ratio. You must be able to provide documentation for the compensating factors.
Here is a list of items the could be considered compensating factors.

  • Less than a 10% increase from old rent/housing payment to the new housing expense
  • A borrower’s excellent savings ability (as shown by savings accounts, IRA’s etc)
  • 3 or more months cash reserves (house payments after closing) that are not part of a gift
  • Limited use of credit, conservative attitude towards the use of credit
  • Borrower has potential for increased earnings (career ladder)
  • Borrower has income that cannot be used as qualifying income
  • Larger than minimum down payment
  • Debt Ratios significantly under maximums
  • Strong credit or credit scores
  • Time on the job, the longer the better
  • Time at current residence, the longer the better
  • Down payment has been saved by borrower verses getting a gift
  • Large Down Payment
  • No recent (last 12 months) derogatory accounts or prior derogatory accounts were caused by extenuating circumstances.
  • Energy efficient dwelling

Wednesday, March 12, 2008

FHA Tip: Seller Contrubutions

FHA Tip: FHA allows a seller to pay up to 6% towards buyers closing cost. If the seller wishes to contribute to a DPA (Down Payment Assistance) program the amount gifted does not count towards the 6% seller contibution (concessions). If the seller wished to contribute up to 6% towards closing cost plus make a 3% donation to a DPA the borrower could get into a home with nothing down. I have included other information on Seller contributions from the 4155.1 below.

"Seller Contributions. The seller (or other interested third parties such as real estate agents, builders, developers, etc., or a combination of parties) may contribute up to six percent of the property's sales price toward the buyer's actual closing costs, prepaid expenses, discount points, and other financing concessions. Contributions exceeding six percent of the sales price or exceeding the actual cost of prepaid expenses, discounts points, and other financing concessions will be treated as inducements to purchase, thereby reducing the amount of the mortgage. Closing costs normally paid by the borrower are considered contributions if paid by the seller. Inducements to purchase are described in paragraph B, below.
The six percent limitation also includes seller payment for permanent and temporary interest rate buydowns and other payment supplements, payments of mortgage interest for fixed rate mortgages and GPMs only (but not principal), mortgage payment protection insurance, and payment of UFMIP.
Fees typically paid by the seller under local or state law, or local custom, such as real estate commissions, charges for pest inspections, fees paid for trustees to release a deed of trust, etc., are not considered contributions. The dollar limit for seller contributions is calculated by using Attachment A on the HUD-92900-PUR/HUD-92900WS. Each dollar exceeding FHA's six percent limit must be subtracted from the property's sales price before applying the appropriate LTV ratio. "

Tuesday, March 11, 2008

FHA Tip Gift Funds

FHA TIP-FHA allows a gift to be used for the 3% required down payment. You need to know that FHA is very strict in the documentation of the gift fund transactions. Each step of gift transaction must be verified from going out of the donors account to being deposited in the borrowers account and also include a gift letter. The transaction for the exact dollar amount must be verified going from the donors account to the Borrowers account. The verification of the transaction into the borrowers account must verify a balance to cover the required down payment and closing cost the borrower would need to bring to closing. Look at the 1003 (or 92900 HUD) details of transaction the dollar amount from the borrower, you have disclosed in this part of the application will be what the underwriter will want verified as assets.

I have provided two sample gift letters I found on the internet. The second gift letter I attached allows the donors bank to certify that the donor has enough funds to cover the gift without disclosing the donors balance. If you use this option to document the donors ability you would still need a copy of the donors check and a copy of the deposit slip showing the gift funds going to the borrowers account.

If you use a bank statement or account history to document the transaction keep in mind the underwriter will look at all deposits and if there is anything that looks unusual they will ask for verification of source of the unexplained deposits. Sometimes it maybe easier to use a VOD.

The following is additional information taken directly from the 4155.1 that you will find helpful

"Gift Funds. An outright gift of the cash investment is acceptable if the donor is the borrower’s relative, the borrower's employer or labor union, a charitable organization, a governmental agency or public entity that has a program to provide homeownership assistance to low- and moderate-income families or first-time homebuyers, or a close friend with a clearly defined and documented interest in the borrower. The gift donor may not be a person or entity with an interest in the sale of the property, such as the seller, real estate agent or broker, builder, or any entity associated with them. Gifts from these sources are considered inducements to purchase and must be subtracted from the sales price. No repayment of the gift may be expected or implied. (As a rule, we are not concerned with how the donor obtains the gift funds provided they are not derived in any manner from a party to the sales transaction. Donors may borrow gift funds from any other acceptable source provided the mortgage borrowers are not obligors to any note to secure money borrowed to give the gift.) This rule also applies to properties of which the seller is a government agency selling foreclosed properties, such as the Veterans Administration or Rural Housing Services. Only family members may provide equity credit as a gift on a property being sold to other family members. These restrictions on gifts and equity credit may be waived by the jurisdictional HOC provided that the seller is contributing to or operating an acceptable affordable housing program.

FHA deems the payment of consumer debt by third parties to be an inducement to purchase. While FHA permits sellers and other parties to make contributions of up to six percent of the sales price of a property toward a buyer's actual closing costs and financing concessions, this policy applies exclusively to the provision of mortgage financing. Other expenses paid on behalf of the borrower must result in a dollar-for-dollar reduction to the sales price. The dollar-for-dollar reduction to the sales price also applies to gift funds not meeting the requirement that the gift be for down payment assistance and is provided by an acceptable source. When someone other than a family member has paid off debts, the funds used to pay off the debt must be treated as an inducement to purchase and the sales price must be reduced by a dollar-for-dollar amount in calculating the maximum insurable mortgage.

If the gift funds are to be provided at closing:

a. If the transfer of the gift funds is by certified check made on the donor's account, the lender must obtain a bank statement showing the withdrawal from the donor's account, as well as a copy of the certified check.

b. If the donor purchased a cashier's check, money order, official check, or any other type of bank check as a means of transferring the gift funds, the donor must provide a withdrawal document or canceled check for the amount of the gift, showing that the funds came from the donor's personal account. If the donor borrowed the gift funds and cannot provide documentation from the bank or other savings account, the donor must provide written evidence that those funds were borrowed from an acceptable source, i.e., not from a party to the transaction, including the lender. "Cash on hand" is not an acceptable source of the donor's gift funds.

Regardless of when the gift funds are made available to the homebuyer, the lender must be able to determine that the gift funds ultimately were not provided from an unacceptable source and were indeed the donor's own funds. When the transfer occurs at closing, the lender remains responsible for obtaining verification that the closing agent received funds from the donor for the amount of the purported gift and that those funds came from an acceptable source. "

We will review DPA (Down payment assistant ) programs later

Monday, March 10, 2008

FHA Use a MCAW instead of a 1008

w FHA Tip Use a MCAW instead of 1008
FHA Tip Use a MCAW instead of 1008

FHA Tip of the Day: FHA does not use a 1008 "Uniform Underwriting and Transmittal Summary. They use a Mortgage Credit Analysis Worksheet -Purchase Transaction known as a MCAW (HUD 92900-PUR) or
Mortgage Credit Analysis Worksheet (HUD-92900-WS) used for Refinance transaction. I have included a copy of each along with the instructions. Notice you can find the form numbers at the bottom of the page. I am sure you will find these in your loan origination systems.

Make sure you use the correct MCAW for your transaction. The next step which is a must, make sure the MCAW is completed correctly. You will use this form to communicate with the underwriter how you are structuring your loan. The work sheet should be complete including the case number, section of the act and include CAIVRS in box 16 and the LDP/GSA which you can get in FHA connection.

Any seller paid closing cost must be listed in Box 5. This does not include money given to a DPA. A seller can pay up to 6% closing cost plus their contribution to a DPA. It the seller is paying more closing cost than the borrower has the difference will go toward reducing the sales price. The borrower would still have to bring in the required 3% down payment from their own funds. The great thing about FHA is they consider gifts as the borrowers own funds.

Box 10a must match your sales contract on form HUD (92900-PUR). Line 10 H must show at least 3% needing to come from borrowers funds.

12I list all gift funds (92900-PUR)

Box 13 so often the monthly mip is not included (this is calculated by taking .50% x box 3a/12) hazard insurance, taxes and any HOA fees must be included.

When doing an FHA streamline loan box 5, 11, 12, 14, and 15 of the HUD-92900-WS will be left blank.

Refinance loans that have a MIP refund should be entered on line 10d of the HUD-92900-WS.

You will want to use your MIP streamline worksheet to determine your loan amount which we will go over on another day.

Not all Origination systems automatically calculate this MCAW correctly. Until you know you system I would double check the figures manually. This also will give you great insight on how the MCAW is used as a very helpful tool in underwriting the file.

Friday, March 7, 2008

FHA does not securitize mortgage loans. They Endorse (Insure) them.

Today's FHA Tip: FHA doe not purchase (securitize) mortgage loans. They only insure (endorse) them. A closed FHA loan must receive a Mortgage Insurance Crertificate (MIC).

The process for this goes as follows, an FHA loan must be originate, underwritten and closed and funded meeting FHA guidelines as outlined in the Handbooks, guides and mortgagee letters for a Title II lender.
When the lender closed the loan they will collect the upfront MI and submit the funds to HUD, now days this is usually done as a wire. Lenders have only 10 days to get the funds to HUD or incur a late fee. A lender may have to send the original FHA loan file (aka the case binder) to the HOC (Home Ownership Center, in our case Denver) for review many lenders are authorized to insure their own loans (this privilege is based on default rate). In both case if requirements are meet in the originating, processing, underwriting, closing and funding areas the MIC can be issued. Only at this point is the loan considered an endorsed FHA loan and the loan is officially insured. If a loan does not receive a MIC it is not considered an endorsed FHA loan regardless of how it is closed. Everyone has a problem when this happens.

When doing a refinances from an FHA loan to an FHA, before determining you can do a streamline loan or giving any MIP Refunds (we will talk about Stream line loans and MIP Refund later) make sure the loan is insured (aka endorsed). You can find this information in FHA Connection by using the old FHA case number. FHA Connection will also show if they have an up front MIP refund which can be applied towards their new upfront MIP.

If FHA receives a case binder that is incomplete the lender will receive a NOR (Notice of Return). If a lender receives an NOR they may contact the broker for help to get the problem resolved.

Why do I bring this up? 1- This will give you the heads up to always check the old case number in FHA Connection to make sure the previous loan was endorsed if your doing an FHA refinance. You may find the loan amount on the NOTE is not the loan amount that was endorsed, if a mistaken was made in calculating the original loan amount the lender may have had to pay this down and this could impact your numbers on the new loan. Unfortunately I have seen my share of FHA loans that were not endorsed or the loan amount was adjusted, even though it doesn't happen that often.

2-IF you are contacted by a Lender because they have received a NOR please give them as much help as you can to get the loan endorsed. Lenders will usually try to resolve this themselves before contacting the broker. This is in the best interest of everyone.

Keep in mind the review for endorsement its not a complete audit of the file only a cursory review in most cases.