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 www.mtgview.blogspot.com or www.dutips.blogspot.com

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 www.mtgview.blogspot.com or www.dutips.blogspot.com

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 http://www.grants.gov/ 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 www.mtgview.blogspot.com or www.dutips.blogspot.com

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.
12-Grants

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 www.mtgview.blogspot.com or www.dutips.blogspot.com

FHA TIP

3/1 FHA ARM

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 http://www.federalreserve.gov/pubs/arms/arms_english.htm

New Mortgagee Letter 2008-17

FHA News
Non FHA-approved Mortgage Bokers – Forward Mortgages 2008-17
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/08-17ml.doc

Mortgagee Letter 08-16 FHA Changes MI

If you are doing FHA loans you must read this mortgagee Letter
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/08-16ml.doc

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

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 www.mtgview.blogspot.com or www.dutips.blogspot.com

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 www.mtgview.blogspot.com or www.dutips.blogspot.com

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 www.mtgview.blogspot.com or www.dutips.blogspot.com

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 www.mtgview.blogspot.com or www.dutips.blogspot.com

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.

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

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

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