5 tips to secure a federally insured mortgage
Mary Umberger
Inman News
In the heady days of the housing boom, so-called FHA loans ended up being the lonely guy sitting on the sidelines.
After all, at that time the mortgage market had a free-flowing and apparently limitless pipeline of funds for borrowers who had little to no money for a downpayment. Demand for the Federal Housing Administration's programs to help first-time and low-income buyers dwindled.
That was then, as they say. This is now, when lending policies have gotten considerably more stringent in the wake of the housing downturn.
Suddenly, the government program that's been around since 1934 is looking a lot more attractive to a lot more people: The agency went from being involved with just 464,000 loans in 2007 to 2 million loans in fiscal 2009, according to a recent speech by its commissioner, David Stevens.
Its share of the market, depending on the region, is 30 to 50 percent.
So, for many homebuyers, FHA is the name of the game these days. Five things to know about FHA mortgages:
1. The FHA doesn't make loans, it insures them. Participants in FHA-insured mortgages get their loans through conventional lenders whose standards meet the FHA's.
The agency's guarantees mean that lenders can be confident that they won't lose money on the loans and can make more of them -- thus, in theory, helping to keep the housing market flowing.
2. FHA loans are attractive to many borrowers because they require as little as 3.5 percent down, compared to the so-called conventional market, which these days typically requires 10 percent down or more for competitively priced rates.
They're relatively easy to qualify for: The FHA places no income restrictions. Borrowers can have middling credit histories. In addition, FHA policies allow borrowers to include gifts from family members in their downpayments.
Currently, the FHA doesn't set a qualifying credit score for borrowers, according to FHA spokesman Lemar Wooley.
"We don't really have a hard minimum score requirement," he said. "We ask our lenders to look at the entire credit picture, with the major requirement being the ability to repay the loan."
However, Wooley said, a 580 score (on an 850-point scale) is set to become the minimal requirement, though an implementation date has not been set. Currently, applicants with scores below 500 do need to increase their downpayments to 10 percent, he said.
The FHA allows borrowers to allocate as much as 43 percent of their income to housing and long-term debt costs, which in the mortgage business is called a back-end ratio; conventional loans vary slightly in that cap, although they generally limit their borrowers to a back-end allocation that's several percent less.
3. FHA's insurance isn't free: Homebuyers with FHA-insured loans will pay an upfront premium at the time of closing (2.25 percent of the purchase price) and then for an extended period will make monthly payments to cover the annual cost of the insurance, 0.5 percent of the amount of the loan, Wooley said.
4. As popular as they are these days, FHA-insured loans aren't for all borrowers.
"I'm not a big fan of government loans," said Dale Robyn Siegel, a White Plains, N.Y., mortgage broker and author of "The New Rules for Mortgages" (Penguin/Alpha).
Siegel says that if conventional loan paperwork is significant, the FHA's is even more daunting. In addition, the FHA is strict about the physical state of the home that's being purchased.
"If the property isn't in good condition, FHA might reject it," Siegel said. "If the FHA borrower is lower-income, and then has lower savings after they close (on the house), you have less money to fix it. So the house needs to be in better condition, out of the gate."
Another potential roadblock: FHA limits the sizes of loans it will insure, from about $271,000 in low-cost areas to nearly $730,000 in high-cost areas.
5. Many borrowers these days think FHA is the only game in town, but it isn't, Siegel said.
"I would always say, 'Get a second opinion,'" she said.
She said some borrowers with bruised credit presume they'd be ineligible for loans in the conventional market, though that's not necessarily so. Borrowers with downpayments of less than 20 percent from those lenders still would have to get mortgage insurance from a private source, she said.
Siegel said the threshold for getting an FHA loan sounds more generous than it would turn out to be in the marketplace. "The FICO score (that FHA will permit) is 580, but good luck, try and get it approved," she said.
More information on FHA-insured mortgages, including its state-by-state listings of mortgage limits, is available at fha.gov.
In the heady days of the housing boom, so-called FHA loans ended up being the lonely guy sitting on the sidelines.
After all, at that time the mortgage market had a free-flowing and apparently limitless pipeline of funds for borrowers who had little to no money for a downpayment. Demand for the Federal Housing Administration's programs to help first-time and low-income buyers dwindled.
That was then, as they say. This is now, when lending policies have gotten considerably more stringent in the wake of the housing downturn.
Suddenly, the government program that's been around since 1934 is looking a lot more attractive to a lot more people: The agency went from being involved with just 464,000 loans in 2007 to 2 million loans in fiscal 2009, according to a recent speech by its commissioner, David Stevens.
Its share of the market, depending on the region, is 30 to 50 percent.
So, for many homebuyers, FHA is the name of the game these days. Five things to know about FHA mortgages:
1. The FHA doesn't make loans, it insures them. Participants in FHA-insured mortgages get their loans through conventional lenders whose standards meet the FHA's.
The agency's guarantees mean that lenders can be confident that they won't lose money on the loans and can make more of them -- thus, in theory, helping to keep the housing market flowing.
2. FHA loans are attractive to many borrowers because they require as little as 3.5 percent down, compared to the so-called conventional market, which these days typically requires 10 percent down or more for competitively priced rates.
They're relatively easy to qualify for: The FHA places no income restrictions. Borrowers can have middling credit histories. In addition, FHA policies allow borrowers to include gifts from family members in their downpayments.
Currently, the FHA doesn't set a qualifying credit score for borrowers, according to FHA spokesman Lemar Wooley.
"We don't really have a hard minimum score requirement," he said. "We ask our lenders to look at the entire credit picture, with the major requirement being the ability to repay the loan."
However, Wooley said, a 580 score (on an 850-point scale) is set to become the minimal requirement, though an implementation date has not been set. Currently, applicants with scores below 500 do need to increase their downpayments to 10 percent, he said.
The FHA allows borrowers to allocate as much as 43 percent of their income to housing and long-term debt costs, which in the mortgage business is called a back-end ratio; conventional loans vary slightly in that cap, although they generally limit their borrowers to a back-end allocation that's several percent less.
3. FHA's insurance isn't free: Homebuyers with FHA-insured loans will pay an upfront premium at the time of closing (2.25 percent of the purchase price) and then for an extended period will make monthly payments to cover the annual cost of the insurance, 0.5 percent of the amount of the loan, Wooley said.
4. As popular as they are these days, FHA-insured loans aren't for all borrowers.
"I'm not a big fan of government loans," said Dale Robyn Siegel, a White Plains, N.Y., mortgage broker and author of "The New Rules for Mortgages" (Penguin/Alpha).
Siegel says that if conventional loan paperwork is significant, the FHA's is even more daunting. In addition, the FHA is strict about the physical state of the home that's being purchased.
"If the property isn't in good condition, FHA might reject it," Siegel said. "If the FHA borrower is lower-income, and then has lower savings after they close (on the house), you have less money to fix it. So the house needs to be in better condition, out of the gate."
Another potential roadblock: FHA limits the sizes of loans it will insure, from about $271,000 in low-cost areas to nearly $730,000 in high-cost areas.
5. Many borrowers these days think FHA is the only game in town, but it isn't, Siegel said.
"I would always say, 'Get a second opinion,'" she said.
She said some borrowers with bruised credit presume they'd be ineligible for loans in the conventional market, though that's not necessarily so. Borrowers with downpayments of less than 20 percent from those lenders still would have to get mortgage insurance from a private source, she said.
Siegel said the threshold for getting an FHA loan sounds more generous than it would turn out to be in the marketplace. "The FICO score (that FHA will permit) is 580, but good luck, try and get it approved," she said.
More information on FHA-insured mortgages, including its state-by-state listings of mortgage limits, is available at fha.gov.
Saturday, July 31, 2010
No need for another tax credit
Some markets will hardly notice absence of stimulus
Steve Bergsman
Inman News
The federal homebuyer tax credit is fading away, and it won't be missed by all.
It looked good on paper: an $8,000 tax credit for first-time buyers and $6,500 for existing homeowners buying a new house.
And, the general consensus is the tax credit helped a lot of first-time buyers enter into homeownership, which a majority of folks still think is a good idea -- despite the destruction of the financial markets and encompassing recession that has forced millions into foreclosure.
So the stimulus did its job, but it couldn't last forever. And if the housing market at this point in the cycle can't push into the positive on its own momentum, there are serious structural problems in the homeownership business and another stimulus would only forestall a reckoning.
In addition, the tax credit literally skipped past a number of individual metros, leaving barely a footprint, so in those particular markets the exit of the tax credit will really not be noticed.
It's going to just take a few months to figure out where we stand, but most believe the housing market has been stabilized and will get stronger before the end of the year.
Before the tax credit headed into the sunset (contracts needed to be signed by April 30 and loans need to close by Sept. 30 -- the closing deadline was extended past the original June 30 expiration), there was a surge of buyers trying to wrap up sales before the contract deadline.
That's going to lead to a drop in sales over the summer months, and normal purchase levels should be reached again in September.
"We got a tremendous jump, both times, when it looked like the tax credits were ending, then there was a fall-off in pending sales," said Jed Smith, managing director of quantitative research at the National Association of Realtors.
According to the Wall Street Journal, the sales decline attributed to the contract deadline for the tax credits was more severe than expected, with some markets showing a drop-off of 25 percent to 30 percent.
In the past, that fall-off was short-lived -- two to three months at the most -- and Smith suspects there will be a pick-up in home sales in August. (According to his data, the fall-off began in May.)
Smith projects home transactions for 2010 will come in around 5.3 million sales, which is where the market has been trending for the last 12 months.
Those are national projections, which, when viewed in isolation, mask a number of anomalies in the tax credit program's implementation.
A few months back, when I interviewed Glenn Plantone -- a Las Vegas real estate investment adviser who founded the Real Estate Insider Club of Las Vegas -- about investor interest in Las Vegas' single-family home market, he alluded to the fact that the tax credit made little impact in his town for the simple reason that so much of the homebuying has been by third-parties (investors) paying cash.
Investors had little use for the tax credit because deals are driven by returns and cap rates.
"Last year, 50 percent of the home purchases were with cash and this year it's 34 percent," said Plantone. "The next largest percentage was by buyers putting down 20 percent or greater of the total cost. The number of buyers actually taking advantage of the tax credit might only be 5 percent to 15 percent."
He added, "last year I sold 14 homes to one buyer and 10 homes to another. I know other Realtors here that have sold 10-20 homes to just one person. That being said, I don't think the tax credit has had as big an effect in this local market as maybe some other markets."
Sales in Las Vegas were down in June (3,360 homes sold that month vs. 4,186 homes sold in May), but that could have been because of hot weather, said Plantone. "We need to see what happens over a few months."
One must also clarify the data points. House sales in Las Vegas may have declined on a month-to-month basis going into the spring, but if one compares May 2010 sales to May 2009 sales they are roughly flat.
Miami has experienced the same "cash" phenomenon as Las Vegas, with some local twists.
"Our typical buyers this year are individuals with a lot cash and foreign nationals who have no interest and no idea about the tax credit," said Patrick O'Connell, a senior vice president with EWM Realtors in Coral Gables, Fla.
The tax credit was not really a buying decision for his clients, O'Connell, said, adding that he could see where it was important elsewhere.
"My brother lives in Cincinnati and he recently bought a $92,000 house. That $8,000 tax credit meant a new healing and cooling system for the house," he said. "That was one of the reasons why (he) bought now."
The tax credit was a lesser factor in some high-end markets. When someone is paying $1 million-plus for a condominium in Manhattan or a home in Newport Beach, Calif., that $8,000 tax credit is negligible.
In June, when the National Association of Realtors reported a sales decline compared to May, home prices in the generally expensive Northeast popped 7.9 percent.
Markets in recovery, and especially those beaten down (like Las Vegas), didn't get the full effect of the tax credits either, said NAR's Smith. "The tax credits might have helped a little bit, but the volume would have picked up regardless of the tax credits."
There is little chance for another round of tax credits because the general feeling is that the country is past the point of getting things stabilized. And for expansion to occur, people need to go back to work. Employment levels, not government programs, will be the key growth factor for the housing market in the months ahead.
"The big issue in buying a house is jobs," Smith asserts. "If the job market is declining, regardless of what incentives you offer people, you are not going to get a lot of sales."
Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade," has been ranked as a top-selling real estate investment book for the Amazon Kindle e-reader.
Steve Bergsman
Inman News
The federal homebuyer tax credit is fading away, and it won't be missed by all.
It looked good on paper: an $8,000 tax credit for first-time buyers and $6,500 for existing homeowners buying a new house.
And, the general consensus is the tax credit helped a lot of first-time buyers enter into homeownership, which a majority of folks still think is a good idea -- despite the destruction of the financial markets and encompassing recession that has forced millions into foreclosure.
So the stimulus did its job, but it couldn't last forever. And if the housing market at this point in the cycle can't push into the positive on its own momentum, there are serious structural problems in the homeownership business and another stimulus would only forestall a reckoning.
In addition, the tax credit literally skipped past a number of individual metros, leaving barely a footprint, so in those particular markets the exit of the tax credit will really not be noticed.
It's going to just take a few months to figure out where we stand, but most believe the housing market has been stabilized and will get stronger before the end of the year.
Before the tax credit headed into the sunset (contracts needed to be signed by April 30 and loans need to close by Sept. 30 -- the closing deadline was extended past the original June 30 expiration), there was a surge of buyers trying to wrap up sales before the contract deadline.
That's going to lead to a drop in sales over the summer months, and normal purchase levels should be reached again in September.
"We got a tremendous jump, both times, when it looked like the tax credits were ending, then there was a fall-off in pending sales," said Jed Smith, managing director of quantitative research at the National Association of Realtors.
According to the Wall Street Journal, the sales decline attributed to the contract deadline for the tax credits was more severe than expected, with some markets showing a drop-off of 25 percent to 30 percent.
In the past, that fall-off was short-lived -- two to three months at the most -- and Smith suspects there will be a pick-up in home sales in August. (According to his data, the fall-off began in May.)
Smith projects home transactions for 2010 will come in around 5.3 million sales, which is where the market has been trending for the last 12 months.
Those are national projections, which, when viewed in isolation, mask a number of anomalies in the tax credit program's implementation.
A few months back, when I interviewed Glenn Plantone -- a Las Vegas real estate investment adviser who founded the Real Estate Insider Club of Las Vegas -- about investor interest in Las Vegas' single-family home market, he alluded to the fact that the tax credit made little impact in his town for the simple reason that so much of the homebuying has been by third-parties (investors) paying cash.
Investors had little use for the tax credit because deals are driven by returns and cap rates.
"Last year, 50 percent of the home purchases were with cash and this year it's 34 percent," said Plantone. "The next largest percentage was by buyers putting down 20 percent or greater of the total cost. The number of buyers actually taking advantage of the tax credit might only be 5 percent to 15 percent."
He added, "last year I sold 14 homes to one buyer and 10 homes to another. I know other Realtors here that have sold 10-20 homes to just one person. That being said, I don't think the tax credit has had as big an effect in this local market as maybe some other markets."
Sales in Las Vegas were down in June (3,360 homes sold that month vs. 4,186 homes sold in May), but that could have been because of hot weather, said Plantone. "We need to see what happens over a few months."
One must also clarify the data points. House sales in Las Vegas may have declined on a month-to-month basis going into the spring, but if one compares May 2010 sales to May 2009 sales they are roughly flat.
Miami has experienced the same "cash" phenomenon as Las Vegas, with some local twists.
"Our typical buyers this year are individuals with a lot cash and foreign nationals who have no interest and no idea about the tax credit," said Patrick O'Connell, a senior vice president with EWM Realtors in Coral Gables, Fla.
The tax credit was not really a buying decision for his clients, O'Connell, said, adding that he could see where it was important elsewhere.
"My brother lives in Cincinnati and he recently bought a $92,000 house. That $8,000 tax credit meant a new healing and cooling system for the house," he said. "That was one of the reasons why (he) bought now."
The tax credit was a lesser factor in some high-end markets. When someone is paying $1 million-plus for a condominium in Manhattan or a home in Newport Beach, Calif., that $8,000 tax credit is negligible.
In June, when the National Association of Realtors reported a sales decline compared to May, home prices in the generally expensive Northeast popped 7.9 percent.
Markets in recovery, and especially those beaten down (like Las Vegas), didn't get the full effect of the tax credits either, said NAR's Smith. "The tax credits might have helped a little bit, but the volume would have picked up regardless of the tax credits."
There is little chance for another round of tax credits because the general feeling is that the country is past the point of getting things stabilized. And for expansion to occur, people need to go back to work. Employment levels, not government programs, will be the key growth factor for the housing market in the months ahead.
"The big issue in buying a house is jobs," Smith asserts. "If the job market is declining, regardless of what incentives you offer people, you are not going to get a lot of sales."
Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade," has been ranked as a top-selling real estate investment book for the Amazon Kindle e-reader.
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housing market,
piercy group,
tax credit,
wesley piercy
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