QUICK MORTGAGE GUIDE

Transcription

1 QUICK MORTGAGE GUIDE

2 TABLE OF CONTENTS FNMA CONVENTIONAL LOANS - Page 3 FHA LOANS - Page 7 VA LOANS - Page 11 ADJUSTABLE RATE MORTGAGES - Page 15 CONTACT INFORMATION - Page 16

3 FNMA CONVENTIONAL LOANS The maximum original principal balance on FNMA loans is: Number of Maximum Original Units Principal Balance 1 $417,000 The maximum term on conventional loan can be up to 40 years. Minimum Credit Score of 620 is required. High ratio (95%) loans are available to homebuyers who meet both the FNMA and private mortgage insurance guidelines. As with all real estate transactions, the loan amount is based on the lesser of the sales price or the appraised value. 97% loans may be available to Homebuyers through the Fannie Mae Flex programs. SOURCE OF DOWNPAYMENT GUIDELINES FNMA requires that lenders adequately document the source of all funds to be used for the closing of a home purchase. The following are some specific guidelines: Gifts are acceptable to FNMA with certain limitations. 1. On high ratio loans (85% to 95%) FNMA requires that the borrower have 5% of the purchase price of his own resources in the home purchase. 2. In the case of a 97% loan the Borrower may obtain a gift for all closing costs, pre-paids and down payment. 3. On any loan with an LTV of 80% or less the entire down payment and closing costs can come as a gift. On any gift, a gift letter must be obtained with proof that the funds cited in the letter have been transferred to the borrower or paid (i.e. at closing) in his behalf. Checking, Savings, or Money Market Accounts are the most typical places that assets are verified. Any new accounts or large increases in balances must be adequately explained and documented. 1. Borrowed Funds that are secured by an asset represent a return of equity and are acceptable to FNMA. Assets that may be used to secure funds include certificates of deposit, stocks, bonds, autos, real estate, and life insurance policies. The lender must verify the loan terms including the monthly payment which must be included in the qualifying ratios. 2. Borrowed Funds cannot come from signature loans or credit card advances. Sweat Equity is not allowed on any FNMA conventional loans. Trade Equity is allowed by FNMA providing that the borrower has a minimum or 5% additional cash investment of his own money in the purchase transaction. The equity is determined by subtracting the outstanding loan balance of the property that is being traded, plus any transfer costs, from the lesser of that property s appraisal value or its trade-in value. Cash On Hand is not acceptable under FNMA guidelines. 3

4 INCOME QUALIFYING GUIDELINES Ratios using income and housing expense/obligations are used to determine whether the borrower will be able to meet the expenses involved in homeownership. Ratio guidelines may be exceeded as long as there are documented factors to justify their use. 1. The ratio used on fixed rate mortgages for the housing ratio Principal, interest, taxes, hazard insurance, mortgage insurance, and subordinate financing is 28% for all loans. This ratio is calculated using the gross monthly income for all borrowers divided into the monthly housing expense. 2. The second ratio includes the projected house payment plus any obligations extending 10 months or longer divided by the gross monthly effective income and is 36%. 3. These Ratios may be exceeded if an approval is obtained from FNMA s Desktop Underwriter or Freddie Mac s L. P. (Automated Underwriting Systems). Any approval must be supported with adequate documentation. MAXIMUM SELLING CONTRIBUTIONS The maximum allowable contribution from interested parties are: 1. 3% of the lesser of the sales price or appraised value, if the loan-to-value ratio is greater than 90% and the property will be occupied as a principal residence. 2. 6% of the lesser of the sales price or appraised value, if the loan-to-value ratio is 90% or less and the property will be occupied as a principal residence. 3. 6% of the lesser of the sales price or appraised value, if the loan-to-value is 80% or less (or the combined loan-to-value is 90% or less) and the property will be occupied as a second home. 4. 2% of the lesser of the sales price or appraised value, if the mortgage is a fixed rate loan (regardless of the loan-to-value ratio) and the property is an investment property. Any closing costs normally paid by the property purchaser are considered contributions if they are not paid by the purchaser. Funds received from the purchaser s employer or family are not considered a concession, but are subject to gift guidelines. Contributions include: 1. Funds that are contributed to an interest rate buy down plan for temporary or permanent lowering of the mortgage payment. 2. All other forms of payments or gifts that are related to acquiring the property or to payments of the financing terms loan placement fees, origination fees, discount points, commitment fees, appraisal costs, interest shortfall, transfer taxes, stamps, attorneys fees, surveys, title insurance, fees for the use of real estate tax service, or credits to the purchaser from any interested party are contributions that are subject to our limitations. 3. However, transfer related charges such as costs of title insurance, surveys, or recording fees, if tradition in the market area results in property sellers paying all or a portion of these charges in virtually all sales transactions involving individual sales of both existing and new homes are not considered a contribution. 4. Any contribution above the maximum or contributions that are in the form of personal property (furniture, cars, or giveaways ) must be deducted from the property s sales price before the loan amount is calculated. 4

5 SELF-EMPLOYED INFORMATION Any borrower with 25% or more ownership in a business is considered to be self-employed. A borrower must be self-employed for a minimum of two years or more or have a two year history of previous successful employment in the same occupation (or related field) in order to be eligible for financing. The borrower must disclose in what type of company (i.e., corporation, partnership, etc.) he/she has ownership and provide the required corporate and personal tax returns, profit and loss statements, and other requested documentation for underwriting. A business credit report is not required. Borrowers who have been employed less than two years will be required to furnish a financial pro forma and market feasibility studies. Borrowers who have been self employed less than two years are generally not eligible for maximum financing. BANKRUPTCY A bankruptcy must be discharged fully and the borrower must have re-established good credit and demonstrated an ability to manage financial affairs. 1. Chapter 7: A minimum elapsed time of at least 4 years between the time the bankruptcy was discharged and the mortgage application is sufficient time to re-establish credit. 2. Chapter 13: A minimum elapsed time of 2 years from date of discharge or 4 years from the date of dismissal. 3. In all cases, the lender must have sufficient documentation to document its decision that the borrower is creditworthy FORECLOSURE Generally, FNMA will not purchase a mortgage if the borrower(s) has been a defendant in a foreclosure proceeding during the last 5 years or has returned a property to the lender with a deed in lieu of foreclosure with in the last 4 years. In either case the Borrower is limited to a 90% LTV until the 7th year from the date of foreclosure. A pre-foreclosure sale (short sale) requires 2 years elapsed time period and reestablished credit. If the foreclosure was the result of extenuating circumstances beyond the control of the borrower(s) such as serious illness, death of a principal wage-earner, or loss of employment due to factory shutdown, etc. FNMA will consider purchase of the loan after 2 years, if the borrower(s) has re-established good credit and has demonstrated an ability to manage financial affairs. This exception does not apply if the property involved in the foreclosure was a second home or an investment property. 5

6 ASSUMPTION INFORMATION Generally, on FNMA loans the following are the assumption guidelines: Fixed rate loans (30 and 15 year) These loans are generally not assumable. Adjustable rate loans (30 and 15 year) These loans are generally assumable with a formal qualifying assumption. The fee for the assumption on this loan can vary from $ to 1% of the outstanding balance. FNMA Adjustments to points on FNMA Loans Based on Credit Scores FNMA Adjustments CREDIT SCORE DISCOUNT ADJUSTMENTS Credit Score <=60% >60-70% >70-75% >75-80% >80-85% >85-95% >95% >=740 (.25) (.25) (.25) <620 or no score

7 FHA MAXIMUM MORTGAGE AMOUNTS The FHA Maximum Mortgage amounts for single family properties located in Oklahoma is: $271, The onetime MIP may be added to the above maximum mortgage amount or paid in cash at closing. The Upfront/one time MIP is 1% of the Loan Amount with a renewal premium of 1.15%. The renewal premium Is required for a minimum of 5 years (no matter what the beginning LTV is) The maximum term for FHA loans is 30 years. PROGRAMS The Federal Housing Administration (FHA) insures loans made by lenders in an effort to make available housing to low-to-middle income homebuyers. There are a number of different programs available that have different document provisions. FHA 203b This program allows the homebuyer to obtain a loan up to 96.5% of the sales price or appraised value (which ever is less). This program requires the payments of the one time mortgage insurance premium and a monthly mortgage insurance premium. FHA 203b CO-MORTGAGOR 1. When there are two or more borrowers, but one will not occupy the property as a principal residence, the maximum mortgage is limited to 75% LTV. 2. However, maximum financing is available for borrowers related by blood (parent-child, siblings) or for unrelated individuals that can document evidence of a family type, long-standing and substantial relationship not arising out of the loan transaction. HUD will not object to legitimate transactions where the non-borrower assists in the financing of the property, such as a parent assisting a child with the purchase of their first home or a college student to purchase a house near campus. This arrangement may not be used by non-occupant borrowers to develop a portfolio of rental properties. 7

8 FHA 203k The FHA 203k loan program is a program that enables a borrower to purchase (or refinance) a property and include in the permanent loan the purchase price (or existing balance) plus any rehabilitation work required to bring the property up to the minimum standards. There is a minimum amount of acceptable rehabilitation or $5,000 required. The repair/rehabilitation work is escrowed for at the time of closing with the completion of the work required within 180 days after closing. This program requires only monthly mortgage insurance. The FHA allows the mortgage lender to collect a supplemental origination fee on this program and there are some additional loan processing costs. SOURCE OF DOWN PAYMENT GUIDELINES The guidelines for verification of assets for closing between FNMA and FHA have become almost identical with the following exceptions: 1. Gifts are allowable for all of the down payment and closing costs on FHA loans. The documentation on the receipt of the gift funds is the same as on an FNMA conventional loan. 2. Checking, Savings, or Money Market Accounts Same as FNMA. 3. Trade Equity is permitted by FHA. The amount of equity is determined by subtracting all liens against the property being traded, along with any real estate commission, from the lesser of that property s appraised value or sales/trade price. 4. Cash on Hand is acceptable to FHA with certain restrictions. 5. Sweat Equity is acceptable to FHA. Several restrictions must be met, including: 1) Only repairs listed on the appraisal can be used for sweat equity, 2) no cash back can be given to the borrower, 3) if borrowers provide materials, then the source of the funds for material must be documented. 6. Sale of personal property is acceptable with the following guidelines: Proof that the item has been sold and a satisfactory estimate of its worth. The estimated worth may be in the form of published value estimates, such as those issued by an automobile dealer, philatelic or numismatic associations, or a separate written appraisal by a qualified appraiser. Only the lesser of this estimate of value or the actual sales price is considered as assets to close. 7. Collateralized loans. Funds can be borrowed for the required investment as long as satisfactory evidence is provided that they are fully secured by existing marketable assets. These assets may include stocks, bonds, automobiles, real estate (other than the property being purchased), and the cash value of life insurance policies. (Unless the borrower provides satisfactory evidence the borrowed funds do not require repayment, e.g., some thrift and retirement plans, various loans secured by deposited funds, etc., the monthly debt resulting from the loan must be included in the borrower s qualifying ratios.) The borrower s funds must be provided by an independent third party. The seller, real estate agent or broker, lender, etc., may not provide such funds. Unacceptable borrowed funds include signature loans, cash advances on credit cards, and similar unsecured financing. 8. Bridal Funds Gift Registry A savings account may be established for funds to purchase a home by family and friends of the applicants. 9. Second mortgage from family The family of the applicants may loan borrowers money for purchase of a home with a second mortgage taken and loan repaid by the borrowers. The borrower must qualify for the payments. 8

9 INCOME QUALIFYING GUIDELINES FHA is using the gross effective income method in qualifying home buyers. This method is like that process described in the FNMA Conventional Qualifying section except that the ratios used on FHA loans are: 1. Mortgage payment expense to effective income should not exceed 31% without sufficient compensating factors. 2. Total fixed payment (obligations with a remaining payment period of more than six months) to effective income should not exceed 43% without significant compensating factors. 3. One other thing that should be considered is that FHA allows properties that qualify as energy efficient (EEH) to have ratios that are 2% higher on both the monthly payment expense and total fixed payment ratios. MAXIMUM SELLING CONTRIBUTIONS HUD/FHA allows financing concessions of up to 6% of the contract sales price before any dollar reduction is required. The 6% limitation can include discount points, interest rate buy downs, and any closing costs normally paid by the buyer (including the 1% loan origination fee). Any financing concessions above the 6% limit or any sales concessions, such as decorating allowances, moving expenses, car, boats, furniture, or televisions will require a dollar for dollar reduction in the sales price before the loan amount is calculated. The sales or financing concessions noted include seller or interested third party gifts or consideration. SELF-EMPLOYED INFORMATION FHA defines self-employed individuals as those owning 25% or more of a business. They generally require two years history for self-employed borrowers. Exceptions to the two-year rule are: Between one and two years The borrower must have at least two years previous successful employment, or a combination of one year of employment and formal education or training in the current field or a related field. Less than one year The income for the self-employed borrower cannot be used as effective income. As with FNMA borrowers, the lender must develop complete documentation on the borrower and his/her business. This development will require complete personal and corporate tax returns as well as current profit and loss statements and balance sheet, along with evidence of quarterly tax payments, a business credit report on corporations and S corporations. 9

10 BANKRUPTCY A bankruptcy will not disqualify the borrower if at least 2 years have passed since the bankruptcy was discharged and the borrower has re-established good credit (or chosen to incur no new credit obligations) and has demonstrated an ability to manage financial affairs. 1. An elapsed period of less than 2 years may be acceptable if the borrower can show that the bankruptcy was caused by extenuating circumstances beyond his or her control (such as the death of the principal wage earner, loss of employment due to factory closings, or serious long-term illness) and has since exhibited an ability to manage financial affairs and the borrower s current situation is such that the events leading to the bankruptcy are not likely to recur. 2. A borrower paying off debts under Chapter 13 may qualify for a loan if (1) one year of the pay-out period has elapsed with satisfactory credit, and (2) court approval is obtained. FORECLOSURE A borrower whose previous residence or other real property was foreclosed on or has given a deed-in-lieu of foreclosure within the previous 3 years is generally not eligible for an FHA insured mortgage. However, if the foreclosure was the result of extenuating circumstances (such as the death of the principal wage-earner, loss of employment due to factory closings, or serious long-term illness) and the borrower has since established good credit, an exception may be granted. Extenuating circumstances do not include the inability to sell a house when transferring from one area to another. ASSUMPTION INFORMATION FHA mortgages originated before December 15, 1989 generally provide for a simple assumption with no restrictions. Without a formal assumption, the borrower remains liable for the obligation and could be cited in any foreclosure action. Historically, the FHA has not included borrowers that sold their properties on simple assumptions in any legal action. On mortgages originated after December 15, 1989 may require a creditworthiness review and certain restrictions. These include: All mortgages originated after December 15, 1989 require a formal assumption where the assumption borrowers meet current FHA credit guidelines. The transfer/assumption fee for loans varies depending on when the original mortgage was closed, but ranges between $ to $ TO BE RELEASED OF LIABILITY ON AN ASSUMPTION, THE SELLER MUST REQUEST A RELEASE OF LIABILITY. 10

11 VA MAXIMUM MORTGAGE AMOUNTS Mortgage lenders are required to have a minimum guaranty of 25% to put a loan in a GNMA security. Due to significant losses incurred on VA No-Bids, lenders now establish company guidelines on how much guaranty they require. VA loans are now available up to $417,000 with 25% guaranty. The amount of eligibility available to a veteran increases to $36,000 on loans up to $144,000 up to $45,000 on loans above $144,000 and $104,250 on loans up to $417,000. VA loans are available above $417,000.00, with the borrower paying 25% of any amount over $417,000 as a down payment. Any VA loan above $90,000 will have a guaranty less than the 40% maximum. The individual lenders should be contacted to determine how much guaranty they will require on specific transactions. PROGRAMS The Veterans Administration provides eligible veteran borrowers with 100% loans for the purchase of a homestead. There are minimum service requirements for a veteran to be eligible. To prove eligibility the veteran must provide either a Certificate of Eligibility or either a DD214 or Discharge Papers showing that the veteran has served the minimum required time and has been honorably discharged. The VA charges the Veteran a Funding Fee to guarantee the loan. The Funding Fee may be added to the mortgage balance and financed or paid in cash. The Funding Fee is waived for any veteran that has a service connected disability. The VA Funding Fees were increased and are shown below. VA FUNDING FEES EFFECTIVE OCTOBER 1, 2004 The Funding Fees for VA home loans for regular military are as follows: Loans with down payment of less than 5.0% are 2.15 Loans with down payment of 5% to 10% are 1.5 Loans with down payment of 10%or more are 1.25 Loans made to reservists have the following Funding Fees: Loans with a down payment of less than 5.0% are 2.4 Loans with down payment of 5% to 10% are 1.75 Loans with down payment of 10% or more are

12 SECOND USE FUNDING FEE The Funding Fee for a second or subsequent VA loan made to a veteran or reservist with less than 5% down will be 3.3%. Loans for regular military (second or subsequent use): With a 5% down payment 1.5 With a 10% down payment 1.25 Loans for reservists (second or subsequent use): With a 5% down payment 1.75 With a 10% down payment 1.5 SOURCE OF DOWN PAYMENT GUIDELINES The Veterans Administration requires that lenders document the source of funds for closing in a prudent manner. It should be determined that the veteran has adequate assets to close the transaction from acceptable sources. The following is a brief review of acceptable sources of funds for veterans: Checking, Savings, or Money Market Accounts same as FNMA. Gifts are allowable on VA loans with same documentation guidelines. Cash on Hand is not acceptable. Sweat Equity is not acceptable. Trade Equity is acceptable to VA using the same guidelines as FHA. Borrowed funds would be acceptable on a VA loan if the debt is not secured by the subject property. INCOME QUALIFYING GUIDELINES The Veterans Administration uses a net income qualifying method. The long term reliable income is developed from acceptable sources. From this gross income, taxes (Federal, State, and FICA) are deducted along with the estimated housing expense (including principal, interest, taxes, insurance, maintenance, and utilities) and long term obligations (6 months or longer or obligations with a large payment). This calculation gives a Balance of Support for the veteran and his family after all fixed obligations are paid. The residual income guideline is as follows: FOR VA LOANS OF $79,999 AND BELOW 1 Person $ Persons $ Persons $ Persons $ Persons $ 902 FOR VA LOANS $80,000 AND UP 1 Person $ Persons $ Persons $ Persons $ Persons $

13 For families with more than five members, add $75.00 for each additional member up to a family of seven. In addition to the Balance of Support (residual income) method, the Veteran s Administration uses an income ratio to underwrite applicants. The income ratio takes all obligations including housing expense (PITI) and total monthly obligations and divides this figure by the gross monthly effective income. The VA guideline is 41%. This ratio may be exceeded if the underwriter feels there are sufficient compensating factors and justification to do so. SCHEDULE FOR MAINTENANCE AND UTILITIES Square footage X.13 = $ for Maintenance and Utilities. If there is an in-ground swimming pool, add $75.00 to the Maintenance and Utilities. MAXIMUM SELLING CONTRIBUTIONS The Veteran s Administration has a 4% limit on seller concessions on VA loans. 1. The buyer s normal closing costs are not included in the 4% limit. 2. Items that are a part of the 4% limitation include: extra discount points that are paid to provide permanent interest rate buy downs, prepaid interest, prepaid taxes and insurance, Mortgage Credit Certificate (MCC) costs, gifts (televisions, payment of credit card balances, etc.) and any other item or expense which is not considered typical for a real estate purchase transaction. SELF-EMPLOYED INFORMATION Generally, income from self-employment is considered stable when the applicant has been in business for at least two years. Less than two years of income from self-employment cannot usually be considered stable unless the applicant has had previous related employment and/or extensive specialized training. When an applicant has been self-employed less than 1 year, it will rarely be possible to demonstrate that the income is stable for qualifying purposes; such cases would require in-depth development. 13

14 BANKRUPTCY When credit information developed shows that the veteran or veteran s spouse has been adjudicated bankrupt under the straight liquidation bankruptcy laws, this in itself does not disqualify the borrower from obtaining a loan. It is necessary to develop information as to the facts and circumstances concerning the bankruptcy. Generally, when the borrower or their spouse has been regularly employed (not self-employed) and the bankruptcy has been completed 2-3 years (realistically 3 years) it would not be possible to determine if the borrowers are satisfactory risks unless (1) Borrower or spouse has obtained credit since the bankruptcy and made credit payments in a satisfactory manner, and (2) the bankruptcy was the result of circumstances beyond the borrower s control. A bankruptcy more than 5 years old may be disregarded. A bankruptcy completed between 3 to 5 years may be given some consideration depending on the circumstances. FORECLOSURE When the credit information developed shows that the veteran or their spouse has had a foreclosure (or deed-in-lieu) on a prior mortgage (including FHA or Conventional), this will not in itself disqualify the borrower from obtaining a loan. It is necessary to develop complete information as to the facts or circumstances concerning the foreclosure. Generally, when the borrower or their spouse has been regularly employed (not self-employed) and the foreclosure has been completed 2-3 years (realistically 3 years), it would not be possible to determine if the borrowers are satisfactory credit risks unless 1) borrower or spouse has obtained credit since foreclosure and made credit payments in a satisfactory manner, and 2) the foreclosure was the result of circumstances beyond the borrower s control. A foreclosure more than 5 years old may be disregarded. A foreclosure completed between 3 to 5 years may be given some consideration depending on circumstances. ASSUMPTION INFORMATION Public Law signed on December 27, 1987 imposed a requirement that VA loans on which commitments were issued on or after March 1, 1988 would require a formal assumption. This formal assumption processing is now being completed by the servicing mortgage lender who processes the loan credit documents and underwrites the loan for approval. Upon approval, the lender issues the Release of Liability on behalf of the Veteran s Administration and transfers the loan to the assuming borrower(s). 14

15 ARM (ADJUSTABLE RATE MORTGAGE) LOANS During the late 1970s and early 1980s, financial institutions expanded the use of mortgage instruments that adjusted during the life of the loan. These mortgages had a variety of names including Adjustable Rate Mortgages (ARMs) and Renegotiable Rate Mortgages (RRMs). The use of the Adjustable Rate Loans was intended to better enable financial institutions to match funds with those deposited for savings and those provided customers for long term mortgage loans. The use of ARMs allowed financial institutions to adjust the rates at some interval (adjustment period) based on the current cost of funds (rates). The loan provided a guaranteed positive spread (margin) over the cost of money(index) during the time of the adjustment. This allowed the lender to make long term loans without having the rate risk of guaranteeing rates that might be below market and reduce their profitability. Any adjustable rate mortgage should be underwritten at 7.0% if the start rate is below 7.0%. On loans that have a term greater than 15 years, a loan-to-value ratio greater than 75% and an annual adjustment cap of 2%, the lender should use the maximum interest rate that could be in effect as the result of the interest rate adjustment at the end of the first year (2% over note rate). Terms currently being used with most Adjustable Rate Loans include: Adjustment Period The adjustment period is the frequency of the changes of the interest rates. There is a variety of loan programs that include one-, three-, and five-year adjustable rate mortgages. There are also loan programs that allow the borrower to have the rate fixed for an initial period and then change to an adjustable rate program. These programs would include a 3/1, 5/1, and 7/1 ARM. Index Most lenders tie ARM interest rate changes to an Index Rate. The indexes usually go up and down with the general movement of interest rates. If the index rate moves up, the mortgage rate will likely move up as well. There are a variety of indexes including the one-, three-, and five-year Treasury Security Indexes, COFI (Cost of Funds Index), as well as many other possibilities. Margins The margin is the amount of spread that the lender adds to the index to determine the new interest rate at the time of the adjustment. The margin varies from lender to lender and may vary on different programs. Caps Most adjustable rate loans provide both annual caps and life caps for loan programs. Annual payment caps are a limitation on how much the rate may be changed during any adjustment period. Life caps are a limit on how much a rate may change over the life of the loan. Adjustable Rate Mortgages are calculated as follows when the rate is being adjusted: Index Rate + Margin = New ARM Interest Rate Finally, ARMs can have other features that include: Assumability This permits the loan to be assumed by a purchaser if the property is sold. This generally requires a formal assumption requiring the borrower to make loan application and qualify with the lender. Conversion to a Fixed Rate Some conventional loans offer the opportunity to convert the ARM to a fixed rate loan. This option generally has a limited period of time (13th to 60th month) and converts to a fixed rate at a level above what current fixed rate loans are being offered. There is generally a conversion fee that varies depending on the loan product. 15

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