Jeff Thomas » Freddie Mac

FHA seller concession rules

Jeff Thomas — Wed, 02 Jun 2010 12:56:02 +0000

The Federal Housing Administration (FHA home loans in Virginia) is eliminating one of the mainstays to its program sometime this summer. Gone will be the 6 percent seller concession and in will be the 3 percent seller concession. The reason for eliminating the concession according to FHA is the 6 percent seller concession exposes them to too much risk. This has been one of the key selling points with FHA for decades. But if sellers and buyers move fast there is a possibility they can still take advantage of the higher seller concession.

The buyers must still save or be gifted the money for the down payment to purchase the home. The current minimum down payment is 3.50% of the sales price. The current guidelines on seller concession allow sellers to pay for all of or part of buyers closing costs when purchasing a property. Items connected with the transaction such as — loan origination and discount points, state and county transfer stamps and fees, an appraisal, inspections, attorney and title closing costs.

When it comes to lower priced homes, closing and loan expenses typically represent a higher percentage of the total loan closing costs than on higher prices homes. In Fairfax, Virginia and Northern Virginia, closing costs typically run between 2.50% and 3.50% of the sales price of the home. So on a $300,000 home purchase, that could be an extra $7,500 to $10,500 of out of pocket expenses for a home buyer. Current with FHA financing rules, the contract can be structured so the seller agrees to pay all closing costs up to 6% ($18,000) at settlement. This amount could even include some small required repairs. Once the rule change takes effect, the max concessions will be a flat 3% of the sales price.

If you use Fannie Mae or Freddie Mac financing, seller concessions is generally limited to 3% for down payments below 20% of the sales price. Although concessions can be much higher when larger down payments are being used.

Bottom line is this: the helping hand of an FHA home loan is getting smaller and smaller. First the down payment was increased from 2.25% (3% in the new home) to a flat 3.50% down payment. Then a minimum credit score, now a decrease of seller concessions from 6% to 3% of the sales price.

Market Snap Shot for Fairfax, Virginia

Jeff Thomas — Tue, 02 Mar 2010 22:21:31 +0000

Market Snap Shot for Fairfax, Virginia Mortgage Interest Rates and Local Real Estate

By Sigma Research
By Tuesday, March 02, 2010

Treasuries and mortgages started weaker this morning with the stock index futures pointing to a nice open in equities at 9:30. No real data this morning, the only thing on the schedule is Feb auto and truck sales that will be out this afternoon. At 9:00 the DJIA +44, 10 yr note -10/32 3.65% +3 BP and mortgage prices for 30 yr fixed -5/32 (.15 bp). At 9:30 the DJIA opened +38, 10 yr note -7/32 at 3.64% and mortgages -3/32 (.09 bp).Four days and counting to the Feb employment report for Fairfax, Virginia Interest Rates. Always the key report each month, and each time there is some event or circumstance that makes it even more important—if that is possible. This report has a lot of weather related elements with the continual snow that crippled the mid-Atlantic and East coast; but the main event that traders are thinking about is the huge decline in consumer confidence in Feb and the big fall in new and existing home sales. How, if at all, will all that impact the employment picture? There is the theory that consumer confidence plunged by 20% because of more job losses. Long ago we gave up trying to anticipated non-farm jobs data, throwing darts blind folded is more accurate. Current estimates continue to be a small decline of 20K jobs in the month with the unemployment rate at 9.8% up 0.1% from Jan.Greece‘s financial problems are well documented; next up according to what we are seeing is Great Britain. Investment mangers in England are bracing for a run on the British pound as its economic outlook remains dire. Britain’s debt amounts to 12% of output, about the same as Greece’s debt to output. Moody’s Investors Service and Standard & Poor’s said last week they may cut Greece’s credit rating; now fund managers in Britain are worried the same fate may befall England as its economy is struggling to get some traction. The take away from the continuing debt problems in Europe (Spain and Portugal) and now Britain is adding support to US treasuries as a safe place for parking money.

Markets and traders continue to expect US interest rates will increase this year as the US economy solidifies and consumers and the housing sector slowly improve. The Fed, with the exception of one or two Fed officials, is dead set on keeping the Federal Funds rate at near zero for that “extended period” which is markets are beginning to quantify as no rate increases until the Nov FOMC meeting. We noted yesterday we were hearing four more FOMC meetings before the Fed moves. A recent survey by Bloomberg of bankers was 46% chance the increase would be at the Nov FOMC meeting. What must be kept in mind is that the bond and mortgage markets will be out front of the Fed on any increases; given the preemptive move interest rates will begin to discount the increase by August. We expect mortgage rates to increase in Fairfax, Virginia by year end will be 50 basis points higher than at present levels; the 10 yr note to move to 4.15%.

Through the later half of Jan and the early part of Feb the 10 yr note tried 10 times to move below 3.60%/3.58% range; each time it failed. Yesterday the 10 yr hit 3.58% at mid-day but again failed to crack the wall. This morning at 9:00 the 10 yr was back to 3.65%; the FNMA 4.5 coupon is registering overbought readings on the relative strength oscillator. The bond market today will, as is the case recently, take its lead from how stock indexes trade. No data until this afternoon with auto and truck sales; but the remainder of the week has data everyday with of course the Feb employment on Friday. On Thursday Treasury will announce next week’s auctions of 3 yr, 10 yr and 30 yr borrowings

The Investment Property Dilemma

Jeff Thomas — Tue, 08 Dec 2009 14:48:15 +0000

Here is just a few of the issues some of my clients have come across in the past few months.

Client 1:

Condo refinance in Vienna, Virginia

A recently married client wanted to refinance his condo to a lower rate and get out of the adjustable rate loan program they currently have. Both borrowers had excellent income, job stability and money in the bank. The condo was converted to a rental unit when he married. Equity in the property: 30% or more, plus my client was willing to pay down the mortgage five percent more if needed.

The investor concentration (number of units used as rentals) was over 55 percent. I could only find two banks that offered a potential program. One was at 6.50% the other was 5.50% with several points attached. Now this isn’t someone that was duped into getting an adjustable rate mortgage (ARM), he went in fully understanding how the program worked, but when love hits, it can make the best laid plans take a back seat. Not one of the big banks or big lenders had any program to help out well qualified borrowers. Fannie Mae and Freddie Mac have given investment condos the black plague treatment by not offering any type of financing for investment condo.

Investment property owners are not looking for hand outs, but it only makes sense to offer programs for well qualified home owners. Instead we have a homeowner that was willing to reduce a lenders expose (pay down the mortgage) and still could not get a decent loan.

Client 2:

Single family home refinance in Fairfax, Virginia

A client recently called to inquire about refinancing their investment property. They owed a about $350,000 and approximate value (HVCC rules prevent me from contacting an appraiser to get a preliminary value) of $430,000 leaving approximately 19% equity in the property. Fannie Mae and Freddie Mac have credit overlays for investment properties of 3% (roughly $12,900 in fees to Fannie Mae) this is before any other closing costs are added to the refinance. Mortgage insurance companies are not even offering insurance products for investment properties. Another rule, my client’s have a home equity line of credit on the home that was originated after the home was purchased causing the entire transaction to be considered a cash-out transaction. So now, no lenders will originate an investment mortgage on a single family home with less than 20% equity. Even if we subordinated the HELOC the equity would be less than 20% and lenders are not originating these types of loans either.

The mortgage crisis has caused lots of problems. It might seem like I am complaining, which I don’t think I am. But I am trying to bring to light issues with the system. I am not sure how to fix them. I spoke to someone at Freddie Mac recently and according to this person, both Fannie Mae and Freddie Max are concerned about being over exposed on a particular property. Well if the loan is already in their inventory and the homeowner is saving money (which makes it easier to make their monthly mortgage payment) isn’t that reducing their risk – not increasing it?

I feel that many people that are not in the trenches are making decisions that affect everyone. Tightening the lending guidelines is a good thing, but it needs to be done responsibly, not with a knee-jerk reaction that is making in nearly impossible to get a mortgage or check the value of ones home with a credible professional before spending $400 is not asking much. Yes, mortgages were too easy to get from 1999 to 2000. But everyone in the home buying and home financing process is at fault including the home buyer(s).

Converting A Primary Home To An Investment Property

Jeff Thomas — Fri, 13 Nov 2009 20:57:39 +0000

I have clients all over the northern Virginia area. Recently two similar calls from clients that live in Alexandria and Vienna . Both had a question about keeping their current home as a rental when buying another primary home. As simple as this question may seem, it is much more complicated when trying to qualify for a mortgage carrying two mortgages. Fannie Mae and Freddie Mac have specific language for how much equity is needed in order to not count a current mortgage payment.

Fortunately both had the required equity in their current homes to avoid having to qualify carrying two mortgages. Other clients I have spoken to were not so lucky. The value of their home dropped to much and they had a big decision, sell or stay. What is the correct answer? Well that answer differs with every client I talk to. Below are the current Fannie Mae guidelines for converting a primary home to an investment home.

Borrowers who currently own their home typically have three options when they decide to purchase a new principal residence. The borrower can:

Sell the current residence and pay off the outstanding mortgage,
Convert the property to a second home, assuming they can qualify with both the existing and new mortgage payments, or
Convert the property to an investment property and provide documentation that they will rent the property and use the income to offset the mortgage payment.

On a primary home conversion to an investment property Fannie Mae will continue to permit up to 75 percent of the rental income to be used to offset the mortgage payment in qualifying if there is documented equity of at least 30 percent in the existing property (equity is determined from an appraisal, Automated Valuation Model, or Broker Price Opinion, then minus current value of the mortgages against the property).

The rental income must be documented with:

A copy of the fully executed lease agreement; and
The receipt of a security deposit from the tenant and deposit into the borrower’s account.

If the 30 percent equity in the property cannot be documented, rental income may not be used to offset the mortgage payment.

Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction; and

Six months of Principle, Interest Taxes and Insurance for both properties is required to be in reserves after closing. In today’s real estate market, this is where most borrowers get caught. Being able to save for the down payment, closing costs and have six months mortgage payment for two homes is typically too much for most borrowers to over come.

Really? Housing crash painful for celebrities, too (lansner.freedomblogging.com)

Jeff Thomas » Freddie Mac

FHA seller concession rules

Market Snap Shot for Fairfax, Virginia

The Investment Property Dilemma

Converting A Primary Home To An Investment Property

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