The Department of Housing and Urban Development (HUD) under RESPA revised the Good Faith Estimate, HUD-1, and HUD-1A through regulation adopted in 2008 which became effective January 01, 2010. The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute, passed in 1974. The purpose of the act is to help consumers become better shoppers for settlement services and to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services. RESPA covers loans secured with a mortgage placed on a one-to-four family residential property. These include most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. RESPA requires borrowers to receive disclosures at various times.  A Good Faith Estimate is required to be delivered within three (3) days of giving the six required items mentioned here:

• Name
• Social Security Number
• Monthly Income
• Property Address
• Property Value (Estimate)
• Loan Amount

Fees disclosed on the new Good Faith Estimate are grouped into three categories:

• Fees that cannot increase from the initial estimate to closing
• Fees that may vary as much as 10 percent from the initial estimate to closing
• Fees that may increase without limit, because the lender has no control over them or may be difficult to predict in advance.
• Fees in the no tolerance group: lender fees, mortgage broker fees, processing, underwriting, and discount points.
• Fees in the 10% variance group: appraisal, recording fees, credit report, flood certification, tax service, mortgage insurance, and guarantee fee.  Title closing and title insurance are included in this group when selected from a provided list by the borrower.  Any single fee could vary by more than 10%, the combined total of the fees in this group may not increase by more than 10%.
• Fees in the unlimited increase group: homeowner’s insurance, per diem interest, and setting up the initial escrow account.  Title closing and title insurance are included in this group when they are not selected from a list provided by the lender.

The New Good Faith Estimate – The Positive:

As a customer, you have a minimum of 10 days to shop for various settlement services.  The Good Faith Estimate is now longer an “Estimate” but an Etched in Granite Guarantee of Fees charged by the Mortgage Broker and Lender.   This very fact will eliminate any companies still that would attempt to bait and switch consumers by offering low fees, and then increasing at closing.  The format of the new Good Faith Estimate may not be modified from the version prescribed by HUD; this will make it easier for consumers to compare GFEs from one lender to another.

The New Good Faith Estimate – The Neutral Items:

The overall costs for closing a loan have not decreased, and none of the items have gone away, and no new items have been added because of the new Good Faith Estimate.  The borrower will be asked to provide a commitment to the loan and to moving forward prior to locking in the rate and terms.  If the borrower does not provide their commitment to moving forward with the loan by the end of the shopping term, minimum 10 days, then the lender no longer has to honor the terms.  If the terms do happen to change during the process then this will trigger another 10 day grace period. A very important part for the customer to pay attention to is how long the interest rate being offered is good through.  Because of MDIA (Mortgage Disclosure Improvement Act of 2009), the APR at closing cannot be off by more than 1/8%, if it is it must be re-disclosed and have a 3 day waiting period.  So, the interest rate will need to be locked in at least 5 days prior to closing with most investors requiring 10 days.  Interest rates are very fluid so guaranteeing an interest rate for any length of time is very difficult, since the interest rate could change.

The Lender and Broker are responsible for the accuracy of fees that are typically paid for by the seller, ie. Owners Title Policy.  A seller’s closing cost concession is not shown on the new Good Faith Estimate.  The proration of taxes is not shown.  Proration of taxes is a credit given to the buyer when taxes are paid one year after assessment, since the new buyer’s first bill would be for a time period when they were not living in the property.

The two most important pieces information everyone wants to know when purchasing a home:

What is my total monthly payment?  The Principal, Interest and Mortgage Insurance is included, but not the Taxes and Insurance.  Sure everyone can just add the cost, but wouldn’t it makes more sense to just include the total payment, it was on the old Good Faith Estimate.  With a USDA Home Loan, you don’t have to worry about the added expense of mortgage insurance.

How much money will I need to close?  If you are using a USDA Home Loan this doesn’t become as much of an issue, but still something you want to know.

How to Compare and Choose Mortgage Lenders?

If you need to compare mortgage lenders, keep reading for a breakdown of the four major selection criteria you should be looking at – interest rates, lending requirements, customer service and stability and reputation.

Interest Rates

One of the primary factors when deciding on a mortgage company will be the interest rate that they quote you and the overall cost of the loan over the long term.

Before you start comparing quotes, though, make sure you have a complete picture of the total cost, including closing costs, penalties for extra payments, private mortgage insurance, and legal fees.

Lending Requirements

While you don’t want to find yourself in a mortgage that you simply can’t afford, you may find yourself comparing lenders based on their lending requirements, particularly if you’re self-employed or work in contract positions.

House buyers with unorthodox or non-standard applications may need to compare mortgage lenders based on their leniency levels and willingness to be flexible when it comes to freelance workers or small business owners. So, look for a mortgage company that focuses on your target market.

Customer Service

One mortgage lender may offer you a great rate, but can they provide an office location in your hometown that’s staffed with friendly customer service agents? Or will they provide you with a phone number for a call center halfway across the world?

While wholesale mortgage lenders or online lenders can offer slightly lower rates, they often can’t compete with your local savings and loan – an institution that offers daily service, friendly faces and is a business that’s actually dedicated to its community.

Stability and Reputation

One of the major drawbacks of obtaining a loan through a wholesale mortgage lender or a mortgage broker is that you may wind up with a mortgage that is simply sold on the open market. This means that instead of dealing with the friendly storefront representative who took your application, you could wind up doing business with a foreign firm or unreliable service provider.

When you compare mortgage lenders, it’s important to look beyond the lowest rate or most lenient lending requirements and look for a company that’s reliable and has a strong reputation for doing good business. After the recent foreclosure and mortgage crisis, many Americans are learning this lesson the hard way.

Click Here to get matched with a Lender»

FHA loans are loans that are backed by the Federal Housing Administration. Contrary to what most people believe, they are not funded by the FHA, but rather are guaranteed by them. It is the actual bank or lender that is issuing the loan that is providing the funds. The FHA is strictly providing the insurance for the loans. This insurance serves as a source of funding for banks for loans that are defaulted on after funding. FHA loans originally began in the 1930s as a response to the rash number of foreclosures that were occurring. The FHA insurance was meant to help banks provide funding while stimulating the housing market.

FHA loans, which used to be known as the “first-time homebuyer’s” loan, are a great source of funding for just about anyone today. FHA loans are available for both single family homes as well as multi-unit homes and provides flexible guidelines that make it a good loan for people that do not qualify for a conventional loan for one reason or another.

Loan Sizes

As with any loan, there are certain FHA loan limits that vary by region. The FHA sets these standards by gauging median home price in any given county compared to the national conforming loan limit. As of right now, the national conforming loan limit is $417,000. This is not the maximum loan amount in most areas, however. Each county is provided its own maximum based on the median home price in the area. As of January 1, 2015, the lowest maximum loan amount that exists in low cost areas was $271,050. This is the limit in areas where the average house price is less than 65% of $417,000. In order to come up with the maximum of that amount, 115% of the homes in that area must be 65% less than the national conforming limit. On the other hand, in high costs areas, such as San Francisco and New York, the maximum loan amount is $625,500. This is only for those areas where 115% of the homes cost more than 150% of the $417,000. Each county will have its own maximum based on the home prices in that area and can change on a yearly basis, depending on the FHA guidelines for that year.

In addition to the maximum loan size for each county, are the requirements that play into what loan amount each individual qualifies for; this will differ for each person. The lender will take into consideration your credit score, amount and type of income, amount of outstanding debt, the value of the home you are purchasing or refinancing, and your history of paying your debt on time. Each of these factors combine together to create your risk profile and each lender can differ in what they allow and do not allow, so shopping around can sometimes get you a higher loan amount if that is what you need. In addition to your particular qualifications, however, is the type of home you are purchasing and/or refinancing. Single family, duplex, three unit, and four unit properties each have their own maximum loan amount in each county which will also play a role in your loan size.

Credit History

As a first step in the FHA process, the lender will pull your credit. This is their first look into how you handle your financial responsibilities. Each lender has their own requirements regarding what they deem acceptable and which situations they will not accept. Things like missed payments, late payments, foreclosures, bankruptcies, and collections all play a role in your loan approval. One thing that every lender has in common is the requirement to have a minimum credit score of 580. If the credit score is below that amount, it does not mean that you are automatically ineligible, it just means that you will be required to put a higher down payment down on the loan, whereas the people with the credit score above 580 are only required to put down 3.5% of the purchase price of the home.

There are certain situations that can occur within your credit report that will require special circumstances in order for you to obtain an FHA loan including:

• No credit – If you do not have at least two credit lines, you will not have sufficient credit to use a credit report for approval purposes. In these cases, the lender may accept alternative forms of a credit history such as a 12-month history of your insurance payments, rent payment, or even utility payments.
• Late Payments – A period of late payments does not automatically disqualify you for an FHA loan. The underwriter will look at the whole picture to decide what is right for your situation. If your late payments are isolated within a certain time period and you have a valid explanation for the late payments, such as a job loss or illness, the late payments can often be overlooked as long as everything is on time as of the time of the loan application.
• Chapter 7 Bankruptcy – There must be 2 years between the date that the Chapter 7 bankruptcy was discharged and the date of the loan application. It is important to note that the discharge date differs from the date that the bankruptcy was filed, so be sure to count the time correctly for your loan purposes.
• Chapter 13 Bankruptcy – If you are still making payments on your Chapter 13 bankruptcy, the payments need to be timely and have occurred for the last 12 months at a minimum. The trustee of the bankruptcy case will also have to approve the loan before it can go through underwriting.
• Foreclosure – A foreclosure has to be at least 3 years behind you in order for you to be eligible for an FHA loan. There are exceptions to this rule, which apply only to special circumstances. This is up to the lender’s discretion and will require a letter of explanation as well as proof of the situation. In addition, good credit must have been established in order for the lender to consider a foreclosure within the last 3 years.
• Collections –Typically collections are not an issue for FHA loan approval unless they are a federal debt. Any type of federal collection renders a loan application declined. The only way they would be considered is if you were on a payment plan that is current and without any late payments.

Debt Ratios

Every loan has debt ratio requirements in order to ensure that the new loan does not put you in over your head financially. The FHA guidelines are a little more relaxed than the guidelines for any other loan in terms of the debt ratio. The FHA sets the maximum debt ratios at 31% on the front end and 43% on the back end, each of which are broken down as follows:

• Front End Debt Ratio – Any payments in conjunction with your mortgage are in the front end ratio. This includes principal, interest, taxes, insurance, mortgage insurance, and association dues.
• Back End Debt Ratio – The total mortgage payment from above combined with any recurring monthly charges, such as car payments, credit card payments, student loans, or personal loans.

Each of these totals are divided by your gross monthly income, whether just for you or for you and your spouse if you are including him/her on the loan. If the ratios are higher than the maximum, you might need an exception for the loan, which some lenders will provide and others will not, but you can shop around to find a lender that will accept your ratios.

Mortgage Insurance

All FHA loans have mortgage insurance; in fact, they have two types of mortgage insurance – Up Front Mortgage Insurance and Annual Mortgage Insurance. The Upfront Mortgage Insurance, as the name suggests, is paid at the onset of the loan. It is a set amount of 1.75% of the loan amount. For example, if your loan was $200,000, you would owe $3,500 at closing for the Upfront Mortgage Insurance. This is in addition to any closing costs as well as the down payment you are placing on the home. After the Upfront Mortgage Insurance is paid, you will owe an annual mortgage insurance premium which is paid on a monthly basis. This amount is 0.85% of the loan amount and is divided up into 12 payments. On the same $200,000 example, the annual mortgage insurance premium would be $1700, which translates into $141.67 per month. Once you hit 78% LTV, the mortgage insurance premium is cancelled.

Down Payment Requirements

FHA guidelines require a 3.5% down payment on any loan that the borrower has a credit score above 580. Of course, you are welcome to put more down on the home if you would like, but the minimum is 3.5%. If your credit score is below 580, however, you will have to put 10% down on the home in order to get an FHA loan. Down payment money can come from your own money as well as be a gift from a family member or a grant from the government.

Closing Costs

Closing costs are a part of any loan, including the FHA loan. The one stipulation that sets this loan apart from others is the ability to receive the closing cost money from the seller or a family member; you do not have to pay the fees yourself. There are certain fees that are allowed under the FHA guidelines, including:

• Appraisal costs
• Credit report costs
• Origination fee
• Fees for an attorney
• Title insurance fees
• Survey fees
• Home inspection fees
• Preparation of document fees

The amount that either the seller or a family member is allowed to contribute is maxed out at 6% of the loan amount in order to avoid the payments to be considered coercion or forcing the borrower to take the loan and purchase the home.

Click Here to get matched with a Lender»

The FHA 203(b) program provides a guaranteed insurance to its approved mortgage lenders financing the purchase or the refinancing of residential properties by eligible borrowers under its lending guidelines. The borrowers must currently occupy, or intend to do so, the residential property on which financing is being sought in order to become eligible under the FHA 203(b) loan guidelines.

The processing, underwriting and funding of mortgage loans insured by FHA are handled through the federal agency’s approved lenders. A wide range of lending institutions such as banks, credit unions, and mortgage lenders hold the FHA approval to provide financing under the guidelines of the department’s residential lending insurance mortgage programs. Basically, an FHA approved 203(b) lender funds the loan and the FHA provides the necessary insurance coverage for the mortgage in case of default, provided the loan is underwritten according to its lending guidelines.

203(b) Program History, Background, and Significance

As this FHA mortgage insurance program was authorized under Section 203, National Housing Act (12 U.S.C. 1709 (b), (i)), it came to be occasionally referred to as the FHA 203(b) loan, or commonly as the FHA loan.

The U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) division was created as a direct result of the housing crisis that followed the great depression during the 1930s. In its initial incarnation, its mandate has been to help save homeowners from going into default due to the devastating economic conditions that prevailed back in those days.

FHA approved lenders who originate and fund the home loans that meet the agency’s mortgage insurance program guidelines are protected against losses that may be incurred due to the default on the payments by the borrower. This protection from losses in case of default gives lenders the required incentive to provide financing to borrowers with less than perfect credit and low down payment and equity requirements.

The section 203(b) residential loan program is the FHA’s primary mortgage insurance program for expanding homeownership opportunities to borrowers who would otherwise not have the opportunity to do so from other alternative residential lending sources. For those who have difficulty qualifying for conventional loans, FHA may be their sole avenue for securing home financing at affordable terms.

The upfront MIP and annual insurance premiums collected from the borrowers by the FHA are pooled together into the FHA Mutual Mortgage Insurance Fund, which handles any claims due to the borrower default on FHA-insured loans such as the 203(b) program.

Eligibility Requirements for 203(b) Home Loans

• The borrower(s) applying for FHA 203(b) financing must meet or exceed the minimum FHA credit qualification requirements. A number of lenders may also set the credit score requirements higher than the minimum FHA credit eligibility guidelines.
• Borrowers may qualify for a maximum loan-to-value not exceeding 96.5% of the property value. The FHA insurance premium amount can also be rolled into the loan amount. In addition to the upfront FHA MIP, annual premium also must be paid by the borrower.
• Only residential properties with 1 to 4 units are eligible for 203(b) FHA home loans.
• In the case of a new purchase, the borrower must intend to occupy the property as their primary residence, and for refinance transactions under 203(b) loan guidelines, the borrower must currently be occupying the property as their primary residence. For either refinance or purchase, it’s mandatory that the borrowers are owner-occupants. Buyers or owners of second homes and residential investment properties are ineligible from qualification.
• FHA loan programs have very low down payment requirements. New home buyers can qualify for FHA financing under 203(b) program by putting just 3.5% of the property purchase price and qualify up to the max LTV of 96.5%. The lender underwriting your loan may ask for additional requirements if you seek the max LTV. Therefore, it’s best to contact the lender first and discuss their own qualifying criteria for FHA loans.
• The current FHA loan limit amounts establish the maximum amount of financing that can be provided by FHA lender to the borrower.

FHA 203(b) Repair Escrow for HUD-owned REO Homes

The owner-occupant buyers of a HUD repossessed REO home can finance the purchase along with any minor cosmetic repairs up to $5,000 using the repair escrow provision allowed under the 203(b) loan guidelines. This allowance for the financing of repairs is intended to increase the appeal of HUD homes to homebuyers.

In order to qualify, the property must meet specific appraisal requirements. The FHA appraiser must deem the property to be “insurable with repair escrows” and state that in their appraisal report. The total cost of the funds that may be allowed for the repair work should not exceed $5,000.

As stated before, the repairs should be minor and cosmetic. The proposed repair work must comply with the HUD minimum property requirements. (MPR) Therefore any non-MPR repairs are disallowed as they are ineligible under the program guidelines.

If the proposed renovation work involves major repairs such as structural problems or requires the involvement of professionals such as consultants, architects or engineers, then such a property doesn’t qualify under the FHA 203(b) repair escrow loan guidelines. In such cases, the 203(k) program may be more appropriate.

Attached and detached single-family residences and Planned unit developments, condo units in FHA approved condos, 2 -4 unit residential properties, log homes and modular homes are eligible under the FHA 203(b) property requirements. Condotels, Co-op units, manufactured homes and mixed-use properties do not qualify.

203(b) Vs. 203(k)

FHA 203(b) is the most popular of all the loan programs insured by FHA. This popular loan is can be used for the purchase or refinance of eligible residential properties by owner-occupant borrowers. But if the property is in need of substantial renovation and repairs, then the suitable loan program for the financing of both the acquisition and the cost of repairs is the FHA 203(k) renovation loan program.

Buying a HUD Home

Buying HUD (Department of Housing and Urban Development) homes is an affordable way to get your foot in the door of owning real estate. Whether you are looking to buy a home for personal use, or to use as a rental property, there are many repossessed (REO) homes that can be purchased through the Department of Housing and Urban Development (HUD).

Though navigating the real estate market can often be confusing for those buying their first home, buying a residential property through HUD is an easy and straight-forward process although it can at times be time-consuming.

HUD sells residential homes that have been foreclosed and repossessed due to non-payment. The HUD’s inventory of repossessed homes is primarily composed of residential properties that were previously financed under one of the many FHA mortgage insurance programs.

HUD REO Homes — More Home for the Buck

There are often hidden gems among the HUD listings, so be diligent about studying the area where you wish to purchase a home and learn to act quickly when a listing becomes available in that area. In a time when housing prices are often intimidating for new homeowners, buying HUD homes is a great way to become a homeowner and save money at the same time.

The availability of HUD REO properties makes the playing field a bit in favor for new home owners, making it possible to get great deals and purchase homes at a bargain.

The Financing process for buying HUD homes is similar to that of purchasing a home listed through traditional real estate channels. If you can qualify for a mortgage, you are eligible to buy a HUD REO home. If you don’t qualify for a mortgage, you will need cash to make a HUD property purchase.

HUD homes are bought through an online bidding process or auction. You need to be qualified well in advance from an approved HUD mortgage broker.

First Step In Buying HUD Homes

To get started buying HUD homes, you can view the current HUD homes listed for sale on the HUD  HomeStore Site. Click on the state where you wish to find a property and then scroll down to Resources and click on “HUD Homes for Sale.”

It is wise to find a qualified HUD Real Estate Agent who can help you through the bidding process as well as finding the right home that fits your needs, objectives and is a good solid investment. As not all Realtors work with sellers or buyers of HUD homes, you need to find a HUD approved real estate agent with the necessary experience in assisting buyers of HUD homes.

HUD Properties Are SOLD AS IS!

It is wise to get an inspection before making an offer or a bid on any property but especially so for a HUD house. A qualified home inspector will check the internal systems and overall structure of a house to let you know whether you might expect problems down the line. An inspector will not typically inspect any appliances inside of a HUD property.

If it turns out that the house does need repairs, do not be dismayed. Often HUD homes are sold at prices that are low enough to account for the cost of repairs and renovation work that may need to be done, which is part of the appeal of these foreclosed homes to homebuyers and real estate investors.

You may also to be able to qualify for mortgage loan programs such as the FHA 203(K) program that allows you to not only buy a HUD home but also include the cost of repairs into the total amount of your mortgage.

Applying for a 203(b) Mortgage with an FHA lender

Finding an approved FHA lender with the expertise to process and finance 203(b) residential loans should be your first step towards securing the FHA financing you seek.

The complete list of qualified FHA lenders can be accessed from the FHA website. The search form allows options to filter the lenders according to the geographical area they service. In addition to the lenders, HUD approved home counseling agencies can also assist homebuyers regarding their eligibility for FHA mortgage loans such as the section 203(b) and 203(k) loans.

Click Here to get matched with a Lender»