Orange County FHA, VA & First Time Buyer Loan Information: Tim Storm (Frost Mortgage Lending Group)

The new appraisal ordering process for FHA loans will have some affect on Orange County home buyers using FHA financing. The details of the new FHA appraisal ordering process were issued in Mortgagee Letter 2909-28.

FHA's Version of HVCC

in mid 2009 HVCC went into effect for conventional Fannie Mae and Freddie Mac appraisals. HVCC stands for Home Valuation Code of Conduct. While not a popular decision, the HVCC policy took the appraisal ordering process out of the hands of the loan officer. AMC's, or Appraisal Management Companies, are now how appraisals are ordered. The loan officer is not allowed to talk to the appraiser, especially about an expected property value.

FHA appraisals have always been ordered through FHA Connection. The lender has been allowed to choose an appraiser who is familiar with certain cities or neighborhoods, and typically an appraiser who can be trusted to complete the appraisal quickly. The new process will take the appraisal ordering out of the lenders hands, much like the HVCC process.

Key Points for the new Policy

• Prohibition of commission based lender staff from the appraisal process
• Prevention of improper influences on the appraiser
• Appraiser independence safeguards

Effective Date for Mortgagee Letter 2009-28

The initial effective date was January 1, 2010. The date was delayed and is now February 15, 2010. All FHA case numbers issued after February 15 ,2010, will need to have the appraisal ordered using this new process. Many lenders have already made the transition.

How Will This Effect Orange County FHA Borrowers?

Hopefully this will not have a negative effect for Orange County home buyers, who most likely won't even know the difference. FHA approved appraisers will still be doing the appraisals, the properties will still need to appraise at the purchase price in order to be eligible for maximum FHA financing. While HVCC has had many complaints, FHA has tried to make sure that appraisers will still be compensated by stating that "FHA appraisers are compensated at a rate that is customary and reasonable for the market area." This should keep appraisers motivated to do a good job. (Appraiser compensation has been a big issue under HVCC.) Also, FHA has made it clear that appraisals are to be assigned to appraisers who have a knowledge of the market area and geographic competency. This has been another bone of contention with HVCC.

Bottom line is the property should appraise at its true value. On a purchase transaction, the appraiser will have a copy of the purchase contract and will know the purchase price and concessions. Time will tell how this pans out. VA loans in Orange County have dealt with a similar appraisal ordering system for many years with few problems.

Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan.  877-786-4243 x 7.

www.OCFHALoans.com

Contact us for your Orange County FHA Mortgage:

Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.

877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com

*Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.

With the recently changed FHA rules for condo financing, it has become a little more difficult for Orange County first time home buyers wanting to buy a condo. FHA recently made big changes to the condo approval process while at the same time eliminating the Spot Approval program.

First, a little background information on FHA financing and condo's. FHA has, for many years, required that condo projects be "approved" before allowing financing within the project. In the 70's and 80's, and even the early 90's, when a project was being built, the builder pay the expense of getting the new project approved, thus making it easier to sell the finished condo's to homebuyers wanting to use FHA financing. Most condo projects in Orange County were approved and it was rarely a concern that a project would not be approved. In the late 90's and for most of the last 10 years up until 2008, the Orange County FHA loan limits failed to keep up with property values, and alternative loan products allowing high loan to values and very easy qualifying took the place of the FHA loan program. In 2007, along with the collapse of the Mortgage Backed Securities market and the elimination of the easy qualifying program, the FHA program suddenly became viable again.

The only problem was that most newer condo projects had never been FHA approved, and even some of the older projects that had been approved and lost their approvals as a result of either a lawsuit against the Homeowners Association, high investor ownerships percentages, among other reason.

The Spot Approval Program

The FHA Spot Approval program did become popular in Orange County, CA in 2008 once FHA increased the loan limits from $362,790 to $729,750. Suddenly, almost every condo in Orange County fit within the FHA loan limits. The Spot Approval program allowed an individual unit to be financed even if the project was not FHA approved, provided certain conditions were met. Now, effective February 1, 2010, the Spot Approval program has been eliminated. This means that projects that are not FHA approved will lose out on a large segment of home buyers (almost anyone with less than 20% down, except for VA buyers, based on current lending guidelines), which will surely affect the projects property value.

New FHA Condo Approval Guidelines for 2010

On June 12, 2009, FHA issued Mortgagee Letter 2009-19, which gave the new guidelines for approval along with the method's used for approval, called DELRAP and HRAP. The guidelines were supposed to go into effect on October 1, 2009, but FHA delayed it until Dec 7. DELRAP (Direct Endorsement Lender Review and Approval Process) and HRAP (HUD Review & Approval Process) are now the method used for getting projects approved. The DELRAP process allows for a Direct Endorsed FHA lender to approve a condo project. However, there is a huge liability for the lender if it ever turns out that the project should not have been approved. For this reason, HRAP will most likely be the most commonly used condo approval process. A complete condo package will need to be put together and sent to HUD for approval. The length of time required to get a project approved will vary from region to region, but plan for 15 to 30 days from the day the condo package is sent to HUD.

How To Find FHA Approved Condo Projects in Orange County

The quickest way to find out if a condo project is FHA approved is to go to the HUD website and use the condo lookup tool. Choose the HRAP/DELRAP Approval method, and then narrow down the search by choosing state, city, and/or zip code. Projects that were approved prior to October 1, 2008, which will be nearly all projects in Orange County, will need to be "recertified", most likely through the HRAP method.

**Interesting thing going on right now. Orange County VA loan home buyerscan still use the VA approved list without having to deal with recertification. VA continues to have their own list.

Orange County real estate agents with listings in condo projects should contact the Homeowners Association to have them work on getting their project either recertified or approved. There are companies that specialize in helping association management companies take care of the approval and/or recertification process that should be consulted at the very least.

These changes will lengthen escrow closings, but shouldn't keep first time home buyers from purchasing a condo. Of course, the first thing a prospective Orange County home buyer should do is get prequalified for a mortgage. A loan officer can provide loan scenarios that will take into account a home buyers qualification, payment comfort level, and estimated HOA dues if they are thinking of purchasing a condo.

Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan.  877-786-4243 x 7.

www.OCFHALoans.com

Contact us for your Orange County FHA Mortgage:

Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.

877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com

*Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.

The down payment is nearly always the biggest hurdle an Orange County First Time Home Buyer has to over come. The down payment can come from several different sources, but buyers need to be careful because there are also sources that are not allowed. Besides actually saving the down payment over a period of time, below is a list of a few of the acceptable down payment sources.

Sources of Down Payment for an FHA Loan

IRA's, 401K, retirement funds. One of the great things about FHA is that a 401K loan payment is not counted in the borrowers debt to income ratios. It is on a Conventional loan.

Gift Funds. This typically needs to come from a relative.  Gift funds need to be "paper trailed", meaning the lender will need to verify the donor had the funds to give. A copy of the actual cancelled gift check is very helpful, along with the deposit receipt from the borrower.

Sale of Personal Property. The key is to remember that everything in an FHA transaction needs to be documented. If a borrower is going to sell a car,  the lender will need verification that the car was owned by the borrower, and will need verification of how much the car is, or was, worth. Also, the lender will need verification that a sale did occur.

Commission From Home Sale. If the buyer is a licensed agent, the commission can be used for the down payment and/or closing costs. Also, if the buyers agent is a relative, the agent can "gift" the commission to the borrower which can be used towards the 3.5% minimum down payment.

Rent Credit. Also known as a "lease option", a portion of the rent paid can be credited towards the down payment. The catch is the amount credited can only be the amount paid above the market rent. For example, if the market rent is $1,500 and the buyer pays $1,800 per month, then $300 per month can be credited towards the down payment.

Bridal Registry Account. Hey, you never know. Instead of asking for dishes, sheets and towels, a newly married couple can set up a bank account where friends and family can directly deposit a wedding gift of cash. This can add up fast.

The important thing to remember, as mentioned above, is that everything about a loan is going to need to be heavily documented. This is where home buyers can sometimes run into trouble. For example, while "cash" is technically an acceptable source of down payment, it is so difficult to document cash, that buyers who don't like saving their money in a bank account will have a difficult time getting a lender allow it. Also, don't even begin to think you can get away with a credit card advance. The lender will review bank statements and need verification of any unusual deposits shown on the most recent 2 months bank statements.

First time buyers should talk with an Orange County FHA loan officer before even looking at homes. It is important to get Prequalified for a mortgage in order to know what price range to shop for. Payments are different for single family homes versus condo's because of the the Home Owners Dues associated with a condo. By getting your prequalified for an FHA loan ahead of time, you will be well prepared when the time comes to make an offer on a property.

Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan.  877-786-4243 x 7.

www.OCFHALoans.com

Contact us for your Orange County FHA Mortgage:

Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.

877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com

*Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.

On January 15, 2010, HUD issued a news release which dramatically changes its 90 day anti flipping rule, which will help Orange County first time home buyers using FHA financing. The 90 day no flipping rule has prevented Orange County home buyers from purchasing a property that had been recently purchased by an investor for profit.

What was the Purpose of the No Flipping Rule?

 In 2003 HUD came up with the No Flip rule in order to prevent investors from artificially inflating prices, thus ripping off unsuspecting home buyers. But in the current market the rule has been seen as a road block to the housing recovery. With all of the new consumer protection rules that have gone into place in the past 12 months including HVCC, which takes the appraisal ordering out of the hands of the lender, it would be difficult for a property to be sold for more than it can appraise.

The No Flip rule did allow for homes to be sold in less than 90 days if they had been foreclosed on and then sold by the foreclosing bank. But if an investor bought the property in order to resell for profit, then a contract to purchase could not be signed until the 91st day after the seller acquired the property.

Why Has FHA Decided to Lift the Ban on Flips?

FHA has found that in todays market, properties are being purchased, fixed up, and resold in less than 90 days. The No Flip rule prevented sellers from accepting offers from FHA borrowers. Because of the restriction, FHA borrowers have been unable to purchase many affordable homes. The waiver of the No Flip rule will take effect on February 1, 2010 and remain in place for 12 months. There will still be certain rules in place to protect home buyers.

What Conditions Need to be Met?

There are conditions that need to be met in order for FHA financing to be possible on a recently flipped property.

• All transactions must be arms-length, with no identity of interest bewteen the buyer and seller or other parties participating in the sale. This means the lender will need to make sure the seller holds title to the property. The lender will need to make sure that an LLC or Corporation which holds title to the property was established and is operated lawfully. The lender will verify that there is no previous pattern of flipping activity over the previous 12 months by checking the chain of title. The lender will also need to verify the property was marketed openly, such as on MLS, or For Sale by Owner. A red flag would be if the wording "assignment of contract of sale" appears in the purchase contract.
• The new sales price cannot be more than 20% above the price the seller/investor paid for the property. If it is, then additional conditions will need to be met.
• The waiver is only for forward mortgages. This does not apply to the HECM, or Reverse Mortgage.

What if the Property is Sold for More than 20% of the Sellers Cost?

If a property is sold for more than 20% of the sellers cost, additional conditions need to be met. The lender will need additional documentation, and may require a second appraisal, which verifies the seller has completed legitimate renovation or repair on the property which will support the increase in value. In situations where there was no rehab work, the appraiser will need to explain the increase in property value since the previous title transfer. Also, the lender will need to order a Property Inspection and provide a copy of the report to the new home buyer prior to closing. The Property Inspection need to be ordered by the lender, and paid for by the lender, although the cost can be passed on to the buyer.

Who Will Benefit from This in Orange County?

Both real estate investors and home buyers will benefit. Homebuyers, especially Orange County first time home buyers who tend to use FHA financing because of the low down payment requirements, have had limited housing inventory to choose from over the past 12 months. This rule waiver will open up a segment of the market that was previously unavailable to them.

Of course, the first thing an Orange County First Time buyer needs to do is check into how much of a loan they will qualify for. They need to contact an Orange County FHA Lender who can walk them through the initial steps of getting Prequalified and/or PreApproved for an FHA loan. Knowing how much home they can afford based on their income, or payment comfort level, is important in order to prevent wasting time by looking at homes that are out their price range.

Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan.  877-786-4243 x 7.

www.OCFHALoans.com

Contact us for your Orange County FHA Mortgage:

Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.

877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com

*Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.

The High Balance FHA Loan program, also known as the Jumbo FHA Loan program, is currently the best way for Orange County home owners with combined loan balances over $417,000 but under $729,750 to refinance with cash out. Keep in mind that per Fannie Mae guidelines, if a borrower is combining a 1st mortgage with a 2nd (or HELOC) that was not used for the initial purchase, then the resulting refinance would be considered a "cash out" refinance even if the borrower was not pulling additional cash out.

Why FHA is the Best Way to Refinance a Cashout Loan Over $417,000

FHA guidelines allow for "cash out" refinancing up to 85% of the properties value, even if the new loan amount is over $417,000. Fannie Mae will not allow a "cash out" refinance over 60% of the properties value if the new loan amount will be over $417,000. To make matters worse, combining a 1st and 2nd mortgage (or Equity Line) that was not used to purchase the home is automatically considered a cash out refinance. 60% loan to value leaves a lot of Orange County home ownerswho have a 1st and 2nd mortgage in a lurch. Also, FHA allows FICO scores to be lower than the Fannie Mae "Agency Jumbo" program. Most Orange County FHA Lenders can refinance a homeowner with a FICO score as low is 620.

**For Orange County VA loan program eligible homeowners, the VA program would be even better than FHA. VA will go to 90% of the properties value, and has no monthly Mortgage Insurance.

FHA Cash out Jumbo Refinance Example

Lets assume a home owner in Orange County has a 1st mortgage of $400,000 with a 5 year fixed interest rate of 6.5%. (For those of you with interest rates under 5%, believe me, there are plenty of home owners who haven't been able to take advantage of low rates.) The payment on the 1st is $2,623. They also have a 2nd mortgage of $100,000 with a fixed rate of 6.25%, yielding a payment of $615. The 2nd has a balloon payment in 3 more years. The property value is $650,000. This homeowner would not be able to refinance under Fannie Mae guidelines. But with an FHA loan, they can. Assuming an FHA interest rate of 5.5% on a new loan amount if $510,000, the payment would be $3,129 for the principal, interest, and mortgage insurance. By going with an FHA program, the homeowner is able to combine their 1st and 2nd into a fixed rate FHA loan, eliminating the looming rate change on the 1st mortgage and the balloon payment on the 2nd mortgage.

If the homeowner also had additional cash needs (home improvements, debt consolidation, etc), it would be possible to refinance up to a loan amount of $552,500, or 85% of the $650,000 proeprty value.

What Does it Take to Qualify for an FHA Loan?

Well, Stated Income is out of the question. FHA is a Full Doc program, meaning the lender will need to see tax returns for the most recent 2 years, paystubs for the most recent 2 months, bank statements for 2 months, and first born. Well, maybe not first born, but you get the picture. Although everything will be closely reviewed, FHA is fairly flexible with the debt to income ratios. FHA is also very flexible with the FICO score.

What Programs Does FHA Offer?

The two basic FHA programs are the 30 year fixed and the 15 year fixed. The 30 year fixed tends to be the more popular program, but there are advantages to the FHA 15 year fixed program. Beside the fact that your home will be paid off in only 15 years, FHA also does not have Monthly Mortgage Insurance on the 15 year fixed program when the loan to value is less than 90%, which will be automatic on a cash out refinance.

The first step in finding out if an FHA Jumbo Refinance will work for your situation is to contact an Orange County FHA Lender (with 20 year experience) who can answer all your questions and prepare scenarios based on your qualifications.

Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan.  877-786-4243 x 7.

www.OCFHALoans.com

Contact us for your Orange County FHA Mortgage:

Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.

877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com

*Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.

Just like in 2009, 2010 will be a big year for the FHA loan program and Orange County First Time Buyers. There are several reasons for this, one of them being that there just aren't many competing loan programs.

4 Reasons FHA will Continue to be Preferred by Orange County First Time Buyers

1. Only 3.5% down payment requirement. Other Conventional programs require at least 10% down, as long as the borrowers FICO scores are 740. There are a few niche programs, such as the Fannie Mae Homepath program which is for specific Fannie Mae owned properties, or the VA loan program which allows for 100% financing but is only for VA eligible borrowers.
2. The FHA credit guidelines are more flexible than Conventional financing. Although technically FHA does not require a minimum FICO score, most lenders want the borrower to have at least a 620 FICO. Even if a Conventional buyer has 20% down down payment, they would most likely get a lower interest rate by choosing FHA rather than Fannie Mae/Freddie Mac.
3. Down payment can be a gift with FHA. Not only is the minimum down payment only 3.5%, but the down payment can be a gift from a relative. It can also come from a 401K loan without needing the count loan payment in the debt to income ratios. With Conventional financing, if the down payment can be gift if there is 20% down. If the down payment will be less than 20%, than at least 5% of the purchase price must come from the buyer.
4. FHA allows for higher debt to income ratios. the guideline total debt ratio for FHA is 43%, but for borrowers with just "decent" credit, it is not unusual to get an approval with a ratio as high as 55%. Fannie Mae recently lowered the debt to income ratio they will accept to 45%. With solid compensating factors, such as reserves and perfect credit, Fannie Mae may allow the ratio to be 50%, but again we are assuming 20% down, not the 3.5% the FHA is looking for.

First Time Buyer Tax Credit offers Incentive to Act Fast

With the extension of the $8,000 First Time Buyer Tax Credit, Orange County First Time Buyers have until April 30, 2010 to have a signed accepted contract to buy a home, and then until June 30, 2010 to close the transaction. With property values down to affordable levels not seen in many years, first time buyers are finding they can buy a home for a payment similar to their rent payment. This, combined with the $8,000 "gift" from the government, should result in a lot of Orange County first time buyer activity in the first quarter of 2010.

The First Step is FHA PreApproval

Actually, the first step should be to talk to an Orange County Direct Lender who is an FHA expert. Your lender should be able to prepare loan scenarios based on your qualification and goals which will give you a good idea of what it will take to buy a home. It is important to know how much of a payment you are comfortable with, along with how much money you will need to buy a home. The initial prequalification process can be quick, but the search for the perfect home can take some time. Orange County First Time Buyers who want to take advantage of the $8,000 First Time Buyer Tax Credit need to act quickly.

Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan.  877-786-4243 x 7.

www.OCFHALoans.com

Contact us for your Orange County FHA Mortgage:

Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.

877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com

*Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.

On December 16 FHA came out with Mortgagee Letter 09-52, which provides guidance to lenders in how to deal with borrowers who have had a Short Sale and borrowers who are refinancing a "short payoff". This has been occuring quite a bit in Orange County, along with the rest of southern California.

What is a Short Sale? What is a Short Payoff Refi?

Short sales have been all the rage in 2009 but FHA has not been very clear on how they would deal with a borrower who had sold their home through a Short Sale. A Short Sale is where a property is sold for less than what is owed on the mortgage, thus creating a loss for the lender. A Short Payoff Refinance is where the lender "writes down" the principal on a loan in order to allow the homeowner to refinance.

Will FHA Finance a Borrower Who has had a Short Sale?

The answer is no, and yes. If an underwriter determines that the Short Sale was only so the buyer could take advantage of the declining market conditions and is now purchasing a home at a reduced price that is similar or superior to their old property and "within a reasonable commuting distance", then FHA will not allow financing for the borrower. Also, if the borrowers was behind on payments at the time of the Short Sale, or in default, then they will have to wait three years before being eligible for FHA Financing. Lenders are tending towards the conservative side, so it may be tough to prove to an underwriter that the actual purpose of a Short Sale was not to take advantage of lower home prices, thus taking advantage of the lender, mortgage insurance company, and in some cases, FHA.

There are exceptions to the rule. If a default was due to circumstances beyond the borrowers control, such as a death of a primary wage earner, or serious illness, and a review of the credit report shows that their credit was good prior to the default, then the underwriter can make an exception and approve FHA financing. However, not all lenders will be willing to go out on a limb and do a "manual underwriting" to approve the loan, so these exceptions will be rare.

FHA will finance borrowers who were current on their mortgage at the time of the short Sale, and the proceeds from the Short Sale will serve as payment in full. The borrowers credit would also have to be perfect, with no late payment on other installment debt during the previous 12 months from the loan application.

How Does a Short Payoff Work?

There are situations where lenders are willing to write down principal on a loan in order get the loan off their books. An Orange County FHA lender can refinance the loan as a rate and term refi, but the new FHA loan can not be greater than 97.75% of the properties current value. The loan amount needs to include the fees as well, which means the current lender would need to write down the principal. Quite often an investor, such as a private real estate investment group or even a pension fund, has purchased a bundle of loans at a discounted rate, which allows them to offer a principal writedown to the borrowers and still retain a profit.

To be eligible for a refinancing with a Short Payoff the borrower must be current on their mortgage. Also, in some cases where the lender is not willing to completely eliminate principal, the amount that is not financed into the FHA loan can be subordinated, creating a 2nd mortgage.

Example of Short Refinance for Orange County Homeowners

 Lets say that in 2006 John Smith bought a home in Santa Ana for $700,000 with 20% down payment and a $560,000 loan. John's mortgage payment on the 30 year fixed loan at 6% is $3,357 and his current loan balance (36 months later) is $538,000. Now, in 2009, his home has dropped in value by 35% and is worth $455,000. An investment company has purchased his loan for 70 cents on the dollar, or $376,600. So far, nothing has changed for John. He still owes $538,000. But the investment company has no plans to service the loan. Their exit strategy is to get the loan refinanced and off their books. To get this done, they contact John and tell him they will write down his loan to $435,000, which will be enough to get his loan refinanced through FHA, with room for fees as well. After taking into consideration the FHA MIP, closing costs, and funds for the new impound account, John end's up with a new FHA loan of $450,000. Assuming an interest rate of 5%, his new payment, including the Monthly Mortgage Insurance that an FHA loan will have, would be $2,622. The FHA Short Refi saves John $734 per month, plus has shaved over $80,000 off of his loan balance. At the same time the investment company has quickly gotten the loan off their books and still made a good profit. While somewhat rare in 2009, we may see more of this in 2010 as mortgage servicers clean up their books and investment companies looking for a quick profits continue purchasing these loan "pools" at a discount.

Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan.  877-786-4243 x 7.

www.OCFHALoans.com

Contact us for your Orange County FHA Mortgage:

Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.

877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com

*Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.

When buying a condo in Orange County, it is important to understand the insurance requirements. Whether the loan will be FHA, VA USDA, Fannie Mae or Freddie Mac, the lender will need to make sure the property is insured beyond the typical "exterior" insurance policy most Home Owners Association's cover.

What is a "Walls-In", or "HO-6" Insurance Policy?

A Walls-In policy will cover the interior of the condo. In insurance lingo, the Walls-In policy is referred to as the HO-6, or Interior Insurance Policy. While most people have known that a condo Master Policy is required, few people have understood the interior policy requirements. Over the past year, as lenders have dealt with tightening guidelines, the condo insurance guidelines have become more spelled out. Because there is a high concentration of condo's in Orange County, it has become very important to understand the insurance requirements.

The HO-6 or Interior Insurance Policy needs to provide the following:

• Fannie Mae - According to Fannie Mae, the policy must cover 20% of condo unit's appraised value.
• Freddie Mac - requires 100% of replacement cost
• FHA, VA, USDA - they all require it, but don't give specifics on the amount of coverage. Lenders have their own requirements and will typically follow either Fannie Mae or Freddie Mac insurance guidelines for their FHA, VA, and USDA loans.

The bottom line is Orange County home buyers need to get the insurance requirements directly from their lender, And of course, working with an experienced, local, Direct FHA and VA Orange County loan officer can make the process much easier.

So What Does the Master Insurance Policy Cover? Is There a Time When an HO-6 is Not Required?

The HO-6 policy is not required every time. There are times when the Master Insurance Policy actually does cover the interior of condo's in the project. This seems to be the exception rather than the rule, but on occasion the coverage is there. The Master Insurance Policy also must cover the entire project, including the buildings, fixtures, and common elements. The coverage needs to be 100% replacement.

As soon as an offer is accepted and escrow is "open", the homebuyer should get a copy of the Master Insurance Policy, and with assistance from their Orange County Realtor or Orange County Direct Lender, figure out whether an HO-6 Policy will be required. If so, begin researching insurance companies and getting quotes. These days, it is important to not wait until the last second to take care of the insurance.

Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan.  877-786-4243 x 7.

www.OCFHALoans.com

Contact us for your Orange County FHA Mortgage:

Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.

877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com

*Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.

Its official! Orange County, CA homebuyers will have more time to purchase a home and take advantage of the First Time Home Buyer Tax Credit. Set to expire on November 30, 2009, the tax credit was just extended through June 30, 2010, and includes some important revisions. Also, the tax credit is not just for first time buyers anymore. Move up buyers can get a tax credit of up to $6,500.

Orange County First Time Buyers

The tax credit can be as high as $8,000, or 10% of the purchase price, whichever is lower. Since there aren't many homes under $80,000, 99% of Orange County First Time Buyers should qualify for the whole $8,000, provided they also meet other qualifying criteria. The tax credit will be $4,000 for those buyers who are married but filing separately. For unmarried co-buyers, either one person can claim the entire tax credit or they can split the credit. A First Time Buyer is someone who has not owned a home within the past 3 years prior to the new purchase. The IRS may ask for proof, which is your Final Closing Statement, or HUD 1.

Orange County Move-up Buyer Tax Credit

Move up buyers can now get up to a $6,500 tax credit, or 10% of the purchase price, whichever is lower. There are a few caveats here to remember. The move up buyer must of owned their current home for at least 8 years and lived in the home consecutively for 5 years out of those 8 years. The current home must have been a primary residence.

Special Rule for Members of Armed Forces - Orange County VA Loan

For those who are a member of the "Uniformed" services, or member of Foreign Service of the United States, or employee of Intelligence Community (any CIA first time buyers out there?), the tax credit has been extended through June 30, 2011. The sales contract must be signed by April 30, 2011. To qualify for this extension, these buyers must qualify for the Extended Duty exception, defined as "Official Orders outside the United States for at least 90 days during the period 12-31-2008 and May 1, 2010.

Important Dates to Understand

The current tax credit was to expire on November 30, 2009. This meant that the escrow needed to be closed by November 30, which also meant that to have a realistic shot at closing in time, the purchase contract needed to be negotiated and signed at least 30 to 45 days prior to November 30. The new credit expires on June 30, but the purchase contract need to be signed by April 30, 2010. This will take some pressure off of lenders, escrow, and title since buyers will not being trying to push through a 15 day escrow to get their $8,000 tax credit.

Higher Income Limits to Accommodate Orange County Home Buyers

The current Tax Credit program had an income limit of $75,000 for single home buyers and $150,000 for married couples. The new limits are $125,000 for single filers and $225,000 for married couples. This will help quite a few Orange County home buyers.

Other Things to Know About the Tax Credit

• Maximum sales price for eligibility is $800,000
• To prove eligibility a copy of the HUD 1 (Final Closing Statement) must be attached to IRS 5405 "First Time Homebuyer Credit" form.
• If the home is sold within 36 months of acquisition, the tax credit must be paid back in it's entirety.
• Ineligible Home Buyers - non-resident aliens, properties disposed of before end of the year, if property ceases to be the principal residence before the end of the tax year, if property is acquired from a person who is "related" to the home buyer or if married, the homebuyer spouse, buyer can't be less than 18 year old.

Type of Homes that Qualify for the Credit

• Single Family
• 2-4 Family, as long as at one unit is owner occupied.
• Townhomes and condo's
• Houseboats
• Mobile and Modular homes
• New Construction

Inventory has been low in Orange County for much of 2009, making for a frustrating experience for those First Time Buyers trying to beat the November 30 deadline. Now, with the extension, Orange County First Time home buyers will have extra time to find a home to purchase. Of course, one of the first things to do prior to looking for a home is to get PreApproved for a loan. Approximately 30% of all loans in Orange County in 2009 have been FHA. This is because FHA only requires 3.5% down payment. But before an offer will be accepted by most sellers, the buyers must talk to an Orange County Direct FHA Lender.

Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan.  877-786-4243 x 7.

www.OCFHALoans.com

Contact us for your Orange County FHA Mortgage:

Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.

877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com

*Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.

On November 4 the Senate voted to extend to First Time Buyer Tax Credit, which would be a big boost for Orange County home buyers. The current tax credit program is set to expire on November 30, 2009. Deals that are currently in escrow are "under the gun" to close by the end of the month. That is a scary proposition, considering the delays that cause many escrow to close late. Throw in Thanksgiving cutting into the last week of the month, and there couldn't be a worse time to end a Tax Credit program that many buyers are counting on.

A Few More Steps Remain Before the Extension is Official

The Senate has unanimously passed the bill that would extend the Tax Credit. But what now? It needs to go through the House, which is expected to happen today, November 5.  Once through the House, Obama will need to sign off on it, which should happen quickly. So hopefully it will be official in the next few days.

Expanded Tax Credit Provisions

The current tax credit provides up to an $8,000 Tax Credit to First Time Home Buyers. A First Time Buyer is someone who hasn't owned a home within the past three years. The credit is equal to 10% of the purchase price or $8,000, whichever is less. For Orange County home buyers, that essentially means they get the full $8,000 credit since there aren't many (any?) homes less than $80,000. There are income restrictions however, that have precluded some high earners from the credit. For one person households, the full credit could be claimed if the person's income was under $75,000. There is a phase out up to an income of $95,000. For married couples, the phase out begins at $150,000, with the credit hitting $0 at an income level of $170,000.

New Income Limits for Expanded Tax Credit

Under the provisions for the new bill, the credit doesn't begin to phase out until $145,000 for individuals, and $245,000 for joint filers. There have been First Time Home Buyers in Orange County who have not been able to take advantage of the tax credit because of their high incomes. These new higher limits should include nearly everyone who is looking to buy a home.

Orange County Move Up Buyers Will Also Benefit from the New Tax Credit

A credit of up to $6,500 would be available to move up buyers, which was not part of the old tax credit program. While this may help somewhat, the biggest issue for move up buyers has been a lack of equity in their current home. This is where programs like FHA can come into play. An Orange County move up buyer can purchase a home for $750,000 with only 3.5% down payment using an FHA loan. That is only a $26,250 down payment. It doesn't take much equity to make that work. For those Orange County VA loan eligible home buyers, they are able to purchase a home for $737,500 with $0 down.

New Deadline Date for Orange County Home Buyers

The new deadline date for the tax credit will be April 30, 2010. Even better is that the sales contract just has to be signed by April 30. The buyer will then have 60 days to close, which should be plenty of time for a typical transaction.

Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Frost Mortgage Lending Group for more information about an Orange County, CA home loan.  877-786-4243 x 7.

www.OCFHALoans.com

Contact us for your Orange County FHA Mortgage:

Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.

877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com

*Licensed by Department of Corporations under the California Residential Mortgage Lending Act. PRMI Branch License 813F487.