Orange County FHA, VA & First Time Buyer Loan Information: November 2008

The 203K program has been around for a while, but a few years ago the "Streamline" version of the program was released by HUD. The 203K is a Rehab loan program. The more popular "Streamline K" program is good for up to $35,000 in improvements. When this is combined with the fact that you can buy a home with an FHA loan with only 3% down (will be 3.5% in 2009) and then get an additional $35,000 to improve the home, the program really stands out as something to be considered.

This program is not just for purchasing a home. It can also be used as part of a refinance to make improvements to a home. Borrowers who want to improve their home instead of move. To see a video I put together on this program, click here.

The Best Deals are on the Damaged Bank REO's

In Orange County, CA home buyers are finding that although it is a buyers market, there are a lot of buyers out there. A nice home in a good location will get multiple offers. Meanwhile, a Bank REO that was damaged by the previous owners, or even by squatters or thieves, can be a diamond in the rough. But first you need to have a little vision, and a Realtor and Loan Officer who know more than just the basic loan programs.

Typical Improvements Allowed on the Streamline 203K program

• Kitchen or bath remodels
• Patios, decks or terraces
• Roofing
• Safety, energy efficient and electrical upgrades
• Flooring
• Windows and doors, siding
• Paint
• Appliances - Yes, that's correct. You can buy new appliances as part of this program.
• Minor remodels that don't require structural repairs
• Heating and air conditioning

Luxury items are not permitted, such as swimming pools, hot tubs, tennis courts (but wouldn't that be fun), saunas or alterations to support commercial use.

How Does the FHA 203K Streamline Program Work?

When the loan is funded, 50% of the rehab funds are disbursed immediately. Included with the initial disbursement is an instruction letter with details regarding the 2nd (final) disbursement. The final disbursement is issued only when all of the work is completed. If the work is $15,000 or more then a final inspection by an FHA appraiser is required. If the work is less than $15,000, then no final inspection is required. This would be perfect if appliances were the primary reason for using a 203K.

Is Qualifying Difficult?

No. The process for getting PreQualified for this program is the same as a normal FHA loan. Down payment is still only 3%,  credit is flexible, and the initial approval can be, and in most cases is, Automated.

Once PreQualified, and then PreApproved, the next step is to go find a house. Home buyers will find there is not as much competition for a damaged home. Most people will shy away from these homes, leaving them for investors looking to make money by flipping the property.

Once a property is found, the borrower needs to determine improvements needed and schedules an inspection with a cost consultant. The cost consultant (or borrower in some situations) then completes the work write-up and prepares contractor bid packages to obtain cost estimates. The appraiser will use the work write-up to determine "as is" and "improved value."

The Loan Officer and/or Realtor will be able to guide the home buyer through this part of the transaction. It is helpful to work with a Loan Officer who works with a lender who is a Direct Endorsed FHA lender and can fund the loan "in-house" rather than broker it out. Control of the loan process is very important and can also save money for the buyer.

This program will be very popular in 2009. Foreclosed properties are not known for being in pristine condition, and the banks selling the properties typically are unwilling to fix repairs. The FHA 203K Streamline program will be an important tool for any home buyer to have when beginning to home buying process.

Authored by Tim Storm, CMPS, Sr. Loan Officer with Frost Mortgage, a Direct Endorsed FHA Lender located in Irvine, CA.

It's that time of the year once again. Time to decide if you will put that home purchase you've been planning off until after the holidays, or try to close escrow on a home before the end of the year. This year there are a few things to consider that may push you to take action now.

1. The Jumbo FHA limits are going away. The good news for many Orange County home buyers is that the new FHA limit will still be fairly high at $625,500, but the temporary limit of $729,750 is about to expire. Any buyer who is shopping in a price range between $660,000 to $800,000, and was planning to put either a minimum down payment of 3.5%, or even between 5% and 10% down, needs to act quickly if they are to take advantage of the temporary limits. Many lenders have already cut off the temporary limits, but Frost Mortgage is still closing them, and will be through the end of December. Actually, even into the beginning of January. But we need to get the approval soon, Once the temporary FHA limits are gone, buyers will have limited options for a loan unless they have 20% for down payment.
2. $7,500 tax credit for First Time Buyers. This tax credit will is available for homes purchased all the way to July 1, 2009. But that means you won't actually receive the credit until you file your 2009 Federal Tax returns in 2010. If escrow is closed by December 31, 2008, you could be getting that tax credit when you file your taxes at the beginning of 2008. Why wait a year when you can take advantage now.

I actually have a client right now who is making an offer on a home valued at $750,000 and will be coming in with 3.5% down. Hopefully his offer will get accepted so he can beat the clock. Homes in Irvine, Tustin, Orange, and even Newport Beach can still benefit from these high temporary limits. It's time to get serious. If you are interested in finding out more information, or need to get prequalified, please contact Tim Storm with Frost Mortgage 877-786-4243 x7

Since the temporary increase in FHA limitsin March, and now with the permanent increase to $625,500 for Orange County, CA FHA loans, FHA has become a very popular loan program for home buyers. FHA was always a good program, but the limits were always too low. Now that the loan limits are equal to the Conforming loan limit, it is a good time to take a closer look at FHA.

FHA is not just for First Time Buyers

I've found that some of my clients thought FHA was only for First Time Buyers. But that is not the case. Anyone can buy a home with an FHA loan, but there are a few reasons why a home buyer would choose FHA over a Conventional program. (FHA is for Owner Occupied Primary residences only)

• FHA requires only 3% down. Effective January 1 2009 this will change to 3.5% down, but that is still much better than the 10% down a Conventional loan requires in California.
• FHA is more flexible with FICO credit scoring. Conventional loan financing currently has more "hits" to the fees and rate as the FICO scores drops below 720. FHA doesn't hit the fee or rate until the FICO drops below 620. (At least that's the way we do it at Frost Mortgage.)
• FHA is more flexible with Down Payment Gifts. The entire down payment can be a gift. On a Conventional loan at least 5% of the down payment must come from the borrowers own funds, unless the gift is big enough to cover a full 20% down payment.
• FHA allows the seller to pay "prepaid expenses" for the buyer. Conventional loans do not allow this. This can save a buyer several thousand dollars.

To see a few more reasons why FHA may be a better choice for an Orange County, CA home buyer, click here. If you'd like to find out if an FHA loan is right for you, please contact Tim Storm at 877-786-4243 x 7.

2009 has been a big year in Orange County for the FHA Reverse Mortgage program, also known as the HECM, or Home Equity Conversion Mortgage. There are many myths regarding Reverse Mortgages. Many of these myths are far from the truth. Some are based on how Reverse Mortgages were written in the 80's. Here are just a few of those myths.

Myth #1: When the borrower dies, the survivors lose their inheritance.

This is not the case, but this Myth seems to be one of the biggest concerns for borrowers considering a Reverse Mortgage. Reverse Mortgages are "Non-Recourse". This means the lender cannot go after the family for any losses they will suffer if the property is worth less than the mortgage. As a matter of fact, the heirs will never owe more than the home is worth.

Myth #2: Loan Costs are high and unregulated.

Most Reverse Mortgages are FHA, and the fees are highly regulated. Plus, fees can be financed into the loan, essentially eliminating out of pocket expenses.

To Apply for an Orange County Reverse Mortgage, talk to a localand experienced FHA lender.

For a few more myths, check this out. Frost Mortgage is a Direct Endorsed FHA Lender located in Irvine, CA. We fund Reverse Mortgages in our office. For more information, or to see if you are qualified, contact Tim Storm at 877-786-4243 x 7.

The CalSTRS (California State Teachers Retirement System) offers a great 97% loan program. It is actually a "80/17" program, where the 17% is a Silent 2nd with deferred payments for the first 5 years of the loan. For California teachers who are eligible, and in my market, First Time buyers in Orange County who are teachers, this is a great alternative to an FHA loan.

A 3% down payment is required, but only 1% is needed from the borrowers own funds. The 17% Silent 2nd, which will have an interest rate equal to the interest rate on the 1st mortgage, eliminates the need to have mortgage insurance, which will save quite a bit of money.

Without getting into the numbers too much, on a purchase price of $400,000, the difference in monthly payments between an FHA loan with 3% down and a CalSTRS loanwith 3% down is approximately $221 in favor or CalSTRS. This is even assuming that the buyer decides to make the full P&I payment on the silect 2nd. If the buyer wants to defer the interest on the 2nd, the monthly payment on the CalSTRS program would be approximately $628 per month less than an FHA loan scenario. That's a lot of cash for the monthly budget.

First Time Buyers should always review all of their options. I am finding a lot of teachers who are in the market to buy their first home, and this is an important program for them to consider. For more information, feel free to contact Tim Storm with Frost Mortgage at 877-786-4243 x 7.

That's right! The CalPERS program is a great loan option. To be eligible for the PERS program, a borrower needs to be either an Active, InActive, or Retired Member of either CalPERS, JRS (Judges Retirement System) or LRS (Legislators Retirement System).

The CalPERS Program offers:

•·    Competitive Daily Interest Rates

•·    30, 60, and 90 day rate lock options. The 60 and 90 day locks offer TWO Float Down opportunities.

•·    Down Payment and Closing Cost Assistance possible.

•·    The program is available for purchase, rate and term and cashout refinances.

•·    Owner Occupied properties only.

The Float Down option is a truly great feature. These days it is impossible to predict what will happen with interest rates from one day to the next, let alone one month to the next. The Float Down covers the borrower no matter which way rates go. For example, at the time of application, if the 30 year fixed rate is 6%, then that rate is locked in. (Provided the loan officer is on the ball and registers the loan on that day.) Next, if the loan is approved two weeks later, if the interest rate has gone up to 6.375%, the borrower is safe in knowing their rate is locked at 6% and will not be affected by the higher rate. Later, when loan documents are ready to be prepared, if the rates have dropped to 5.75%, the borrower will actually get that rate. Very cool deal for the borrower.

CalPERS is a Great Program for Orange County First Time Buyers

For more information, please contact me.

At least in my office, on November 14 we began getting new pricing for FHA loans that previously would have been priced as FHA Jumbo. In Orange County, CA, any FHA loan that was greater than $362,790 was considered FHA Jumbo and was priced almost .5% higher in interest rate. I actually have a new home buyer I'm working with who fell into that category. Their loan amount is just under $415,000. On November 12 I was quoting them an FHA Jumbo rate but told them I expected (hoped) is would be better with the new limits being activated. Two days later I was able to offer them a rate .5% lower than the Jumbo FHA.

For a buyer in Orange County, CA who is looking in a price range that will yield a loan amount greater than $625,500 (the new FHA limit) and lower than $729,750 (the temporary "FHA Jumbo" limit), it is time to quickly get off the fence and aggressively make offers. The temporary limits will be gone at the end of December, but lenders will most likely have earlier cutoff dates.

$625,500 will work for most home buyers in Orange County, CA

Also, effective January 1, buyers will need 3.5% down payment rather than the old guideline of 3%. This should not hurt too many buyers. Plus FHA is still flexible with down payment gifts, or even accessing a 401K without counting the payment against the borrowers debt to income ratios. FHA is still the loan of choice for anyone looking to buy a home with less than 10% down.

If you are thinking of buying a home in Orange County, CA, contact me at 877.786.4243 x 7 and I'll prepare a full loan analysis for you as part of the prequalification and preapproval.

Last week, on November 6, FHA released Mortgagee Letter MORTGAGEE LETTER 2008-35 which announced the official increase in the national mortgage limit for all Home Equity Mortgages (HECM), which is the FHA version of the Reverse Mortgage. This increase will help eligible Reverse Mortgage borrowers in Orange County, especially in cities like Irvine, Newport Beach, Tustin, Orange, Santa Ana, and any area where the old limit was too based on home values.

The Reverse Mortgage has become more popular as more homeowners who are eligible for this loan product have taken the time to learn how the program works. There are several common misconceptions out there that have kept many people from seriously considering a Reverse Mortgage.

• "The Lender take the house"  - this is not true. The homeowner retains full ownership of the home. A Reverse Mortgage is still a mortgage. You just don't need to make a payment, as you would on a "forward" mortgage.
• "I can be thrown out of my home" - The homeowner can stay in the home until they either decide to move out (live with the kids, or move into a senior care facility), or until they pass away.
• "I can owe more than my home is worth" - Even if this does happen, the homeowner still stays in the home with no payments. Generally Reverse Mortgages are at fairly low "loan to values", in order to make sure there is always equity in the home.
• "My heirs will be against it" - Experience shows hat heirs are in favor of Reverse Mortgages. Many times the heirs may need to be educated on how a Reverse Mortgage works as well.

Once a homeowner turns 62 they are eligible. A Reverse Mortgage will be the easiest loan they ever applied for. Because there are no payments, the lender doesn't care about credit or income. The loan is completely based on the value of the property and the age of the homeowner.

Loan proceeds are tax free and can be paid out in a few different ways. Either they are paid out in a lump sum, monthly payments, a line of credit, or any combination.

I've actually been getting calls from homeowners who wanted to try and get their loan "modified" because they were having a tough time making their payments. After finding out they were eligible for a Reverse Mortgage, and with some education on how it works, they have been thrilled to eliminate the mortgage payment expense from their monthly budget.

This is a great option for Seniors to consider. For more information or a free analysis to see how much you will qualify for, please contact Tim Storm @ 877-786-4243 x 7, or click here.

Getting a Jumbo loan is much more difficult now than it was 18 months ago. When the Conforming loan limits were temporarily increased in Orange County, CA to $729,750, there was some relief. But what if your loan was higher? What if you owned a property in Irvine, CA valued at $1,500,000 and needed a loan amount of $1,200,000? Loan guidelines have gotten so tight that most of these larger loan programs went away.

There are Still Programs Available for "Super Jumbo" Borrowers

There are still a few portfolio programs available, it just takes a little research, knowledge, and flexibility. For example, we have a program that will go to 80% loan to value on a $1,500,000 loan amount. That means someone can buy a home for $1,875,000 with only 20% down. If the seller will carry back a 10% second, the buyer can get away with only 10% down. This is a Full Income Doc program, so of course the borrower actually has to qualify for the loan. We do still have a 70% Loan to value Stated Program to $3,000,000 for self employed borrowers with good reserves.

Here are some of the other "niche's" still available.

• Will refinance recently listed non-owner properties - rate and term refi's
• Will lend on non owner properties to $700,000
• Will lend up to $5,000,000 on owner occupied properties
• Will allow subordination of seconds on refinances
• Will lend to LLC's, Limited Partnerships and Corporations : Non owner only.
• NO LIMIT TO AMOUNT OF PROPERTIES OWNED BY BORROWER
• Will Lend on leased land
• Stated to $3,000,000, 70% loan to value

Although guidelines are tighter than they used to be, and the multitude of loan programs has dwindled, there are still options available for the right borrower. If you need additional information on these programs please contact Tim Storm at 877.786.4243 x 7.

FHA has become the loan of choice for not only First Time Buyers, but any home buyer who has less than 10% for down payment. FHA only requires 3% (3.5% as of 1/1/2009) down, although that will change on January 1, 2009 to 3.5%, still a small amount compared to a Conventional loan.

Also, FHA is flexible on the source of the down payment. It can , or course from the checking or savings account of the buyer. It can also come from a 401K, however on a Fannie Mae or Freddie Mac loan, if the a loan from a 401K is used for the down payment, that new 401K loan payment is calculated into the debt to income ratios. On a FHA loan, the 401K payment is not included in the calculcation. Also, the entire down payment can be a gift from a relative on an FHA loan.

For more information on FHA loans and some of the other advantages, click here.

The flexibility in underwriting on an FHA loan as compared to other mortgage products currently available is a big advantage to any buyer looking to purchase a home in Orange County, CA. Especially with the high FHA limits Orange County will have in 2009, which will be $625,500 (adjusted to $729,750 currently). The high limits will work well in cities like Irvine, Newport Beach, Tustin, Santa Ana, Lake Forest, Aliso Viejo, Orange, etc. Now is a great time to review your options and get prequalified for a home.