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

Just when it seemed there were already plenty of good reasons to choose an FHA mortgage when you buy your home, here comes another reason. The FHA Streamline Refinance program has actually been around for years, but since about 2001 is hasn't been utilized very often. This program is an easy way for a homeowner who already has an FHA loan to refinance to a lower rate (since rates have dropped) into a new FHA loan.

FHA Refinance with No Closing Costs

That's right! The more popular FHA Streamline Refinance program with no appraisal has $0 closing costs. Escrow, title, recording, and lending fees are all paid using premium pricing through the lender.

Qualifying for an FHA Streamline Refinance is Simple

There is no qualifying! (other than the fact that your loan must currently be an FHA loan.)We do not need paystubs, tax returns, or bank statements. We don't even need to verify your job. The most important factor is to have a good payment history on your mortgage over the most recent 12 months. We will not even need an appraisal, and FICO scoring will not get in the way either.

If you would like more information, or would like to find out how much money you can save, please contact me for a no hassle, honest analysis.

 Authored by Tim Storm, CMPS, Sr. Loan Officer with Frost Mortgage, a Direct Endorsed FHA Lender located in Irvine, CA. For information on FHA, or to be prequalified please call 877-786-4243 x 7.

A week ago, the Treasury announced that they had a target mortgage rate in mind of 4.5%.  Mortgage rates are already very low, as evidenced by a sudden increase in refinance activity. Orange County cities such as Irvine, Tustin, Orange and Newport Beach are seeing a big rise in refinances, helped by the fact that a larger percentage of homeowners have equity in their home, as compared to some other California Counties, like Riverside and San Bernardino.

Lower rates will definitely spur more activity in sales, as seems to already be happening. The LA Times recently reported an interesting thing that happened after the Treasury's announcement. Some potential home buyers actually hopped back  "on the fence", thinking there may be a specific 4.5% loan program coming that would benefit them. At the time of this writing, a 30 year fixed rate is essentially at 4.875% (5.185% APR). Mortgage rates and lower property values have already created more affordability than we've seen in years. It would be crazy to sit out much longer.

The Government has already put into place a $7,500 Tax Credit for First Time HomeBuyers, which, when combined with low rates, is getting the attention of home buyers. As we head into 2009, momentum that is already beginning to build should continue. With Conforming and FHA mortgage limits set at $625,500 for Orange County. Since FHA will only require a 3.5% down payment in 2009, an Orange County home buyer can purchase a $645,000 home with only 3.5% down. Plus, the down payment can be a gift, or even a loan from a 401K.  There are a lot of homes that fall within those parameters.

2009 should be a great year as so many renters realize they are able to buy a home for essentially the same payment they pay for rent, after tax benefits are considered.

 Authored by Tim Storm, CMPS, Sr. Loan Officer with Frost Mortgage, a Direct Endorsed FHA Lender located in Irvine, CA. For information on FHA, or to be prequalified please call 877-786-4243 x 7.

So how much of a difference will a significant interest rate drop make for Orange County, CA home buyers? For some people it will be a mean lower payment. For others, the increased buying power will afford them a better home, extra bedroom, bigger yard, or whatever it is that will meet a home buyers needs.

It is estimated that a .5% drop in interest rates will result in approximately a $15,000 to $25,000 higher purchase price without increasing the monthly payment, depending on the actual purchase price the buyer is targeting.

Below are 3 scenarios, each based on an FHA loan, which only currently only requires a 3% down payment. Effective January 1, 2009, FHA will require a 3.5% down payment. FHA has become the loan of choice for Orange County, CA home buyers who have less than 10% for down payment.

Scenario #1

Let's assume John and Lisa make a combined $6,000 a month in gross income. They will be able to get a loan from their 401K for the down payment and plan to have the seller pay closing costs. They would qualify for a purchase price of approximately $325,000. (See image to right.) At a rate of 5.5% (5.682% APR) the total payment, including taxes and insurance, would be $2,357. With a rate drop of .5% to a new rate of 5% (5.196% APR) they would be able to buy a $340,000 home and still have the same payment.

If they chose to stay with a $325,000 price, then their payment would be approximately $100 less, or $1,200 per year.

Scenario #2

Let's assume Mike and Sally make a combined $8,500 per month. Their down payment will come from a combination of savings and gift from family. At the same 5.5% rate, they would have a payment of $3,263 if they bought a home for $450,000 with 3% down. But with a rate of 5% their purchase price would be $470,000 while still maintaining the same payment. I nice $20,000 increase in purchase power. The payment savings would be $137 per month if they decided to stay at the same price.

Scenario #3

Now let's assume Carl and Susie are looking to purchase a home in Irvine, CA in the $600,000 range. Their combined income is $12,000 per month, and at a rate of 5.5% their total payment would be $4,351. A rate drop to 5% would allow them to increase their purchase price to $625,000 without increasing their monthly payment. A $25,000 increase in purchase power. If they decided to stay with the same price, their monthly payment would be $183 lower.

Interest rates have already come down significantly over the past few months and now is a great time to buy a home. Low mortgage rates are already increasing the number of home buyers making offers for the first time. This is the first time in many years in Orange County, CA that a renter can look at a Rent vs Own analysis (with a 30 year fixed rate and 3% down), and without making outrageous assumptions, see the huge advantage of owning a home.

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

What is the difference between getting a PreQualification versus PreApproval? Why do I need either? I hear these questions quite a bit. There are very good reasons why a potential home buyer would want to get PreApproved, and there are important differences between a PreQualification and a PreApproval.

PreQualification

A PreQualification is based on verbal information received from a borrower, many times just over the phone. Answers to questions such as:

• What do you do for work?
• How long have you worked for your current employer?
• Are you paid hourly or on salary? Full time, 40 hours per week? Overtime or bonuses?
• How much do you currently pay for rent?
• How much of a mortgage payment are you comfortable with?
• How is your credit? Any idea of your current FICO score?
• Do you have any car payments, student loans, credit card debt, judgements, collections?
• What about alimony or child support?
• How much money do you have in the bank? 401K? Potential gift and source?

With this information a good loan officer will be able to prepare a detailed loan scenariofor the borrower that will give them a good idea of what they can qualify for, provided the information proves to be as discussed. For many borrowers, the information given even over the phone will prove to be fairly accurate, provided the questioning has been thorough. But problems can arise, especially in the case of a self employed borrower with a Schedule C on the tax returns. Also, a borrower in a sales profession who is able to write off business expenses (2106 Expenses - unreimbursed employee expenses) may end up having less income after expenses than discussed over the phone. For this reason, along with a few others, nothing beats going through with PreApproval BEFORE making an offer on a home.

A PreApproval involves the following:

• Verification of all income, assets, and job history.
• Collection of 2 years W2's and in many cases 1040's.
• Pay stubs for the most recent 30 day time period.
• Copies of 2 months bank statements, all pages, including 401K and investment accounts.
• A complete loan application.
• Credit report is run.
• Automated loan approval is run and received same day.
• Additional verifications are ordered if required, depending on circumstances of file.

Getting a borrower PreApproved is actually not as difficult as it may sound. I can typically complete a loan application over the phone in 10 minutes or less, run credit and have automated approval within minutes. From there is it just a matter of letting the borrower know what is needed for verification purposes.

Once a borrower is PreApproved they are able to confidently go out and look for a home that not only fits their needs, but will fit their budget. Also, the seller will be more willing to accept an offer from a buyer who has already been PreApproved, especially if the PreApproval is from a Direct Lender.

For more information on Mortgage PreApproval, contact Tim Storm with Frost Mortgage. Frost Mortgage is an FHA Direct Endorsed lender located in Irvine, CA.