Orange County FHA, VA & First Time Buyer Loan Information

A common question among Orange County FHA borrowers is "when will the monthly mortgage insurance drop from my loan?" Many think that when their loan reaches 80% of the properties appraised value the mortgage insurance will drop off. That is not necessarily the case. For one, the target loan to value is 78%, not 80%. Also, there are other requirements which need to be met before the mortgage insurance drops off. The 78% rule is based on the initial purchase price/appraised value at the loans inception. It is not based on the future appraised value. For example, if John Smith buys a beautiful Irvine home for $500,000 and only puts 3.5% down, his initial FHA loan, including the Up Front Mortgage Insurance Premium, would be  $487,325. The monthly Mortgage Insurance, currently equal to 1.15%, would be $467. Assuming John does not make extra principal payments, it would take approximately 10 years to reach reach 78% of the $500,000 purchase price, or $390,000.

FHA Mortgage Insurance Remains for Minimum of 5 Years

Now let's assume John does make extra principal payments of $800 per month. By doing this, the loan balance would be paid down to less than 78% loan to value in a little over 5 years. However, this is where the 5 year rule comes into play. FHA requires the mortgage insurance to remain on loans with terms greater than 15 years for a minimum of 5 years. So even though John paid his loan down to 78% loan to value, he would still need to wait until a full 60 months had gone by before his mortgage insurance would drop off. In this example, if he had paid approximately $800 per month extra, his loan balance would be at 78% after 60 months.

Advantage of FHA 15 Year Fixed Program

Of course, if John could easily afford an extra $800 per month, he may want to seriously consider the FHA 15 year fixed program. Interest rates on the FHA 15 year fixed program tend to be .25 to .5% less. Plus, the monthy Mortgage Insurance factor (when putting 3.5% down) is only .5%, or less than half versus the 30 year fixed program. And best of all, FHA does not require a 60 month wait period to cancel MI on the 15 year fixed program. As soon as the loan hits 78% loan to value, the mortgage insurance can drop off. It is important to note that it is the Mortgage Insurance that allows FHA to function. FHA has the most flexible loan guidelines for home buyers putting less than 20% down payment on a home. Not only when it comes to down payment, but also credit and FICO scores, and debt to income ratios. Home buyers who are fortunate enough to have saved (or inherited?) a 20% down payment will not need mortgage insurance. For for those who can afford the mortgage payment but don't want to save, say $100,000 so they can purchase a $500,000 home, FHA is a great program. $17,500 is enough of a down payment for a $500,000 home. The all important first step to help determine what loan options will fit your goals and qualifications, contact a local Orange County FHA loan officer. The loan officer should be able to provide custom loan scenarios which will provide you with a complete breakdown of the purchase price, loan amount, payment, and estimated amount needed to close.  

Authored by Tim Storm, an Orange County, CA FHA Mortgage Loan Officer MLO 223456– Please contact my office atAlpine Mortgage Planning for more information about an Orange County, CA Mortgage. 949-829-1846. www.OCHomeBuyerLoans.com

Contact us for your Orange County FHAMortgage:

949-829-1846 | tstorm (at) ochomebuyerloans.com

Buying a home in Orange County, CA is not the easiest thing to do. But it's not as difficult as some make it out to be. Long gone are the days of needing 20% down payment to purchase a home. While zero down loan programs are mostly gone, except for a few specialized programs like the VA loan, which is for active duty military and retired veterans, there are programs like FHA, which only require a 3.5% down payment. But this article is about a recent home buyers journey to buy a home in Orange County.

Mike and Heather Didn't Like Paying Rent

Mike and Heather had been paying rent for more than 7 years. In 2006 they had tried to buy a home, but Orange County home prices had gotten so high that it didn't seem possible. They continued to rent since renting was cheaper than owning. But eventually reality set in for the real estate market and prices dropped. Dramatically. Homes that were valued at nearly $700,000 at their peak were now selling for $400,000 in 2011. A Jumbo loan is not needed anymore to buy a home in Orange County. Not only that, but interest rates dropped to all time lows, hovering in the high 3's to low 4 percent range.

In 2011 it's Cheaper to Buy a Home Than Rent

Mike and Heather's rent kept increasing every year. Also they had a one year old and had another on the way. They not only would need more space, but also wanted to get established in the good school district. They decided to check into buying a home again after a friend purchased a home for $400,000 and mentioned that his payment was less than $2,700 per month, counting taxes and insurance. When calculating out the tax savings they would have because of the mortgage interest deduction, Mike knew it was time to get serious. Not sure where to start, they went to the Internet to search for homes. But they quickly realized that they needed to know how much they qualified for. Or more importantly, how much home they could buy while still keeping their payment within their budget. They tried a few of the "big banks" but couldn't find a loan officer who gave them straight answers or who seemed able to answer their questions. It was actually difficult to even get a return phone call from the big banks. They decided to narrow the lender search to someone local. Through the Internet they found Tim Storm (yeah, me. I usually don't incorporate myself into these stories but someone had to do it.) Tim was able to prepare custom loan scenarios based on multiple home prices, multiple home programs, and multiple down payment amounts.

Choosing the Best Loan Program

FHA seemed like a good option since it only required 3.5% down. The interest rate was very low and it was fixed. But Tim also showed a Conventional program with 5% down payment. And he showed how the monthly mortgage insurance could be eliminated by paying a one time up front premium. This saved more than $200 per month on a $400,000 purchase price when compared to the FHA program. And it was nice to not have a monthly mortgage insurance payment.

PreApproved and Ready to Buy A Home

Now they were ready. After providing all their income and asset documentation, completing a loan application, running credit, giving a pint of blood and their first born (well, not the last two items, but you get the picture), they were Preapproved for the loan. They were now "confident" home buyers since they knew exactly what they qualified for and what their payment was going to be. And being Preapproved also meant a fast 30 day escrow would help in negotiations.

Hire a Real Estate Agent for Best Results

Of course it helps to have a great agent on your side. What many home buyers don't realize is that the seller pays the buyers agent, not the buyer. There is not a cost to the buyer to have representation. Fortunately Mike and Heather were referred to an agent that was able to help them out. The agent set them up on a custom Multiple Listing Service property search so that they were able to stay on top of the newest listings that fit their criteria for a home. After a few hits and misses, and visiting a few homes which helped to narrow down their "needs" list for a home, Mike and Heather made an offer on a very nice home in a family oriented, tree lined Orange County neighborhood. Their agent guided them through a few counter offers and within a week they had an accepted offer at a price of $395,000.

30 Day's to Close the Loan and Move into their Home

Within 30 days (being PreApproved made the 30 days fly by) escrow was closed. Of course there were inspections and and few things that needed to be fixed prior to closing (this is where it's nice to have a good buyers agent on your side), Mike and Heather were ready to move into their home. 

Mike and Heather are now are happily in their home. And with only 5% down payment and no monthly mortgage insurance, they know they don't need to worry about a landlord increasing their payment anymore. Now if they can figure out a way to "fix" their child care costs, everything will be perfect.

Authored by Tim Storm, an Orange County, CA Jumbo Mortgage Loan Officer MLO 223456– Please contact my office atAlpine Mortgage Planning for more information about an Orange County, CA Mortgage. 949-829-1846. www.OCHomeBuyerLoans.com

Contact us for your Orange County Mortgage:

949-829-1846 | tstorm (at) ochomebuyerloans.com

The FHA 15 year fixed program is a great program for Orange County home owners and home buyers. While the downside is the higher payment that comes with a shorter amortization, for those that can handle it, there are thousands of dollars to be saved. 

Prior to 2007, many homeowners and people in the mortgage industry felt paying down a mortgage was not a smart thing to do. The mortgage interest deduction was considered too big an advantage to give up. But over the past few years, as many homeowners have experienced the downside of having a "big mortgage", many homeowners have chosen to go with a 15 year fixed. FHA actually offers a great 15 year fixed program. Below are a few of the reasons why the FHA 15 year fixed is so good.

FHA 15 Year Fixed Advantages for Orange County Home Owners

1. The interest rate is lower, by .375 to .5% in rate, as compared to a 30 year fixed program.
2. The Monthly Mortgage Insurance is less on the FHA 15 year fixed than on the FHA 30 year fixed. And at 90% loan to value or less, the MMI is completely waived.
3. The FHA 15 year fixed is more flexible with underwriting and FICO scores than Conventional Fannie Mae and Freddie Mac programs.
4. FHA allows the combining of a 1st and 2nd mortgage up to 97.75% loan to value, up to a $729,750 loan amount in Orange and Los Angeles counties. Most Conventional lenders will consider this a "cash out" refinance, and won't allow financing over 60 to 65% loan to value.
5. FHA will even allow a "cash out" refinance to 85% loan to value for those who have credit card debt to consolidate.

Example of an FHA 15 Year Fixed in the Orange County City of Irvine

Recently, an Irvine home owner named Mike Jones was considering a refinance. His first mortgage was $440,000 at an interest rate of 5.5%. His payment was $2,611 and he had 27 years remaining on the loan. He also had a 2nd mortgage at a 30 year fixed rate of 6.5% in the amount of $85,000. His payment was $568 and he had 27 years remaining. He had called multiple lenders looking for a way to combine his loan, but due to the drop in his properties value from $700,000 to the current $610,000, it didn't seem possible. For a Conventional loan, lenders wanted his property to be valued at over $850,000. He did find one lender who would go as high as 80% loan to value, but the interest rate would not have been an improvement. Then, Mike contacted a local Orange County Direct FHA Lender located in Irvine, and learned about the FHA program. The downside was his combined mortgage payment would be $4,073, which was $894 higher than his current payment. But the interest rate would be 4.375% (4.534 APR) and there would be no Monthly Mortgage Insurance. Although his payment would be higher, the net effect would be savings over the life of the loan of approximately $300,000. That was hard to pass up. Mike closed the deal and went from the feeling of "my house will never be paid off" to a feeling of "now I can retire in 15 years".

Find an Orange County FHA Expert

Not all lenders know the in's and out's of FHA. Finding an FHA Expert who can prepare personalized loan scenarios based on an individuals situation is critical, before money is spent on an appraisal. Many of the best OC FHA loan officers are able to not only prepare scenarios, but present them in a manner that is easy to understand. Incorporating video into the presentation can help the borrower not only better understand his/her options, but also be able to quickly share the scenarios with his/her spouse or financial advisor. With interest rates remaining low, now is a great time to check into an FHA program.

Authored by Tim Storm, an Orange County, CA Loan Officer with 20 year experience– Please contact my office at Alpine Mortgage Planning for more information about an Orange County, CA home loan. 877-786-4243 x 7. MLO# 223456

www.OCFHALoans.com

Call our office today and see how we can help you and your family. 

877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com

*Alpine Mortgage Planning is licensed and supervised by the Department of Corporations under the California Residential Mortgage Lending Act. NMLS 81395

VA loans will be even more popular in 2011 than in 2010 in Orange County. There are several reasons, besides the most obvious reason being that no down payment is required up to a $700,000 purchase price. Up until recently, Orange County Veterans have not realized the benefits that the VA loan program offered them.

Benefits of the VA Loan Program for Orange County Veterans

• 2011 VA Loan Limits are higher. 100% Financing up to $700,000 in Orange and Los Angeles Counties in 2011. This is actually an increase from 2010, when the 100% financing limit was $593,750. Even that was great, but $700,000 is better.
• VA allows "cash out" refinancing up to 90% of the property value. This is much better than Conventional financing, which would have severe pricing "hits" for doing a "cash out" refinance at even 80% of the properties value on a loan amount under $417,000. Most Conventional loan guidelines consider combining a 1st and 2nd to be a "cash out" refinance. With the drop in property values since 2007, many homeowners have not been able to combine their 1st and 2nd mortgages because of the tight Conventional loan guidelines. But California Veterans have the ability to combine their 1st and 2nd up to 90% of the properties value.
• VA guidelines are more flexible when it comes to credit as compared to Conventional guidelines. Even if a Veteran has 20% down payment, a VA loan may be the best option if they've had a Short Sale, bankruptcy, or other credit issues in the past few years.
• VA allows for higher "debt to income" ratios than Conventional financing. While Fannie Mae does not allow debt to income ratios above 45% without an exception, and even then will not go over 50%, VA is more interested in "residual income" that the debt to income ratios. On higher loan amounts this allows for quite a bit of flexibility.

Closing a VA Loan in Orange County is Easy

Closing a VA loan is much easier than some think. While the large banks can take 60 days or more to close a Conventional loan, a good Orange County Direct VA lender can close a VA loan in 30 days, maybe less. The key is to work with a Orange County VA loan Expert who knows what items are needed to complete the file, before the VA underwriter  reviews the file. The VA loan expert should be able to provide accurate loan scenarios before the loan process starts, allowing the borrower to consider all options before paying for an appraisal.

Contact us for your Orange County VA Loan:

877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com

*Alpine Mortgage Planning is licensed and supervised by the Department of Corporations under the California Residential Mortgage Lending Act. NMLS 81395

Closing an FHA loan in Orange County in 30 days or less is not only possible, but is easy. But for the loan to close this quickly, all parties involved must be ready to react quickly to requests from the lender.

What Needs to Happen For a 30 Day FHA Loan?

• Borrower - it helps tremendously if the borrower has already met with an Orange County Direct FHA Lender and has a PreApproval in hand. If the borrower is already PreApproved for a FHA loan, then the lender should have tax returns, paystubs, bank statements, loan application, and credit. The lender may need to update the file with new paystubs or bank statements, but PreApproval will give the lender a good head start in closing the deal quickly.
• Real Estate Agents - The lender will need the complete purchase contract and any counter offers, as well as escrow company contact information. The Orange County FHA lender needs this information so they can contact escrow immediately.
• Escrow Company - The lender will send the "Initial Fees Worksheet" to the escrow company, along with the lenders contact information. The lender needs to receive the Estimated HUD-1, also known as the Estimated Closing Statement, from the escrow company prior to completing the Good Faith Estimate and loan disclosures for the borrower. The appraisal can't be ordered until the lender has sent loan disclosures out, so receiving the Estimated Closing Statement from escrow is an important step in closing escrow in 30 days or less.
• Appraisal - The FHA appraisal is ordered by the lender through an Appraisal Management Company. It typically takes less than 1 week to receive the appraisal from the day it is ordered, so the lender needs to order the appraisal as soon as possible.

If there is a break in the chain, if one of the parties involved in the transaction causes a delay, 30 days can quickly turn into 35 or 40 days. For this reason, the lender should have a timeline mapped out and make it clear to all parties that items needs to be received quickly. An experienced lender can pull off 30 days FHA loan closings almost every time as long as everyone works as a team.

FHA Loan PreApproval is the First Step

The first step is to get PreApproved for a FHA loan before making an offer on a home.  Finding an experienced FHA loan officer who works with a Direct Endorsed FHA lender in Orange County is important. While it is easy to find FHA lenders on the internet, Orange County has some very experienced FHA loan officers. Also, it can be helpful to meet face to face with the loan officer and get all of your questions answered.

Authored by Tim Storm, an Orange County, CA  FHA Loan Officer – Please contact my office at Trust One Mortgage Corporation for more information about an Orange County, CA home loan.  877-786-4243 x 7.

www.OCFHALoans.com

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 *Trust One Mortgage Corporation is licensed and supervised by the California Department of Real Estate (“DRE”), License # 01087829

FHA typically requires a two year employment history, but job gaps are not an automatic deal killer. FHA guidelines are actually fairly flexible regarding job gaps. The job gap will need to be documented and certain conditions need to be met, but don't let a job gap keep you from buying a home.

Orange County FHA Borrowers Returning to Work After Job Gap

An Orange County FHA borrower's income may be considered effective and stable when recently returning to work after an extended absence if he or she

• is employed in the current job for six months or longer, and
• can document a two year work history prior to an absence from employment using a lender issued Verification of Employment or copies of W2's or paystubs.

An extended absence is considered to be more than six months. An Orange County FHA borrower may have been out of work a year, and if they're able to verify a two year work history prior to the beginning of their "gap", and have been on the new job for six months, they are ready to go.

Reasons for Job Gap

There are many reasons why someone may have been out of work for more than six months. For example, an acceptable situation includes individuals who took several years off from employment to raise children and then returned to the work force. Of course, lately it has not been unusual for a borrower to be laid off and then take several months or even more than a year to find a new job.

After a gap, it will be difficult to use income received beyond the "base" income. FHA underwriters typically need to see a 24 months average of overtime, bonuses, or commission income in order to use the additional income in calculating the debt to income ratios.

The first step in an Orange County FHA borrowers should take in the home buying process is talk with an experienced Orange County FHA Direct Loan Officer.  An experienced FHA loan officer should be able to quickly answer questions and help in getting the Orange County home buyer PreApproved for an FHA loan.

Authored by Tim Storm, an Orange County, CA Loan Officer with 20 year experience– Please contact my office at Trust One Mortgage Corporation for more information about an Orange County, CA home loan. 877-786-4243 x 7.

www.OCFHALoans.com

Call our office today and see how we can help you and your family. 877.786.4243 x 7 | tstorm (at) ochomebuyerloans.com *Trust One Mortgage Corporation is licensed and supervised by the California Department of Real Estate (“DRE”), License # 01087829

FHA began allowing financing on flipped properties on February 1, 2010, but as been the case, FHA lenders, including those in Orange County, were not quick to follow suit. However, within the past few weeks, several Orange County FHA lenders have begun to allow financing on flipped properties.

FHA Announcement on January 15, 2010 Regarding Flipped Properties

On January 15, 2010, FHA announced in a press release that it would be temporarily lifting the "90 day no flipping rule", effective February 1, 2010 through February 1, 2011. However, there are a few guidelines that need to be met.

1. The seller and buyer cannot be related.
2. If the new purchase price is 20% above the sellers acquisition price (within the last 90 days), then the lender may require a second appraisal. Also, the appraisal should have specific notations justifying the increase in value.
3. If the property is being purchased for more than 20% of the sellers acquisition price, then the lender will require a home inspection report, which can be paid for by the buyer.

Orange County FHA LendersWill Allow Financing on Flip's, But with Major Caveat

Most lenders are now allowing FHA financing on flipped properties, but not if the property is being sold for 20% more than the sellers acquisition cost within the last 90 days. Unfortunately, this effects most flipped homes. For example, if an investor purchases a property at auction for $300,000, then he would not be able to sell it for more than $360,000 (and have an FHA buyer). The lender is not looking at the investors profit, just the acquisition cost versus sales price. While there will be some cases where FHA financing will work, it is important to know what financing is available before making an offer on a home with FHA financing. If a property is being sold for more than 20% of the recently acquired price, make sure the lender handling the financing can still do the loan.

Before even making an offer, it is important that Orange County first time buyers talk with a local Orange County Direct Lenderwho can walk them through the initial Prequal and PreApproval process.

Authored by Tim Storm, an Orange County, CA Loan Officer - Please contact my office at Trust One Mortgage 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

*Trust One Mortgage Corporation is licensed and supervised by the California Department of Real Estate ("DRE"), License # 01087829