1. The FHA loan has became popular once again over the past 6 months mainly due to it being one of the only 100% financing loans able to use to buy a home. With all of the major mortgage companies going bankrupt around the country they all lost their ability to use their own loans. What I mean by using their own loans is that many companies, let’s say Quicken Loans for example worked with larger banks and investment firms and they wrote their own guidelines. This means that they made their own rules and as long as a bunch of underwriting guidelines were met than the loan could be written and sold on the secondary market for a profit.

2. Realtors loved this during the days of the refi/purchase boom. Since the mortgage companies had their own guidelines a person looking to buy a home could buy just about anything they wanted as long as it had four walls and a roof. It was up to the person buying the home to make sure that the house was up to par with a home inspection.

3. The mortgage companies did have some standards (have to give them some credit). They would not allow you to buy a home that did not have any type of flooring covering the sub floor. This means that the whole house had to be carpeted, tiled, or wood floors down to cover the sub floor. The kitchen had to be complete. You could be missing a dishwasher or a fridge but the sink had to be in. The mortgage companies would find out when the appraisal got back because in the report it would state what is missing and there would be pictures on it too.

4. Now when the FHA is the only option out there for people to get approved on a loan some new standards have been imposed. The FHA’s main guideline is that a home inspection must be done on top of an appraisal. An appraisal and a home inspection are two different things. An appraisal looks at the features of the homes compared to the other homes like it in the neighborhood and determines a value (even if it is missing flooring). A home inspection looks for things like leaky pipes, bad foundation, broken windows, bad roof, mold, and others.

5. If the home that the buyers put an offer on fails the home inspection than the loan cannot be closed until all of those things that made it fail the inspection are cleared up. At that time the loan can close. In reality though, how many people are going to go and dig into whatever space they might have on their home equity line of credit just to fix up the house to be able to sell it to you in a couple months after all of the repairs are fixed. What they are going to do is wait until somebody else comes around that is approved on a conventional 30 year fixed rate mortgage that does not need to pass a home inspection to sell the home. More than likely the people trying to sell the home are probably upside down on their home anywyas and can’t afford to put any money into it because then they will need to bring money to closing. If somebody does not come to them with a normal conventional loan they will probably have to foreclose on the house.

6. With the home not passing the inspection you already know what the look on your realtors face is going to look like. Its going to be one of disbelief and anger at the same time. Since realtors get paid on commision they just waisted a bunch of time on a deal that has a 95% chance of not closing now. The realtor can either keep looking with you for new homes or just bail on you completely. In this real estate market you might get lucky and find somebody who will stick with you because the realtor is not closing a lot of deals right now because not that many people are getting approved on mortgages at all.

7. The FHA requires all borrowers to escrow their property taxes and home owners insurance with their mortgage payment. This means that they now have to bring more money to the closing table to suffice what they need. In total they need money for escrow, down payment, and closing costs. More than likely the person looking to buy the home do not have this kind of money in a bank account any where so this becomes a lost cause.

8. FHA loans require twice as much paperwork as a normal loan. With all of this paperwork mandated by the FHA there always seems to be some thing that pops up and deters the loan from closing. This alone can drive a realtor crazy because all they want to do is show you a house that you like and close the deal so they can move on to the next client.

9. If you are in the market to buy a home right now and are using a pre-approval from a mortgage company using a FHA loan you better get a move on. On October 1, 2008 the FHA is implementing new guidelines that gets rid of all down payment assistance programs and requires borrowers to come to the table with 3.5% downpayment now. I hope you have told your realtor that you are using a FHA loan because imagine how mad they will be if they find out in the middle of September that you have one and the offer you put on a house gets accepted and then the loan cannot close. If you want to get into a house and can only get approved on FHA you better start hustling because it takes most mortgage companies 3 weeks to close a loan and about 4 weeks to close an FHA loan due to its lengthy paperwork.

10. If you want to see your realtor make a funny face just say the words “FHA” to them. You will probably be asked if this was your only loan that you could get approved on. Do not be insulted because of it, the realtor is just trying to cover their butt and not waste a lot of time showing you houses that you will never be able to close on. With so many quirky guidelines you can see why the FHA does this. To really see why they are so stringent you need to step into their shoes. Why would I want to lend you money on something that is not even up to code? If I lent you the money and you defaulted on the home than all I (the FHA) would own is home that is broken down, beat up, and probably needs thousands of dollars to bring it up to code to hopefully sell it. I guess we can thank the U.S Government for doing at least one thing right and making sure we are not buying run down houses.

Post from: The Top 10 Reasons

The Top 10 Reasons Realtors Do Not Like FHA Loans

1. Since 2006 some 270 major lending institutions have failed and gone bankrupt. This does not include the other hundreds or thousands of other people who got their mortgage brokers license hoping to make a quick buck only to fail when the housing bubble burst. What is really crazy to think is how many people lost their jobs within those 270 companies. Estimates right now are in the 100,000 range. This includes everybody from the loan processor, the mortgage banker, IT people, and leadership with the company.

2. When the new housing bill came out it came out with a bunch of new standards that the mortgage industry is going to have to follow. All of the major mortgage companies that are left and still surviving have already gotten rid of sub-prime loans such as the negative amortization mortgage. Good luck even finding a a mortgage company to do a home equity line of credit for you. Many have decided to wait it out before writing second mortgages all together. All that they have left to do for people is normal conventional loans like the 30 year fixed rate mortgage.

3. Many lenders saw their investors leaving them because the mortgage market was just way too risky to stay apart of. Many major hedge funds and investment firms like Bear Stearns were bought out or taken over by the government (good job government, save a loser and put us more in debt!).

4. So the FHA decided to change some of its practices to try to help this mortgage crisis out. They increased the loan limits for people trying to refinance their mortgage or buy a home. While many major mortgage companies like Quicken Loans did not do FHA loans during the height of the refi boom, they realized they better start doing them now.

5. Many mortgage companies did not do FHA loans because they were twice as much work as a normal loan to do. The paperwork was ridiculous and getting all of the inspections and certifications on top of the appraisal was just not worth it when the mortgage companies could do the one that was already in their product lineup instead of dealing with the FHA.

6. When the investors started bailing on them the FHA became a great option. Most mortgage companies could only do refinances up to 90% LTV (loan to value) or home purchases up to 95% LTV. The FHA allowed purchases up to 100% LTV and refinances up to 95%. This was short lives also when the FHA lowered it down to 97% purchase because with all of the values dropping around the country they did not want to hold onto mortgage notes that were higher than what the value of the house was in less than 6 months.

7. Now the mortgage company could not do their own loans and had a max up to 90% LTV. FHA was their only option with purchases and refinances. FHA loans comes with some weird guidelines. In most cases you could buy a home without a credit score as long as you could show some sort of documentation that you have paid a cable bill, rent, water bill, or other ford of payments. This was perfect for people who have never had a credit card or a car payment and was especially good for first time home buyers. The mortgage companies could either start doing FHA loans or go bankrupt. Tough decision huh?

8. All of the mortgage companies jumped on the bandwagon mainly because they had to. They could not qualify anybody on their own guidelines because pretty much everybody who owns a home has seen 20%-30% of the equity of their home go bye-bye. You know that hardly anybody ever saves up any money to put as a down payment on a house so the FHA 100% financing was their only option. After all of the major mortgage companies let a lot of their employees go they started training their mortgage bankers about the FHA loan. The employees started understanding how it worked and many mortgage companies started closing a lot of FHA loans to the point where it was now 50% of their business. Things looked like they were going to level out and the FHA was going to be the life saver it was meant to be.

9. Many mortgage companies thought they were doing well enough again to hire people so they started doing it. I even started getting a few phone calls and e-mails from a couple of resumes I have floating around the internet. Since I did use to work at a mortgage company in the past for a couple years it would look like on paper that I would love to go back to it. All of these mortgage companies (especially mortgage brokers) were telling me how much money they are making now with the FHA loan. This sounded like the same speech I heard when I started working for my previous employer. They kept telling me that I could be making $20k a month. Sounds pretty good, but there is one thing they were not telling me. The $20k is revenue, not profit (take home). After expenses it was more like $3700. The thing with mortgage bankers is that they do not make a lot of money, their Regional Vice-Presidents do. Sure, there are some mortgage bankers that made around $100k a year but most of them had been there for 3 years or longer and did not mind working 80 hours a week. If you broke it down to what they would make in a 40 hour work week it was more like $45k a year. Anyways, I enjoy more talking about mortgages and finances more than working for them anymore. I respectfully declined all offers because I knew this short burst of business was not going to last. And it didn’t. This short burst of new business from the FHA started around January 2008. The FHA October 2008 guidelines will be getting rid of down payment assistance. Down payment assistance is a joke to begin with. All it is is a way to get a business to lend you money to help you close on the house and the seller would have to take the profits out to pay for it in the closing costs. This is really a bad practice because it does not promote anybody taking an initiative in saving up any money to buy a house. The FHA realized this and recognized that what they were doing was enabling people to get into a house and instead of mortgage companies continuing the mortgage mess, it was them doing it. One of the other guidelines that will be changing with the FHA on October 1, 2008 is that everybody buying a home must put down 3.5% plus their closing costs. This eliminates a lot of people looking to buy homes right then and there. So what does this mean for all of these mortgage companies?

10. It means that there are going to be less home owners that can get help to refinance their home and less potential home buyers that can get a loan. A friend of mine that still works at a large mortgage company told me that a lot of the people are nervous for the month of October because at that point they are going to lose a lot of business due to the new guidelines implemented by the FHA. I was told by this person that around 90% of their new home purchases already use the old FHA guidelines and if the new ones were to get into effect tomorrow, 60% of that 90% could not qualify for a loan. With less business for mortgage companies to write, expect to have more mortgage companies, mortgage brokers, and banks go into bankruptcy. This means more job losses and more time that our country will spend in this mortgage debacle.

Post from: The Top 10 Reasons

The Top 10 Reasons More Mortgage Companies Will Go Bankrupt When The FHA Changes Its Guidelines October 2008

1. If you are thinking about buying a home soon you better be putting offers in very fast. On October 1, 2008 there will be new guidelines coming in to play that are administered by the Housing and Economic Recovery Act of 2008. This new housing bill is going to put a major squeeze on people looking to buy a home after that date so you better get a move on. 

2. Under the new guidelines set forth by the FHA the minimum amount down payment will go up to 3.5%. It is currently at 3%. Not so much of a big deal but it does account for more money that you will have to come up with. On a $100k mortgage that is another $500 plus your closing costs.

3. FHA loan limits will decrease which will mean fewer people will be able to get approved on a jumbo loan. The current maximum loan limit is set at $729,750. This went into affect March 6, 2008. The FHA did this so they could help out people with bad loans that were in high cost areas. Hopefully you heard about this and have tried to refinance your mortgage over the past 5 months if you fall into that category. Now the FHA is taking a percentage of what the highest and lowest price sales of homes are for a particular area and using that number to determine what the max limits will be. This goes for people looking to buy a home or refinance with a FHA loan.

4. You can still receive a tax credit up to $7500 for a first time home buyer. This is to help you with things like closing costs when purchasing the home. It is not free money though. If you take the credit you will have to pay it back over the next 15 years or when you plan on selling the home. It is a no interest loan so it makes sense to use it, jsut remember its not free.

5. My favorite one is the Down Payment Assistance programs will be eliminated. You might be asking yourself what is Down Payment Assistance? Could it be another term for getting money from your parents or the company you work for? Nope. How it works is that if you want to buy a home you have to negotiate with the sellers for them to lower the price on the home first. If agreed, you would call up a mortgage company, get approved on the FHA loan, then send your application to another company that gives you the money for the sale of the home. Weird huh? This means another company is giving you the down payment, and at closing they are getting paid back the money from the proceeds of the sale. You wonder where they make any money because at the same time they are technically giving you money and receiving it back. More than likely they are getting a percentage of the revenue or a referral fee from the mortgage company the loan originated with. If I did not know how this worked I would think it would be some kind of scam. Seems like the FHA wants to put the kibosh on it too.

6. With the Down Payment Assistance programs being terminated it means that people looking to buy homes will actually have to (if you can believe this) save up money for a down payment and their closing costs. They can still negotiate with the sellers for “sellers concessions” if they want to which is okay. I do not get why people negotiate seller concessions to begin with. Its not like they are giving you money. The home buyer is just rolling the costs into the loan with the lowering of the price of the house which means you have financed your closing costs.

7. With this going into effect in a couple months the people that need the Down Payment Assistance Programs better be hoping they can get a house. The remaining Down Payment Assistance companies out there require you to have a 620 credit score or higher. No ifs, ands, or buts about it. You will probably see a lot of these companies going out of business or having to try another way to lend money.

8. This is actually good news for the people sitting around wondering if now is the time to buy a house. This gives more reason to wait until 2010 to buy a home. When the mortgage companies stopped doing 80/20 loans, second mortgages, and home equity loans it forced a lot of companies to do one normal conventional loan like a 30 year fixed rate mortgage. Things are going to start getting back to where they were before the housing boom because of this.

9. With no more 100% financing around it means that you will have to have money to get approved on a loan. With no down payment assistance this removes all of the buyers out there that are going to use it. Right now some of the big mortgage companies like Quicken Loans, Chase, Countrywide, and Bank Of America are using these programs to close loans. The FHA loan is a large portion of these companies business and once the guidelines are tightened you will probably see more people lose their jobs because there is not enough revenue coming in. They will still be able to refinance homes but the FHA is not allowing help anymore. I say good for them.

10. This is the last straw for mortgage companies and want to be home owners to get some sort of 100% financing when buying a home. When all of the options are removed there is going to be a time period of less people buying houses. Most people in this economy can afford a monthly payment but do not have the money for any kind of a down payment. With no people buying homes it is going to lower home prices even more. Its simple supply and demand. This will probably cause mortgage rates to go up a little more because now the banks need more revenue to make up for the lower amounts of homes being bought. All in all this really is a step in the right direction for the American population because now we are being held accountable for our financial actions. If you must buy a home and need the FHA loan to do it, you better be putting offers in and hope they close by October 1, 2008 or you will have to have 3.5% down payment coming out of your pocket.

Post from: The Top 10 Reasons

The Top 10 Reasons You Better Buy A House With Your FHA Loan By October 2008