Purchase Loans Minimum Cash Investment • Under HERA, minimum cash investment = 3.5% of lesser of sales price or appraised value. • Minimum cash investment is down payment only. http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.2.A.2.c • Neither closing costs nor prepaids paid by borrower count towards 3.5% minimum cash investment. http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.2.A.2.d
Purchase Loans So what does that mean to you and your borrowers?
Purchase Loans Minimum Cash Investment Prior to 01/01/09, 3.0% x $120,000 = $3,600. Since 01/01/09, 3.5% x $120,000 = $4,200. So the difference is only $600, right?
Purchase Loans Calculating Maximum Mortgage • Assume county maximum mortgage limit of $271,050. • Assume $120,000 sales price. • Assume $125,000 value. • Assume $1,500 in closing costs and $1,500 in prepaids. • Assume no seller concessions.
Purchase Loans Calculating Maximum Mortgage Pre-1/1/091/1/09 Sales Price/Value $120,000 $120,000 x .9775x .9650 Maximum Mortgage $117,300 $115,800
Purchase Loans Pre-1/1/091/1/09 Sale Price $120,000 $120,000 + Closing Cost 1,500 1,500 Acquisition Cost $121,500 $121,500 - Maximum Mortgage - 117,300-115,800 $ 4,200 $ 5,700 + Prepaids $ 1,500$ 1,500 Total Cash Required $ 5,700$ 7,200
Purchase Loans Remember… There is no minimum cash investment requirement on refinance loans. It applies only to purchases. On REO properties being financed with FHA mortgage insurance, special financing provisions may apply, such as $100 down. Where these provisions are offered, they supersede the 3.5% minimum cash investment requirement.
Purchase Loans Seller Contributions • Seller (or other “interested party”) may contribute up to 6% of sales price toward borrower’s closing costs and prepaids. • http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.2.A.3.b • But …
Purchase Loans Not to the borrowers 3.5% minimum cash investment. Sellers, builders, realtors, lenders or entities associated with them may provide neither gifts nor loans, neither directly nor indirectly. http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.5.B.4.c http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.5.B.7.b
Purchase Loans Acceptable Sources of Borrower’s Cash Investment • Borrower’s own savings • A gift from a relative, employer, union or qualified non-profit. • Secondary financing or collateralized loans from government agencies or qualified non-profits. • http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.5.B.1.b
Purchase Loans Who’s missing from this list of sources?
Purchase Loans And many other seller-funded non-profits
Purchase Loans Unacceptable Source of Borrower’s Cash Investment In no case shall the funds required…consist, in whole or in part, of funds provided by any of the following parties before, during, or after closing of the property sale:(i) The seller or any other person or entity that financiallybenefits from the transaction.(ii) Any third party or entity that is reimbursed, directlyor indirectly, by any of the parties described in clause (i).
Purchase Loans Unacceptable Sources of Borrower’s Cash Investment HERA goes on to say that This subparagraph shall apply only to mortgages for which the mortgagee has issued credit approval for the borrower on or after October 1, 2008.
Using the $8,000 Tax Credit ML 09-15. http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm Provides policy guidance on using the tax credit with FHA purchase loans. Information on the tax credit itself is available at http://www.irs.gov/newsroom/article/0,,id=204671,00.html?portlet7
Using the $8,000 Tax Credit Government agencies and non-profit instrumentalities of government can offer tax credit advances secured by a 2nd lien on the property . FHA-approved lenders, FHA-approved non-profits, government agencies and non-profit instrumentalities of government can purchase the tax credit anticipated by the borrower.
Using the $8,000 Tax Credit If the entity purchasing the tax credit benefits from the loan transaction, either directly or indirectly through another party, the proceeds may not be used for the borrower’s down payment. Such proceeds may be used for additional downpayment beyond the 3.5% or for closing costs and prepaids.
Using the $8,000 Tax Credit An entity financially benefitting from the transaction includes the FHA-approved lender and the seller. The seller could not, for example, advance funds to a non-profit to purchase the tax credit from the borrower to provide the 3.5% minimum cash investment.
Using the $8,000 Tax Credit Tax Credit Advances Tax credit advance may not result in cash back to the borrower. 2nd lien may not exceed sum of down payment, closing costs and prepaids. May or may not involve monthly payments.
Using the $8,000 Tax Credit Purchasing the Tax Credit Proceeds of tax credit purchase may not exceed anticipated tax credit due. Tax credit purchase fees should not exceed 2.5% of anticipated credit. Borrower must certify that tax credit will not be subject to any offsets.
Using the $8,000 Tax Credit Purchasing the Tax Credit Name and EIN of entity purchasing tax credit, credit amount, and fee paid must be entered in FHA Connection Documentation supporting data entered must be included in case file.
Insured Loans on HUD REOs ML 00-27. http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/2000ml.cfm Provides basic instructions for processing applications for FHA-insured financing to purchase HUD REO properties. Additional information available at site of HUD’s contractor at http://www.nhmsi.com/
Insured Loans on HUD REOs Current Sales Incentives Most properties offered for sale with FHA financing available permit a down payment of $100. $2,500 credit will be provided at settlement on all properties with a sales price > $25,000. Borrower may request that FHA pay closing costs not to exceed 3% of sales price.
Insured Loans on HUD REOs HUD REO Sales Contract, Form HUD-9548 Must be signed by a representative of MCB. Have the box on line 4 checked indicating that borrower is applying for FHA financing. Down payment amount on Line 4 may be left blank unless borrower is applying under $100 down program.
Insured Loans on HUD REOs HUD REO Sales Contract, Form HUD-9548 If borrower is requesting that HUD pay closing costs, that amount must be stated on Line 5 of sales contract. $2,500 credit will be provided automatically; it need not be listed on sales contract. $2,500 is in addition to any amount identified on Line 5.
Insured Loans on HUD REOs Case Numbers Lender must obtain new case number. Select HUD REO for Processing Type. When prompted, enter former FHA case number (from sales contract). Appraisal assignment field will not allow entry.
Insured Loans on HUD REOs Down Payment If sales contract specifies $100 for down payment amount on Line 4, loan may be processed on that basis. If Line 4 is blank for down payment amount, process under standard procedures (down payment = 3.5% of lesser of value or sales price). See ML 00-27 for instructions on sales discounts.
Insured Loans on HUD REOs Appraisals Do not order a new appraisal. Appraisal prepared for MCB must be used to calculated maximum mortgage. To obtain a copy of appraisal, send an e-mail to MCB. Send request under lender’s corporate e-mail account and include full contact information.
Insured Loans on HUD REOs Appraisals A new appraisal may be ordered only where: As-repaired appraisal is required for a 203k; or The M&M’s appraisal was more than 6 months old at the time the sales contract was signed; or Property is being sold with $100 down and sales price exceeds value. Submit appraisal to MCB who will advise if higher value may be used.
Insured Loans on HUD REOs Lead-Based Paint If property built between 1950 and 1978 and borrower is applying for FHA financing under Section 203(b), lead-based paint inspection must be performed at no cost to borrower. Allow two weeks after sales contract is signed for completion of inspection.
Insured Loans on HUD REOs Lead-Based Paint If property built before 1960 and paint requires stabilization, MCB will effect repairs, probably delaying settlement. Upon completion, borrower will receive a Clearance Certificate. If borrower applying for 203(k) financing, work write-up must include lead-based paint repairs.
Insured Loans on HUD REOs HUD REO Properties Underwriter must underwrite an REO appraisal just as he or she does a regular appraisal. Make best effort to ensure that REO property meets MPR. Discuss repair issues with HUD’s M&M contractor.
Refinance Loans Refinance loans are a little different.
Refinance Loans • FHA offers refinances of both FHA and non-FHA loans. • FHA offers both cash-out and rate and term refinances. • For existing FHA loans, a special non-credit qualifying refinance option is available. • Mortgage calculation worksheets available at http://www.hud.gov/offices/hsg/sfh/trn/training.cfm
Rate and Term Refinances • Any non-FHA or FHA loan can be refinanced. • A borrower is eligible to refinance the loan, as long as he/she has legal title, even if he/she is not originally on the loan. http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.3.A.1.a • Cash back at closing may not exceed $500.http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.3.B.1.b
Rate and Term Refinances Full credit-qualifying. Loan must be current for the month due. Full appraisal. Required repairs must be completed before closing. http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.3.B.1.a
Rate and Term Refinances No seasoning requirement for senior lien being refinanced. For non-FHA loans where property was purchased within the last 12 months, mortgage amount based on lesser of appraised value or sales price.http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.3.B.1.e
Rate and Term Refinances Subordinate liens, including lines of credit, regardless of when taken, may remain outstanding (but subordinate to the FHA-insured mortgage. New subordinate liens may be placed behind the FHA-insured mortgage and are subject to no CLTV cap. http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.3.B.1.c
Rate and Term Refinances Mortgage amount not including UFMIP may not exceed Applicable county maximum. Lesser of- 97.75% of appraised value, or…- the sum of the following:
Rate and Term Refinances Can be included in new mortgage. http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.3.B.1.b Existing first lien Purchase money second mortgage Junior liens over 12 months old Closing costs and prepaid expenses Discount points
Rate and Term Refinances Can be included in new mortgage. Borrower paid repairs required by the appraisal. Interest charged by the servicing lender when the payoff will not likely be received on the first day of the month. Prepayment penalties. Accrued late charges and escrow shortages.
Rate and Term Refinances Cannot be included in new mortgage. Any portion of the funds of an equity line of credit in excess of $1,000 that was advanced within the past 12 months that was for purposes other than repairs and rehabilitation of the property.
Rate and Term Refinances Prepaid expenses may include… Per diem interest to the end of the month on the new loan. Hazard insurance premium deposits. Monthly mortgage insurance premiums. Any real estate tax deposits needed to establish the escrow account.
Rate and Term Refinances Calculating Maximum Mortgage Assume county maximum mortgage limit of $271,050. Assume $125,000 value. Assume $100,000 1st lien and $20,000 2nd lien Assume $2,000 in closing costs and $2,000 in prepaids.
Rate and Term Refinances Calculating Maximum Mortgage Appraised Value $125,000 x . 9775 Maximum Mortgage $122,187
Rate and Term Refinances Calculating Maximum Mortgage 1st Lien Payoff $ 99,000 2nd Lien Payoff 19,000 Closing Costs 2,000 Pre-Paids 2,000 Total $122,000
Rate and Term Refinances Insured Mortgage Amount Maximum Mortgage $122,000 + UFMIP (1.75%) 2,135 Insured Mortgage $124,135 LTV 99.31%