San Jose FHA Loans, Mortgage Rates and Real Estate Blog

on June 9, 2010

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Have you found that “almost perfect” San Jose home in the right location that is selling at a reduced price because it needs a little rehab work?

Unfortunately, most mortgage loan programs require homes “in need of work” to be complete before the financing can be secured for the purchase transaction. Whether the property needs a little or a lot of work, most First-Time Home Buyers simply don’t have the up-front cash to invest in a property prior to actually securing the financing.

However, the FHA 203(k) Rehab Loan may be your answer to turning that “fixer-upper” into your dream home.

The FHA 203(k) Rehab Loan is a popular mortgage program designed for buyers that want to finance the cost of home improvements into a new loan.

The financing for this loan will include the purchase price, as well as the improvements you are either required to do to be able to live in the home, or that you want to do, such as upgrade the kitchen, bathroom, etc.

This is also a great loan program for San Jose Real Estate Agents trying to sell homes that need repair. Buyers will have an option to complete those repairs and upgrades without a large upfront financial commitment. Think of this as a one-time close construction loan. At closing, the seller receives their money and the rest is put into an escrow account for the buyer to use for rehabbing the property.

Everything you wanted to know about FHA condominium approval

on April 12, 2010

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In this blog post I will try to answer all FAQs related to FHA condominium project approval. Beginning this year, FHA made some major changes to the Condominium process. I have done a lot of speaking on this topic and have written several blog posts. In this post, I am trying to get the most frequently asked questions and answers to those questions in one post:

Where can I go to find if the FHA project is already approved?

Go to FHA Condominium page to check if a project is approved with FHA. You can also check for all the approved projects by State, City or Zip code. Make sure in the “Approval Method” you pick “HRAP/DELRAP”.

What are the documents required to obtain project approval?

Click here to download the FHA mortgagee letter and scroll down to page # 16 to get a list of documents required for project approvals on condos which are either proposed, existing or converted. The same document also talks about the eligibility parameters of condominiums for FHA approval. Be sure to read the other mortgagee letter that gives some respite in the guidelines till Dec 31, 2010.

How much time it would take to get a Condominium project FHA approved?

FHA in a notice sent on 4/9 mentioned that processing time for condo project is approximately 30 days from the receipt of a complete application.

Where can I go if I have more questions?

You can email to a dedicated mailbox at FHA at CondoProjectApprovalInquiries@hud.gov. The response time can exceed 72 hours.

You can also go to FHA page for frequently asked questions on condominium project approval.

And of course, you can always contact me by email at shashank@arcuslending.com.

Government announces principal reduction plans for underwater borrowers

on March 29, 2010

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The Government said last week it would offer principal reductions for borrowers who are underwater (owe more than their homes are worth.)

The FHA plan is targeted at investors who currently own these underwater mortgages (see Negative Equity Share Chart below - source American Core Logic). Under the plan, the 1st mortgage holders would write down the principal of a first mortgage at least 10%. The loans would then be refinanced into FHA-insured mortgages as long as the loan to property value ratio is 97.75%.

For borrowers with second mortgages, total mortgage debt would have to be written down to a maximum of 115% of the home’s current value. The government would pay the holder of the second lien, but they are not mandated to do this.

To qualify, homeowners must be current on their loan, occupy the home as a primary residence, fully document their income and have at least a 500 credit score. However, expect the lenders to have a much higher credit score requirements - possibly 620.

Diana Farrell, a senior White House economic adviser, said the programs couldn’t be expected to prevent the majority of expected foreclosures. “The purpose is to deal with just enough of the overhang…where we have a real chance of changing the dynamic,” she said.

The agency would take on more risk by refinancing underwater borrowers and that risk would grow if the program grows more successful. The Government said it would steer $14 billion in Troubled Asset Relief Program (TARP) funds that had already been allocated for foreclosure prevention to cover costs.

Note that it may take several months before it becomes available to borrowers. For more details - Read the Press Release and Consumer FAQs.

New FHA Loan guidelines for San Jose Condominiums

on February 1, 2010

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Some major changes went into effect today for FHA loans on San Jose & rest of the Bay Area Condominiums.

I. Elimination of “Spot Loan” Approval Process

If a condo project was not approved by FHA, a “spot approval” was allowed just for financing one unit. This process has been eliminated as of today. Now the entire project has to be approved either directly by HUD (process called HRAP) or by a Direct Endorsed Lender (process called DELRAP). With all the liabilities involved around the process most of the direct endorsed lenders would prefer HUD to directly approve the project. This can cause major delays at 2 ends:

Collecting all the required documents from Home Owner’s association (HOA)
HUD’s review of those documents to approve/reject the project

Dont be surprised if FHA loans on un-approved condominium projects take 60 days or more to close at least till the time HUD comes up with faster turn times or a more efficient process.

II. FHA Concentration Requirements

The FHA concentration (Percentage of units which has FHA loans in a project) requirement will be increased temporarily to 50 percent.
Exceptions to 50 percent Concentration Level - The FHA concentration may be increased up to 100 percent if the project meets all of the basic condominium standards plus some of the additional items.

III. Owner-Occupancy Requirements

At least 50 percent of the units in a project must be owner-occupied or sold to owners who intend to occupy the units. For proposed, under construction, or projects still in their initial marketing period, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of presold units.
Vacant or tenant-occupied real estate owned (REOs), including properties that are bank owned, may be excluded from the calculation of the required owner-occupancy percentage (should be removed from both the numerator and denominator).

IV. Pre-Sale Requirements

In the case of new construction, the pre-sale requirement will be reduced temporarily to 30 percent.

As of today, 45 condominium projects are approved in San Jose. If you are a buyer or a seller and would like to know if a certain project is approved or not, call me at 408.905.6261 or email me at Shashank@ArcusLending.com

Also read - FHA is changing guidelines for condominiums

Changes to FHA Down Payment, Credit Score and Seller Contribution requirements

on January 21, 2010

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FHA announced a series of changes to their Down Payment, Credit Score, Seller Contribution and Mortgage Insurance guidelines.

Credit Score/DownPayment Guideline Change :

New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

Effect of this change - This will have minimal to no impact on Bay Area First Time Home Buyers. Almost all the lenders already have a self-imposed 620 minimum credit score guideline. Some even require a 640 minimum score.

Reduce allowable seller concessions from 6% to 3%

According to FHA - The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

Effect of this change - Because of low inventory and the risk of not getting the property appraised at contract price seller have already reduced their contribution on transactions. In my personal opinion, 3% is still good enough to cover for most of the Buyer’s closing cost, if not all. Again, this rule too will have a minor impact for San Francisco Bay Area First Time Home Buyers who are considering FHA as their loan option.

Read my another post about changes to FHA Mortgage Insurance

If you would like to know how these changes to FHA loan requirements would impact you, feel free to call me at 408.905.6261 or email me at shashank@arcuslending.com

Increase in FHA Mortgage Insurance for Bay Area Home Loans

on January 21, 2010

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Blue 3D house FHA today increased it’s upfront mortgage insurance premium requirements for Bay Area FHA Home Loans. Upfront Mortgage Insurance is the money that FHA collects at the time of closing a mortgage to insure the loan against default. Currently, this premium is 1.75% for most purchase and refinance transactions. However, effective April 5, 2010, FHA will collect an upfront mortgage insurance premium of 2.25 percent for purchase money and refinance transactions, including FHA-to-FHA streamlined refinance transactions. Below is the breakdown of FHA upfront mortgage insurance for different loan programs:

Purchase Money Mortgages and Full-Credit Qualifying Refinances = 2.25 percent
Streamline Refinances (all types) = 2.25 percent
HOPE for Homeowners (Delinquent Mortgagors) = 2.00 percent
Home Equity Conversion Mortgages (Also called Reverse Mortgages) = 2.00 percent

As a borrower, it means higher cost for you to take an FHA loan. However, FHA allows upfront mortgage insurance premium to be added to the loan amount. Hence the change in the policy wouldnt necessarily mean larger “cash to close” requirement.

FHA waives 90-day flipping rule for Bay Area mortgages

on January 17, 2010

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shaun-donovan Great news for First Time Home Buyers - FHA is eliminating the 90 day flipping rule for mortgages on San Francisco (SF) Bay Area homes. With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. Currently such homes are mostly bought by investors with large down payments or an all cash transaction. Due to lack of financing options Bay Area First Time Home Buyers were not able to make offers on such homes.

This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties. The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

HUD Secretary Shaun Donovan said - “As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers. FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization.”

FHA Energy Efficient Mortgages for Bay Area Homes

on December 26, 2009

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FHA’s Energy Efficient Mortgage program (EEM) helps San Francisco (SF) Bay Area homebuyers or homeowners save money on utility bills. This is done by enabling them to finance the cost of adding energy efficiency features to their house as part of their FHA insured loan.

EEMs recognize that reduced utility expenses can permit a homeowner to pay a higher mortgage to cover the cost of the energy improvements on top of the approved mortgage. FHA EEMs provide mortgage insurance for a person to purchase or refinance a principal residence and incorporate the cost of energy efficient improvements into the mortgage. The borrower does not have to qualify for the additional money and does not make a downpayment on it.

Eligible Activities:

EEM can be used to make energy efficient improvements in one to four unit existing and new homes. The improvements can be included in a borrower’s mortgage only if their total cost is less than the total dollar value of the energy that will be saved during their useful life.

The cost of the energy improvements and estimate of the energy savings must be determined by a home energy rating report that is prepared by an energy consultant using a Home Energy Rating System (HERS). The cost of the energy rating report and inspections may be financed as part of the cost effective energy package.

The energy improvements are installed after the loan closes. The lender will place the money in an escrow account. The money will be released to the borrower after an inspection verifies that the improvements are installed and the energy savings will be achieved.

If you are looking for an FHA approved lender in Bay Area who could offer more information on FHA EEM program and other loan programs, please contact me at shashank@arcuslending.com

FHA delays HVCC for Bay Area Home Loans

on December 22, 2009

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FHA delays HVCC for San Francisco (SF) Bay Area Home Loans until February 15, 2010. FHA announced today that the enactment of Appraiser Independence has been delayed. This was originally planned for a January 1, 2010 implementation.

On the lines of HVCC, the FHA policy prohibits mortgage brokers and commission-based lender staff from the ordering the appraisal or communicating directly with the appraiser at any stage during the transaction. Since implementation of the Home Valuation Code of Conduct (HVCC) for conventional loans in May 2009, many challenges and difficulties with appraisals have been reported, such as low appraisals, inexperienced appraisers, out-of-area appraisers unfamiliar with a local neighborhood, and problems with Appraisal Management Companies (AMCs).

Bay Area first time home buyers who are planning to avail of FHA home loan would definitely welcome this move. HVCC moratorium bill is also being considered by the congress. If passed, this bill will provide a moratorium on HVCC for 18 months.

If you are a First Time Home Buyer in Bay Area looking for an FHA purchase loan you may like to start the process before February 15th to avoid getting into the HVCC hassle. Contact me to find out what are the loan requirements for an FHA Loan in Bay Area.

Had a Short Sale - Do I now qualify for an FHA Loan in Bay Area?

on December 18, 2009

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sign.sold.subject to contract.abstract. Short sale is increasingly becoming a common option to sell a house in San Jose and rest of the San Francisco (SF) Bay area. A short sale is a transaction where a seller sells the property for less that what was owed. If you went through a short sale you could have this question - Do I now qualify for a loan? FHA recently came with a guideline on this question. Below are the highlights:

You are not eligible for a new FHA mortgage if you pursued a short sale agreement on your principal residence simply to

Take advantage of declining market conditions, and
Purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.

However you could be considered eligible for a new FHA-insured mortgage if

You were current on your mortgage and other installment debts at the time of the short sale of your previously owned property, and
The proceeds from the short sale served as payment in full.

If you were in default on your mortgage at the time of the short sale you are not eligible for a new FHA-insured mortgage for three years from the date of the short sale. Lenders may make exceptions to this rule under certain circumstances.

This guidance is effective immediately.

If you had a short sale and would like to find out what are your options with regard to buying a new home contact me. I will be glad to explore all options for you.

Photo courtesy www.Photoxpress.com

2010 FHA Loan Limits for San Jose & Bay Area

on December 1, 2009

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Federal Housing Administration’s (FHA) today announced single-family loan limits for San Jose. These loan limits are effective for loans with credit approval issued on or after January 1, 2010 through December 31, 2010.

One-Unit $ 729,750
Two-Unit $ 934,200
Three-Unit $ 1,129,250
Four-Unit $ 1,403,400

These loan limits are also available for the counties of Santa Clara, San Mateo, Alameda, Contra Costa and San Francisco.

Home Equity Conversion Mortgages (Also called Reverse Mortgage)

The national FHA loan limit for HECM in 2010 remains at $625,500 (150 percent of the national conforming limit).

Complete schedules of FHA mortgage limits for all areas, forward loans and reverse mortgages, are available at https://entp.hud.gov/idapp/html/hicostlook.cfm.

FHA waives 2nd appraisal requirement for Bay Area

on November 28, 2009

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house-dollars Effective immediately, FHA has rescinded the second appraisal requirements for properties located in San Jose and rest of the Bay Area (Considered declining markets). For Bay area borrowers where loan amounts can generally exceed $417,000 2nd appraisal requirement was a problem on 2 counts:

Increased fees towards appraisal (2 appraisals hence double the fees)
Danger of loan getting declined or loan amount reduced if the value of the second appraisal came lower at the last moment

The 2nd problem was a bigger risk if the borrower had removed his/her appraisal or loan contingency. It could potentially result into loss of earnest money deposit. The new rule would make it easier for borrowers to bring in the minimum down payment of 3.5% even if the loan amount is >$417,000 and not worry about 2nd appraisal.

Here are the highlights of the new rule:

For properties located in declining markets, FHA no longer requires second appraisal for loan amounts greater than $417,000 and LTVs greater than 95%.
Cash-out refinance transactions no longer require second appraisals for loan amounts greater than $417,000 and properties located in declining markets.
Effective for all FHA loans registered on or after Monday, November 30, 2009, some lenders may still require an appraisal from a lender-approved appraisal management company when any loan amount exceeds $417,000 and the property is located in a declining market. However, a second appraisal will no longer be required.

Update to FHA Condo Approval Process for San Jose

on November 11, 2009

Read these letters in full.

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This update contains the temporary changes to the FHA Condo Approval Process for San Jose and rest of the Bay Area as outlined in Mortgage Letter 2009-46 B.

Here are the 6 things you need to know about these changes:

1. These temporary changes are effective on December 7th, 2009 through December 31st 2010; except for Spot Loan Approvals.

2. Spot Loan Approvals will be eliminated as of February 1st, 2010.

3. FHA loan concentration may be increased to 100% if the following criteria are met: a. Project construction has been 100% complete for at least 1 year, b. All units have been sold and no single entity owns more than 10% of the units, c. Project holds 10% of the budget in reserves for capital expenditures and deferred maintenance, d. Control of Home Owner’s Association has been transferred to the owners, and e. Owner-occupancy is at least 50%.

4. FHA requires a 50% owner-occupant ratio but bank-owned units that are either vacant or tenant-occupied are not required to be included the calculation.

5. New construction pre-sale requirement is temporarily reduced to 30%.

San Jose Conforming & FHA Loan Limits extended through 2010

on November 7, 2009

. 3 Comments

dollars-change President Obama signed the congressional resolution extending through 2010 the current conforming loan limits of $417,000 for most areas in the U.S. and $729,750 for high-cost areas, including San Jose. The counties of Santa Clara, Alameda, San Mateo, San Francisco & Contra Costa in the Bay Area will have the maximum loan amount at $729,750. Yesterday’s actions extends the higher conforming loan limits for Fannie, Freddie, and FHA loans through 2010.

The floor for FHA is $271,050; the floor for Fannie Mae and Freddie Mac conforming loan limits is $417,000.

“Home sales have shown significant movement upwards in the past six months and reduced inventory in some segments of the housing market, but not in all. Home purchases in the middle-income and higher brackets have not moved much, and those markets must improve before we can experience a fully sustained housing recovery. These higher loan limits will help motivate qualified home buyers to purchase in those markets,” NAR president Charles McMillan said.

These loan limits determine the maximum size of a mortgage that Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac can buy or “guarantee” and also the Loan Amount that FHA can insure.