Property flips reverting back to 91-days on Dec 1, 2014

By Todd Abelson NMLS #180858 on .

By Kenneth R. Harney October 17

fha-mortgageCan you still do a short-term house flip using federally insured, low-down-payment mortgage money? That’s an important question for buyers, sellers, investors and realty agents who have taken part in a nationwide wave of renovations and quick resales using Federal Housing Administration-backed loans during the past four years.

The answer is yes: You can still flip and finance short term. But get your rehabs done soon. The federal agency whose policy change in 2010 made tens of thousands of quick flips possible — and helped large numbers of first-time and minority buyers with moderate incomes acquire a home — is about to shut the program down, officials at FHA confirmed to me last week.

In an effort to stimulate repairs and sales in neighborhoods hard hit by the mortgage crisis and recession, the agency waived its standard prohibition against financing short-term house flips. Before the policy change, if you were an investor or property rehab specialist, you had to own a house for at least 90 days before reselling — flipping — it to a new buyer at a higher price using FHA financing. Under the waiver of the rule, you could buy a house, fix it up and resell it as quickly as possible to a purchaser using an FHA mortgage — provided you followed guidelines designed to protect consumers from being ripped off with hyperinflated prices and shoddy construction.

Since then, according to FHA estimates, approximately 102,000 homes have been renovated and resold using the waiver. The reason for the upcoming termination: The program has done its job, stimulated billions of dollars’ worth of investments, stabilized prices and provided homes for families who were often newcomers to ownership.

As they say “the devil is in the details” so… call Todd Abelson with Sunstreet Mortgage for all your mortgage needs! (520) 331-LEND (5363)

Private Mortgage Insurance

By Todd Abelson NMLS #180858 on .

PMIWhile private mortgage insurance can be costly, it does allow a potential homeowner the option of buying a home with less than a 20% down payment. But like most things there are variations on how this can be handled and there’s no one-size-fits-all option, so let’s see how each works as well as their advantages.

Monthly Premiums: as the name suggests, a monthly “Factor” is used to determine the cost. This cost is included in your monthly mortgage payment and is charged until your loan balance reaches 78% of the initial purchase price of the house. The advantage of this option is that no up-front expense is incurred and you only pay as long as you keep the mortgage in place.

Borrower-Paid Singles: With this plan, you prepay the entire cost of the mortgage insurance premium in one lump sum at closing thereby eliminating the need for monthly payments. Depending on your individual situation, you may be able to finance the premium into the loan amount, thereby reducing your cash requirements at closing. The advantage of this option is if you are able to negotiate the cost (premium) as a Seller Concession, you can reduce your monthly mortgage payment. A disadvantage of this option: since it’s prepaid there’s nothing to cancel when your loan balance reaches 78% of the initial purchase price of the house.

Split Premiums: as this name suggests, you pay a portion of the premium up-front at closing, resulting in a lower monthly “Factor” thereby lowering your monthly mortgage payment. Like Borrower-Paid Singles, you may be able to finance the up-front amount. The advantages of this plan are similar to the Borrower-Paid Single, but this plan is also cancellable once the loan balance reaches 78% of the initial purchase price of the house.

Lender-Paid: As the name suggests, the Lender pays the “Factor” on your behalf. However, to cover the cost either the Lender will increase your interest rate and use the rebate generated to pay the cost, or it can be paid through a Seller Concession (like any other closing cost). The advantage of this option is typically a lower overall payment vs. paying a separate monthly premium. The disadvantage is that there’s nothing to cancel when your loan balance reaches 78% of the initial purchase price of the house.

Here’s a typical example comparing the options, but first some background:

  • Assume the purchase of a $200,000 Primary Residencewith a 5% down payment.
  • Loan amount = $190,000
  • Using a 30-year fixed rate loan @4.25% the monthly Principle & Interest = $934.68
  1. Monthly Premium: Factor with 760 FICO score = 0.54%, monthly payment = $85.50. Approximate # months payment will be required = 108
  2. Borrower-Paid Single: Factor with 760 FICO score = 2.15% = $4,085. Break even time period vs. A = 48 months
  3. Split Premium: Factor with 760 FICO score: Up front = 0.75% = $1,425, monthly factor = 0.47 = $74.42. Approximate # months payment will be required = 108
  4. Lender Paid: Factor with 760 FICO = 1.95% which represents approx 0.375 INCREASE in mortgage rate. Monthly payment would thereby increase by $42.19 to $976.86

Depending on your down payment (5%-19%), your FICO scores, your loan type (30-year, 15-year, ARM, other), who’s paying the closing costs (you? The Seller? The Lender via a higher interest rate?) your results along with YOUR best option will vary.

This is another reason why working with a knowledgeable, experienced, COMPASSIONATE, Licensed Mortgage Professional is your best plan!

Call me, Todd Abelson, at (520)-331-LEND for all your mortgage needs!

Loan Prequalification vs. Preapproval

By Todd Abelson NMLS #180858 on .

Loan Approval

Daily I’m asked “what’s the difference between loan prequalification vs. preapproval“?

No wonder why when we in the Real Estate Industry have used these phrases interchangeably!

In a nutshell: prequalification is a statement of opinion from a Loan Originator while a preapproval is the statement of fact as a result of a formal analysis and review by an Underwriter – HUGE difference. Let’s drill down a bit and see what goes into these.

First, after an in depth consultation with a potential Buyer, a Loan Originator (LO) should be reviewing:

  • Credit Report
  • Paycheck Stubs
  • Tax returns with W2’s, 1099’s, K-1’s, etc.
  • Asset statements (referencing the funds to be used for down payment, closing costs, prepaid items and reserves)
  • Any additional financial documentation unique and/or specific to this person or their intended transaction.

Once completed the LO should be in the position of issuing a Prequalification letter = STATEMENT OF OPINION

Here’s where it gets a little tricky – having spoken with maybe 10,000 people over my career, most potential homebuyers are reluctant to provide the above documentation BEFORE they’re under contract. The reasons vary, but the bottom line is: at best any prequalification letter, a STATEMENT OF OPINION, is a “loose” document to begin with; a prequalification letter issued WITHOUT reference to the supporting documents (listed above) is tantamount to saying “the prospective homebuyer told me a story and I believed them”. Fairly useless in most SELLER’S eyes. So…

RULE #1 – to have the best shot at getting your offer accepted, provide your LO with EVERYTHING up front.

Getting back to the prequalification form, it should contain at a minimum the following information:

  • The offer price
  • The loan amount
  • An expiration date
  • Names of all buyers
  • Percent of the down payment
  • Loan type (Conventional, Jumbo, USDA, FHA, VA, etc.)
  • Loan term (fixed or adjustable, 30 years or 15 years, etc.)
  • Whether or not the offer is contingent upon the sale or lease of another property
  • Whether or not the offer is contingent upon a Seller Concession
  • Contact and legal information for the LO including company name, address and license plus his/her Nationwide Mortgage License System (NMLS) number

Next, let’s look into the Preapproval. Also called a “Credit Approval” this is where a complete loan file, including ALL supporting financial documentation, is submitted to an Underwriter for a formal review. At the end of the review a “Loan Approval” is issued and signed by an Underwriter. Of course since there’s no reference to a property that component of the transaction still needs to be addressed… but that’s why its called loan PREapproval = STATEMENT OF FACT. Furthermore, since this is signed by an Underwriter is, in effect, a commitment on behalf of the mortgage lender to “make that loan” with caveats such as “no change in financial position”, an acceptable property & appraisal, the loan program remaining, etc. But you get the idea.

Putting yourself in the position of the SELLER, which would want to see:

  1. Prequalification letter showing that no supporting documentation was provided by the Buyers
  2. Prequalification letter showing that all documentation was provided by the Buyers
  3. Preapproval letter showing that the funds will be committed as soon as a viable property is selected

Of course #3 is best, but #2 is still very adequate in most cases.

Guess what MOST LO’s deliver – you guessed it: #1

Armed with this information –

  • If you’re a Buyer PLEASE insist on the highest level your Lender will provide and be prepared to supply all pertinent supporting documents.
  • If you’re the Buyer’s Agent PLEASE insist that your clients select their Lender early in the process and provide all supporting documentation as soon as possible.
  • If you’re the Listing Agent PLEASE insist that the Buyers provide all supporting documentation to their lender-of-choice within 24-hours of contract acceptance.

Armed with this information – Happy Shopping!!!

Call Todd Abelson at Sunstreet Mortgage for all your mortgage needs: (520) 331-LEND (5363)