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!