WHAT IS FHA?

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Everything You Wanted to Know to Secure 100 and
HIGHER Financing for Your Clients in a Declining
Market but Were Afraid to Ask Including 2nd
Homes Investment Properties!!!
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FHA LOANS
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WHAT IS FHA?

• Federal Housing Administration (division of HUD)
• Any and all changes are legislated-no major
  changes can be made without going through
  Congress
• Insures/endorses loans does not purchase them
• Pays lender if borrower defaults

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WHO CAN DO FHA LOANS?

• Only originators with FHA Approved Company
• Approval is difficult
• Must have audited financial statements
• Quality Control Plan
• Store Front Operation

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ITS THE GOVERNMENT!

• They are so busy they are not even answering the
  phone in their lender approval department
• 60 days behind on opening their mail
• Pays for itself doesnt use taxpayer money
• Funded through the Mortgage Insurance Premiums
• (1.5 up front, .5 per month)

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FHA MORTGAGE LIMITS

• Walton County - 362,790
• Okaloosa County - 312,500
• Bay County - 396,250
• Higher limits for 2-4 family residences
• (Great rates - buyer must occupy one of them!)

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REASONS NOT TO USE FHA FOR A BUYER

• FHA loans are for owner-occupied, primary
  residences only
• Buyer must occupy the property within 60 days of
  closing and use for primary home for at least a
  year
• Highly enforced

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MORE REASONS NOT TO USE FHA

• Full-doc loan have to verify income for 2 years
  
• Files are much thicker due to additional
  documentation required
• Always has mortgage insurance for at least 5
  years even with 20 or more down

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FHA IS FILLED WITH GOVERNMENT RULES, EXCEPTIONS,
AND EXCEPTIONS TO THE EXCEPTIONS
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FHA IS OFTEN THE BEST FOR YOUR CLIENT

• Assumable loan new borrower has to qualify
• Geared for borrowers with little to no money
• No prepayment penalty
• Better rates, especially for higher LTVs
• Very little risk-based pricing
• Lower monthly MI for higher LTVs
• No hit for declining market!

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FHA APPRAISALS AND UNDERWRITING

• Processing has been streamlined
• Automated underwriting
• Appraisal requirements have been greatly relaxed
• Some minor repairs no longer require automatic
  repair in order to close

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FHA AND CREDIT

• Far more lenient than FNMA or FHLMC and MI
  companies
• 500 minimum score if financing above 90
• No minimum if less than 90 (although almost
  impossible to find investors taking credit scores
  less 580!)
• Rate is not increased for lower credit score
• everybody is equal
• Can use alternative credit 3 trade lines, one
  of which is housing related
• Can do an FHA loan 2 Years after a Chapter 7
  Bankruptcy
• (1 year under extenuating circumstances)
• In many cases, collections are not required to be
  paid off prior to closing

580
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HOT FEATURES OF FHA

• 3 down payment
• Source of funds 6 seller concessions
• All funds can be gifted
• No reserve requirements
• 2nd loan from immediate family okay
• Cookie jar or mattress money okay!
• Can use down payment assistance
• (seller can help with this) to get 100
  financing

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EVEN HOTTER FEATURES

• Non-occupant co-borrowers can be used
• Neither income nor assets from the occupying
  borrower are required if non-occupant co-borrower
  used
• 95 cash-out refinance even in declining market
  (must be owner-occupied for the prior 12 months
  to do this)
• No income limits
• With lower credit scores, in some cases payment
  is lower than Fannie or Freddie even with over
  20 down
• Seller not required to pay any of the closing
  fees anymore!

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NEW RULES JULY 14, 2008

• Risk based MI, but not rates
• FHA Secure is expanded will no longer have to
  be delinquent to qualify

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POSSIBLE CHANGES, DEPENDING ON LEGISLATION

• New loan limits are set to expire on
• December 31, 2008
• Back to how it was before
• FHA Secure expires
• December 31, 2008

• FHA Modernization Act (HR1872) passed the house
  9/18/07 up to 100 financing available
• Senate Bill passed 98.5 max financing and
  increase loan limits permanently

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QUESTIONS?
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VA LOANS
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WHAT IS VA?

• The Department of Veterans Affairs
• Government regulated and endorsed
• Government guarantees portion of loan

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WHO CAN DO VA LOANS?

• Only originators with
• VA Approved Company

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VA MORTGAGE LIMITS

• 417,000 for 2008
• (625,000 for Hawaii, Alaska, Guam Virgin
  Islands)
• Only U.S. properties, its territories or
  possessions

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WHO QUALIFIES FOR VA?

• Retired U.S. Veterans with Certificate of
  Eligibility
• Active Duty with proof of military service
• Unmarried surviving spouse of veteran deceased
  from service-related death

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VA UNDERWRITING

• Automated Underwriting
• Flexible Manual Underwriting

• Speedy process because most information for
• eligibility can be obtained online

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VA CREDIT

• Rates are typically lower
• No minimum score requirement for eligible
  veterans
• Most lenders/investors will require a minimum 580
  
• Rate does not increase/decrease because of credit
  score
• Can be approved for VA 2 years after Chapter 7
  Bankruptcy (1 year in extenuating circumstances)

580
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REASONS TO NOT USE VA

• VA loans are owner-occupied only
• Buyer must occupy the property within 60 days of
  closing and use for primary home
• Remarried spouse of deceased veteran is not
  eligible
• Full-doc loan requirements

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HOT FEATURES OF VA LOANS

• Negotiable interest rates
• All funds can be gifted
• No Monthly MI
• No down payment unless required by lender
• Reduced fees if put 5 down
• Able to finance funding fees into the mortgage
• May use non-veteran 2nd party income to help
  qualify (only the veterans portion is secured)

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QUESTIONS?
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RURAL DEVELOPMENT
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WHAT IS RURAL DEVELOMENT?

• Census-based
• US Department of Agriculture
• Guaranteed against loss by USDA
• Pays lender if borrower defaults

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WHO CAN DO USDA LOANS?

• Approved lender with HUD, VA, Fannie Mae or
  Freddie Mac
• State Housing Agency
• Farm Credit Service

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ITS THE GOVERNMENT, TOO!

• Pays for itself doesnt use taxpayer money
• Funded through the 2 Funding Fee
• (which can be financed into the loan!)

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LOAN PURPOSE

• Purchase new construction
• Purchase existing home
• Refinance (only if currently have a direct
  Rural-Development Loan)
• Purchase Mobile Home (very limited difficult)

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REASONS TO NOT USE RURAL DEVELOPMENT FOR A BUYER

• Geographical Limitations
• Maximum Income limitations
• Cant buy house with in-ground pool
• Owner-occupied only

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INCOME QUALIFICATIONS

• Household adjusted annual income cap uses ALL
  occupants whether on the loan or not, that are 18
  and over
• Counts gross income, overtime, commission,
  bonuses, net self-employment income, Social
  Security, Child Support, unemployment, etc.
• Based on family size county where property is
  located
• http//eligibility.sc.egov.usda.gov

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ADJUSTMENTS TO INCOME

• 480/Year per minor or full-time student
• Verified child care expenses
• 400/Year if borrower or co-borrower is over 62
  or disabled

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Counties 1- person 2- person 3- person 4- person 5- person 6- person 7- person 8- person
All Florida Virgin Island Counties EXCEPT those listed below 49,550 56,600 63,700 70,750 76,400 82,050 87,750 93,400
Clay, Duval, Nassau and St. Johns 51,400 58,750 66,100 73,450 79,350 85,200 91,100 96,950
Collier 56,200 64,250 72,250 80,300 86,700 93,150 99,550 106,000
Palm Beach 55,700 63,650 71,600 79,950 85,900 92,300 98,650 105,000
Gadsen, Jefferson and Leon 50,000 57,150 64,300 71,450 77,150 82,900 88,600 94,300
Okaloosa 50,850 58,100 65,400 72,650 78,450 84,250 90,100 95,900
Broward, Pinellas and Monroe are NOT eligible
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GEOGRAPHICAL QUALIFICATIONS

• ALL of Walton County
• Destin
• Niceville
• Valparaiso
• Crestview
• West of Hurlburt in Okaloosa County
• ALL of Santa Rosa County

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GEOGRAPHICAL LIMITATIONS

• FT. WALTON BEACH
• SHALIMAR
• DO NOT
• QUALIFY
• (But we have a program that does!)

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BENEFITS TO BUYERS

• Can finance 102 of appraised value, without
  getting cash back at closing (can get EMD, but no
  more)
• No Mortgage Insurance
• 30-Year fixed rate with very competitive rates
• No loan limits (DTI/income limitations)
• Closing costs can be financed
• Unlimited gift or seller contributions
• No reserves required

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Sales Price Appraisal Seller
PayingEMDClosing/Prepaids2 Funding Fee
100,000 110,000 0 Closing Costs 500 3,000/2,
000 2,000
Can Finance 107,000 and get 500 EMD back
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Sales PriceAppraisalSeller PayingEMD2
Funding Fee

• 100,000
• 105,000
• ALL Closing/Ppds.
• 500
• 2,000

Can Finance 102,000 and get 500 EMD back
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QUALIFYING

• Debt to Income Ratios 29/41
• Debt to Income Ratios 31/43
• (for homes built after January, 2001)
• Can go higher on DTI w/compensating factors
• 660 Credit Score
• Zero or little payment shock
• 2 years continuous employment at same job
• Rental/Housing history for 12 months required if
  credit score 619 or less (cancelled checks)

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OTHER CRITERIA

• Do not own a dwelling currently
• Lack sufficient resources to secure conventional
  credit
• US Citizen, Permanent Resident, Resident Alien,
  or Qualified Alien
• Have legal capacity to enter contract
• Primary Residences Only

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PROPERTY ELIGIBLITY

• Must have access from a street, road or driveway
• Site value less than or equal to 30 of total
  value
• Leasehold estates (where applicable)

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OTHER PROPERTY REQUIREMENTS

• If on a well septic, must be tested and meet
  county requirements
• Pest inspection required deficiencies must be
  corrected
• Escrow for repairs under certain limited
  circumstances and will be 150 of cost
• New construction must have
  warranty

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FUNDS AVAILABLE

• RD Has annual amount of funds
• (ends Sept. of current year)
• Funds must be reserved by the lender
• but cant be until there is a contract
• Reservation is valid for 60 days
• Have been known to run out before
• end of fiscal year (not recently)

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QUESTIONS?
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FLORIDA KEYS to HOME PROGRAM
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WHAT IS THE KEYS TO HOME PROGRAM?

• Serves diverse population of low- to
  moderate-income borrowers and communities
• Entire state of Florida is eligible - no
  geographic restrictions placed
• Not a bond program
• No 1st time buyer requirement
• No recapture tax required to be repaid
• Limited Forms/thinner file
• Purchase of primary home only

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WHAT TYPE OF FINANCING IS AVAILABLE?

• 1st/2nd combo (2 loans), but only one payment is
  made
• 1st up to 97 is combined with 2nd up to 7
• for a total of 104 total financing based
  on contract price, not appraised value
• Can go 105 if financing the MI
• 30-year or 40-year fixed or 5/1 or 7/1 ARM
• Will have mortgage insurance on the 1st mortgage
• 2nd mortgage is 20-year fixed rate at 7
• Can use 2nd to pay closing costs pre-paids or
  reduce amount of the first so mortgage insurance
  is less monthly

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CREDIT/DEBT TO INCOME RATIO

• 600 score required for 97 1st mortgage
• Subject to approval by Mortgage Insurance company
  
• 640 required for 2-unit property. (Home-buyer
  counseling required for 2-unit purchase)

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INCOME REQUIREMENTS

• Determined by county in which the property is
  located
• Only counts income for person(s) on the loan, not
  the entire household
• No non-occupant co-borrowers/co-signers allowed

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RESERVES/SELLER CONTRIBUTIONS

• No minimum reserve requirement
• 3 seller contributions allowed
• Buyer can get in with no cash contribution as 2nd
  can be used for pre-paids closing costs

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QUESTIONS?
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IS 100 FINANCING REALLY AVAILABLE FOR 2ND HOME
INVESTMENT PURCHASES?
YES!!!
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CO-COLLATERALIZED LOANS
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WHAT IS A CO-COLLATERALIZED LOAN?

• A loan where the Lien (note) is on more than one
  property

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HOW DOES IT WORK?

• Borrower uses lendable equity in another
  property in lieu of down payment on purchase of
  subject property
• Lendable equity equals value of additional
  property
• x 75 less total of all liens (mortgages (1st
  and 2nd) and equity lines)
• Additional property would have a soft 2nd, or
  even 3rd, mortgage on it

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EXAMPLE

• Purchasing 2nd home at 200,000
• Max total LTV for both properties would be 75
• Lendable Equity is
• 600,000 x 75 - 350,000 100,000 to use
  in lieu of down payment
• This would work!

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HOW MUCH CAN I REALLY BORROW?

• The total value of all properties (value sales
  price) x 75
• Purchase price is 200,000 value of additional
  property is 600,000. Current loan on additional
  property is 350,000 and want to borrow 100
  (200,000) of sales price.
• Total owed on both after closing would be
  550,000 with total value of 800,000 (value
  purchase price)
• 800,000 x 75 600,000 max loan amount
• This is more than the new loan current lien, so
  it works!

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HOW CAN I SELL ONE PROPERTY NOT THE OTHER?

• Partial release clause
• must pay mortgage down to where loan to value
  on remaining property is 75

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QUESTIONS?
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PLEDGED ASSET LOANS
(PAL)
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WHAT IS A PAL WHAT ARE THE BENEFITS?

• Allows up to 100 financing of the subject
  property
• Pledge eligible assets and eliminate the need to
  liquidate assets in order to obtain cash for down
  payment
• Avoid capital gains associated with a liquidation
  
• Maintain a more liquid position
• Continue to benefit from any future earned
  interest, appreciation or dividends

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WHAT ARE ELIGIBLE ASSETS?

• Stocks listed on NYSE, AMEX or NASDAQ
• with share price of 5 or higher
• US Dollar denominated mutual funds
• Interest-paying corporate debt
• (Moodys or SP rated)
• Municipal zero coupon debt
• (Moodys or SP rated)
• Bills, notes or bonds guaranteed by US Government
• Debt securities issued by Government Sponsored
• Enterprises or Agencies of the US Government
• Mortgage pass-through certificates issued by
• FNMA, FHLMC or GNMA
• CDs
• Money Market Funds
• Cash Accounts

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WHAT ARE NOT CONSIDERED TO BE ELIGIBLE ASSETS?

• Options
• Warrants
• Stocks purchased on margin
• IRA or 401(k) plan
• Shares held in an account less than 30 days

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We will now go over the handouts given to show
examples on the Pledged Asset Loan
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HOW DOES MY CLIENT DO THIS?

• Client provides proof of the asset
• Completes Pledged Asset Worksheet agreement
• Gives contact information for the asset (broker)
• Copy of monthly statement is sent to the investor

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QUESTIONS?