Update 10/18/2008: This post was written in April 2008 and since then, many FHA guidelines have changed. This post has been updated, however it’s very important to not rely 100% on mortgage information from what you read on the web. Our guidelines are changing too quickly these days! FHA Jumbo loan limits mentioned in this post are effective through 12/31/2008 and will be reduced to 115% of the median home value 1/1/2009 (estimated at $522,000). Click here for an update on FHA guidelines.
Update 2/27/2009: Lenders are applying a minimum credit score of 620 for FHA loans and the 2008 loan limits are returning. Is it possible for me to chop up this post any more?
I thought it might be helpful to provide some information for you to use for when I quote rates on Friday for the FHA Jumbo mortgage. There are other criteria to be considered beyond looking at the rate. You may not have considered FHA before due to loan limits, now it’s more attractive: how else can you buy a home priced at $584,000 with 3% down and credit scores below 720?
FHA Mortgage Insurance
FHA charges both upfront and monthly mortgage insurance regardless of how much money you’re putting down. Seriously, if you’re putting 50% down and using an FHA insured mortgage, you’re paying mortgage insurance. FHA mortgage insurance does not cancel out automatically when your home has an 80% loan to value. You will pay the FHA mortgage insurance for a minimum of 5 years and 78% of the original value (lesser of sales price or appraised value) of the home.
Upfront Mortgage Insurance
Upfront mortgage insurance for a FHA insured mortgage is 1.5% 1.75% of the loan amount for a purchase. With an FHA mortgage, you have a base loan amount and the adjusted loan amount (after you add in the upfront mortgage insurance). For example, if your base loan amount is at the current King, Snohomish and Pierce County level of $567,500, your adjusted loan amount will be $576,012 $577,431 (567,500 plus 1.5% or 8,512 1.75% or 9,931) . Once upon a time, FHA upfront mortgage insurance could be refunded if the mortgage was terminated early with a balance of the mortgage insurance premium remaining, this is no longer the case for new FHA mortgages (which I believe is part of the reason FHA fell from favor during the subprime boom). The adjusted loan amount is what your principal and interest payment is based on. So if the rate going for a FHA Jumbo was 6.500% (this is not a rate quote; this is for example only), the principal and interest payment would be $3,640.79 $3,649.76 (576012 577,431 amortized for 30 years at 6.5%).
Monthly Mortgage Insurance
Yes…as if paying that 1.5% 1.75% upfront MI wasn’t enough…FHA has monthly mortgage insurance as well…the good news is that it is at a low rate compared to traditional private mortgage insurance (especially factoring in a jumbo loan amount, higher loan to value and credit scores below 720). The rate for FHA mortgage insurance is 0.5% 0.55% (for a purchase) of the base loan amount. Using our current example, your monthly mortgage insurance would be $236.46 $260.10 (base loan amount = 567,500 x 0.5% 0.55% divided by 12).
FHA is a fully documented mortgage loan. You will need to provide 2 years of W2s (tax returns if self employed) and your most recent paystubs covering 30 days of income. Any gaps of employment during the past 24 months will need to be explained. There are no income limitations and the DTI is roughly 43%.
Low Down Payment
FHA Jumbos allow for as little as a 3% 3.5% down payment. This means you could be a home priced around $585,000 with the base loan amount of $567,500. Your down payment must be fully sourced and seasoned. Be prepared to hand over your last 2-3 months of bank statements and any asset accounts (all pages) and to explain any large deposits that are not from your source of income. The Seller may contribute up to 6% towards closing costs however the buyer has a minimum investment required of 3% 3.5%. Family members can gift funds towards closing costs as well which counts towards the buyer’s required 3% 3.5%.
Update: Effective January 1, 2009, the minimum down payment will be increased to 3.5%.
Speaking of documentation…
I’ve covered FHA before…and the guidelines for traditional FHA are pretty true for the temporary Jumbo FHA mortgages as well. Here are a few more pointers for our current market:
* FHA does not have price or loan to value limits for geographical areas determined to be soft or declining.
* FHA does not have credit score risked based pricing for credit scores above 620. (Lenders may have their own risk based pricing for credit scores under 620).
Sellers with homes priced around the new FHA jumbo loan limits should consider buyers utilizing FHA financing. A sales price of $584,000 would allow for a minimum down FHA insured mortgage. However a home buyer could always use more towards down payment and opt for a FHA mortgage meaning that if your home is priced higher, you may still want to consider allowing FHA buyers as they may be considering FHA over the price hits conforming has if their score is below 720.
Condo’s are acceptable for FHA financing as well. They may not be on the FHA approved list, however, if the condo meets the requirements for a “spot approval”, they can still qualify for FHA financing.
Act fast…FHA Jumbo is only here until December 31, 2008. loan limits will be slightly reduced on January 1, 2009.
Thanks for the info, Rhonda.
The question that pops into my head when I read about FHA Jumbo is who are these people who have little money for a down-payment, have bad credit, and yet can manage to pay $4-5000/mo mortgage payments? Is this really a significant subset of our population, and if so, are they the people who really need a government subsidized loan?
Hi Rhonda, thanks. Can buyers still do 3-2-1 buydowns with FHA and qualify at the start rate like we did in the ’80’s?
The extra cost is expensive, but we did a lot of them, and the nice thing is, the buydown rates are not ARM rates, they are just prepaid interest to halp a buyer qualify.
For example, let’s say someone is buying a $575,000 house with 3% down of their own funds. The seller is willing to pay 6% for their closing costs, so if their closing costs are approx. 3% (is that close?), what would the buydown cost be? Another 6%?
Bili, the downpayment can be a gift from family.
And, many times these buyers are people who got hurt on a job, got ill, had a sick child or sick parent to take care of, had to be out of work due to those things, or, got laid off, got divorced, got widowed, had a business fail … there are a ton of reasons.
Rhonda, by seasoned funds, is it still 60-days in the buyers bank account, or longer?
I understand all that, Leanne. What I’m wondering is about that monster monthly nut. These people are either vastly over-extending themselves or making 200K a year.
Either way, why is FHA loaning them money?
Used to be one point (1% of loan amount) bought off 1/8th on the rate. How does that rule of thumb work out today, Rhonda?
biliruben, People who qualify for these mortgages will have to have signficant income to meet the 43% DTI (roughly combined monthly gross incomes of 12k) and they still need a clean credit history for the past 12 months (in spite of lower scores). Bad credit doesn’t fly with FHA. FHA is not credit score sensitive.
ARDELL, pricing totally varies day by day. Typically I’ve seen 1 point equal 0.25% to rate, but again, it depends on how pricing is at that moment.
Leanne, I need to verify on buydown. I believe I’ve seen some lenders no longer offering that but let me double check. That would be PRICEY.
biliruben, I used $144k annual gross income and factored $800 a month for other debt (a crap shoot) to come up with my ratio (it’s rough).
LeeAnn, regarding buydowns: yes, lenders can still do them EXCEPT buyers no longer are qualified at the “bought down” rate. The cost is so expensive, it may be better to simply pay points to really buy down the rate vs a 3-2-1 or 2-1 buydown where the rate adjusts.
Thanks Rhonda, yes if they no longer qualify at the start buydown rate, it doesn’t make sense to pay all that cost for a temporary situation.
I think the main advantage of FHA is the low down payment, and higher ratios, combined with the lower credit score. We’ll be seeing lots more FHA loans I’m sure.
On a recent sale, we had the FHA appraiser be pretty sloppy, and she used comps that were too old. We got it all resolved, but the lender had to pay for an appraisal review (I think that’s what they called it).
Is there a way to complain if you have problems with a particular FHA appraiser? And, is an FHA appraisal on a property valid still for 6 months even if that buyer doesn’t close on the property? Ie, in the ’80’s we used to have an appraisal come in sometimes with too many work orders, the seller wouldn’t agree, the buyer wouldn’t, so the deal would end (or the house wouldn’t appraise), and we’d be essentially “stuck” with that FHA appraisal for that property if the next buyer wanted to go FHA. I’m hoping that lame rule is no longer with us. Can you find out?
thanks!
Appraisers for FHA loans are currently chosen by the lender…it’s not like VA where we’re on a lottery system and get whoever is assigned to us.
I’ll have to check into your other question…in the 80’s I was in title…I didn’t start my mortgage career until 8 years ago today!
How else? Fraud.
Not like anyone considers it fraud after the last few years.
Rhonda Porter –
“I used $144k annual gross income and factored $800 a month for other debt (a crap shoot) to come up with my ratio (it’s rough). ”
So they’re scraping the bottom of the barrel. Great, just what we need, a bunch of poor folks buying houses. How’d that work out last time?
rob-u-blind…sorry, I don’t get you. FHA mortgages have been performing fine compared to subprime. We’ve been doing FHA loans at our company for 30 years. On that note, I’m going to watch the M’s.
Rhonda, we are seeing that some of our FHA investors are requiring a 5% downpayment requirement once you exceed the 417k threshold. That creates really three different FHA experiences for clients. (using high cost counties), traditional FHA (below $362,760) at traditional rates. Jumbo FHA (>362,760 but $417 which some investors are requiring 5% down and carries the rate adjustment.
Rob-u-blind–I echo Rhonda, Fha mortgages perform very well compared to most other pools of loans. Although not credit score sensitive and low down, they are all full doc and fixed rate. Not fraud in any way, shape, or form, fully documented and fixed rate.
Loan Officers got lazy and forgot about them. Those of us who have been doing them forever have always known that they are very viable products.
I assume that you are direct endorsement FHA and don’t broker. do you offer the 3% down up to the entire loan limit? or do you start to require 5% above the $417k?
I don’t think in King County that anyone got lazy and forgot about FHA loans, it’s just that the FHA loan limit was far too low to be useful, and not just recently — for a very long time.
I’m a little confused though, ‘some FHA investors are requiring 5% downpayment’. How does that work, and why is there this variable?
Are there situations where one investor says 5% down, so the loan package gets moved to a 3% down investor? Why would anyone choose to go with the 5% down and higher rate if they didn’t have to?
thanks!
A majority of my transactions over my early years as a Loan Originator were based on FHA and VA loans.
What I saw with King Couny and FHA loans was a couple of scenarios:
1) Sellers and Agents had a bad image of FHA loans and would often steer away from them. Sellers did not want to pay “extra” FHA closing costs and Agents thought the appraisals were a hassle. would often have to assure an agent that FHA wasn’t a bad thing–iFHA had a stigma.
2) Not all lenders are able to provide FHA/VA financing so when subprime came around, they were suddenly able to help borrowers who would otherwise they would have to refer to an FHA lender or just decline. LOs do not receive referral fees, like Agents, so many would opt to keep that deal and put the borrower into subprime even if FHA was better.
3) As an LO with FHA mortgages, there were times when a “subprime” or low down Flex loan would be preferred by the borrower. I’ve always felt that it’s my job to provide and explain options to borrowers and let them make an informed decision about their finances. Sometimes FHA loans were not as competitive. Especially in circumstances where the loan amount was not high enough.
4) Loan limits probably impacted Seattle-Bellevue/Eastside areas more than outlying areas…again, here an FHA borrower would have to go “subprime” or low down Fannie/Freddie. Subprime/Alt A would allow beyond FHA and conforming loan limits for those areas with higher home prices.
5) FHA loans are more work–they are a FULL doc loan…as Michael Brown says…some LO’s became lazy.
I must say as a LO “raised on FHA” that when I would consult with a homebuyer and show them the following GFEs (for example)
1) FHA with upfront and monthly mortgage insurance
2) Flex 100 or Flex 97
3) Subprime 80/20 with a 5 year fixed ARM first mortgage and a 30 year fixed 2nd.
The borrower would often select 2 or 3 depending on monthly payment and amount required for closing. FHA would often become the program for borrowers in need of alternate credit documentation.
Rhonda is right. FHA did have a stigma, and part of it was caused by some incredibly slow processing times in the ’80’s (as much as 90 days!!), much before direct endorsement. Direct endorsement lenders are the only way to go (maybe the only way today, not sure?).
As Rhonda says, FHA isn’t like the subprime loans mainly due to actual underwriting (not just credit scores), and due to the appraisals. The appraiser actually does an appraisal, not just a drive by :-)!.
No one wants to go FHA if it’s not competetive, so I don’t blame any LO for ‘being lazy’. Perhaps some were, but at the time, the other progams seemed better. Today’s reality shows differently.
However, FHA sure seems like this will be our new “old” loan this year :-). And, one thing I’d like to see is help from lenders to help educate agents that FHA is here, it’s now & it’s going to be a big part of how we work with clients. I say this because I know how resistant agents are to something they’ve heard ‘negative’ things about, and that I think there are a ton of agents out there who have heard “FHA is bad, we won’t go that way”, and while that attitude is lame, and will hurt their sellers, the attitude can be changed. Education will help.
LeeAnn, I think you’re being too kind to LO’s…there’s no excuse for being lazy. You’re right though, FHA loans are like the new hip retro fashion…I should have posted a photo groovy mini-skirt with this post! 😉 It is all about education. I remember (before I was in lending) when I was selling my earlier homes telling the agent, “no, we don’t want to do FHA or VA”…it was ignorance on our part and I’m sure that we were not alone as Sellers.
Education resolves so many issues….I’m sure Jillayne would agree!
Ronda, don’t even get me started about lazy! I’ll bet we could all go on and on about that :-).
Leanne, are you being lazy or is the “h” key not working on your computer now? 😉 Just teasing! My name sounds the same either way.
Rhonda, I cannot believe I missed the H!! Sorry :-). My R key is working now, but last night it was not. Maybe it got hot.
So, here’s what I’ve been watching: two gray whales! I’m up at Whidbey right now, enjoying this glorious sunny morning, and so are the whales. I was outside having coffee, and heard them blowing,
they’ve been surfacing and hanging around for awhile now. You have a good chance of seeing whales this time of year, just by hanging out on any of the beaches on So Whidbey overlooking Saratoga passage. They cruise past Langley a lot, and generally seem to hang between Camano and Whidbey in Saratoga passage. I envision them having races around Camano to see who is the fastest …
Earlier we had some seals barking. My dog seems to understand they are not dogs, even tho they sound like dogs to me. At night when it is very quiet, we can hear real dogs barking over on Camano.
Back to Seattle this afternoon! Work sure does interfere with hanging out :-).
Michael Brown,
I’m not finding a price adjustment between 3 and 5% down on the Jumbo FHA’s (I don’t believe this is what you’re refering too–but I want to clarify on LeeAnn’s comment which followed). The rate for 3 vs 5% down with FHA should be the same.
FHA Jumbo rates vary widely from lender to lender. We are correspondent with many and are a direct endorsed HUD lender. I amazed at the variances between banks on their “hits”. I’m assuming that with time, the price-hit gap will narrow.
I have not done a minimum down FHA Jumbo yet and I did verify the 3% down with our company. HUD has not come out with any directive that requires lenders to have different underwriting guidelines for High Cost FHA loans (>$417,000). I’m sure some lenders will require 5% minimum down.
So, Michael, some investors can choose to add their own rules over and above FHA guidelines? Shouldn’t that be disclosed to someone looking at these loans?
Thanks!
Leanne, lenders/banks may have their own guidelines that overlay Fannie/Freddie or FHA loans. Some lender/banks may want to limit their exposure to FHA Jumbos by only doing 5% down vs 3% down.
If I were a lender who could not provide 3% down and I had a buyer that required that, I would let them know that it is available. They may have a difficult time finding it and they may (if I have a good relationship with them) decide to put the additional 2% down to come up to 5%. We are able to do 3% down for FHA Jumbo.
I’m looking forward to seeing the first FHA-jumbo quote on Friday. I’m curious how the rate and terms compare with the GSE-jumbos. It would be interesting to see a breakeven analysis between the two loan types. In other words, in what cases does FHA make more sense than a GSE loan? Although for many buyers, the decision will be more about whether or not they’ve saved any $.
It used to be so simple; a borrower could go in and just ask their for a conforming loan!
laxtosnoco, it used to be easier to do “Friday Rates” too! 🙂 I often will show clients (depending on their loan amount/sales price) conforming/conforming-jumbo/jumbo using a second mortgage if needed to gap the difference.
Update: HUD had ruled that cash out refi’s for FHA Jumbos are limited to 85% LTV.
Rhonda,
I recently applied for an FHA loan. At the beginning of March 2008, I was told that FHA Jumbo loans are not credit score sensitive (all 3 of mine being 585, 605 and 608) as long as credit was good for the last 12 months which it is. I was then informed by my LO that the guidelines changed for FHA jumbo and I had to be at 620? Is this correct or is this a requirement from the lender (PMAC bank)?
Loan I am looking for is around 419k (with 5% down).
Do you have any information on the new guidelines? Is this information correct?
Lisa,
With FHA Jumbo, there are FHA guidelines which in that case, your LO is correct that it’s possible if your last 12 months credit is clean and you have established good credit accounts that your scores should not matter. However various banks have their own underwriting which will “over-lay” that of FHA’s guidelines. So if the bank decides that they do not want a mid-score of 605–that’s their choice.
For example, some lenders are allowing 3% down where other banks are requiring 5% down with the FHA Jumbo.
It’s also important to note that 12 months of clean credit does not guarantee anyone an FHA mortgage. Your credit history is going to be considered.
Bottom line, no bank or lender wants to get “caught” with a loan they cannot sell in their credit line.
Both FHA and Conforming Jumbos are still new with guidelines still rolling out and adjusting…just last night, Fannie relaxed a bit on determining that a purchase money second mortgage, when paid off with a purchase money first mortgage is not a cash out refi.
You may want to ask your LO if this is a FHA guideline or a Bank guideline.
Rhonda,
Thanks for your response. My LO is claiming that it is a new FHA guideline that was just published in March. If this is indeed correct, then I am sure it will have a serious impact on FHA Jumbo loans as a whole.
Problem is, guidelines changed after I submitted an offer on a property and entered into Escrow. Ny escrow is due to close on the 29th of April.
I guess my point here is if it is truly FHA, then a mid-score of 620 is an absolute must. If it is a bank requirement, then maybe it’s possible to find an FHA lender that will still allow a CS of 580?
My LO is fairly new to FHA (as you mentioned earlier, LO’s would not go there due to the costs associated with it)so I just am trying to make sure all my bases are covered.
Lisa,
FHA may still do loans with a mid score of 580 or no score…there may be a price hit with that.
I recommend that you get a second opinion ASAP considering your situation from a Mortgage Professional who is experienced with FHA mortgages and has more resources to broker to various lenders instead of just one bank.
Your other option is to believe what your new LO is telling you.
Rhonda,
Thanks for your input!
I will get a second opinion…
I am working my first FHA Jumbo right now.
Found your blog googling ‘FHA Jumbo’ and thought I would drop in to say hi!!
Do you have any insight to the guidelines at most investors regarding Seller Funded DPA on FHA Jumbo loans?
Hi Tom,
Just as various lenders have different guidelines on whether or not they’ll lend with 3 or 5% down on the FHA Jumbo program, the same is true on whether or not they will accept DPAs (down payment assistance programs). You need to check directly with your lender on down payment and DPA as they’re adding their own layers of guidelines on top of FHA’s.
Hi
Can you tell me what the FHA ltv/cltv limits are on a jumbo FHA loan in Rockland County, NY. I have some people telling me 97% and others telling me 85%.
Michael,
I just specialize in properties located in Washington State. If you’re considering a cash-out refinance, it may be limited to 85%…you really need to find a local lender to work with.
Rhonda,
We are also new to doing FHA loans. Which lenders would you recommend that are good for FHA. I’m in Los Angeles.
TQ, we have our own FHA/VA underwriter on site at our office and fund from our own credit line. Loans are sold afterwards…so the only difference for me is pricing as I don’t “broker” FHA loans. (We are a direct endorsed lender). I’m going to like who’s going to provide the best rate as service for me is great regardless since it’s all “in house”.
You really need to check lender to lender if it’s an FHA Jumbo as they will put their own guidelines layered over HUD’s.
I would just be guessing by throwing out names of lenders to you. If you belong to a message board like Loan Tool Box, you might try that?
TQ-I’ll check w/my broker buddies via Twitter to see who they like to use for FHA financing.
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Lenders are beginning to install credit score limits with FHA loans of 620.
Is the FHA-Jumbo a conventional 30-year term?
Hi Jim,
FHA mortgages are amortized for 30 years. With an FHA Highbalance mortgage, you can also have a fixed period adjustable (like a 3 or 5 year) however; the 30 year fixed product has been the most popular.
Conventional mortgages are those backed by Freddie Mac and Fannie Mae. FHA is not backed by Fannie or Freddie.
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