Update 6/10/2009 11:20 am: Please read the comments 1-21 (especially Aubrey Cohen’s comments). Apparently according to a HUD representative, the tax credit can be used for down payment if it’s received through State Housing Finance Agencies. (I called the FHA help line twice this morning and both FHA representatives say this is not the case). The representative from HUD apologizes for the confusion and will make sure the Homeownership Centers understand… I apologize for the confusion too!
I feel like shouting “THE TAX CREDIT ADVANCE IS NOT DOWN PAYMENT ASSISTANCE!” up and down the streets of Seattle. Home buyers utilizing FHA loans still need to come up with a minimum of 3.5% for their downpayment (see the update above). Per HUD’s Mortgagee Letter 2009-15 dated May 29, 2009:
“The proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity tha tis reimbursed, directly or indirectly…may not be used to meet the 3.5% minimum down payment, but may be used as additional downpayment, buying down the interest rate, or other closing costs.”
Jane and John are buying a home using FHA for financing with a sales price of $300,000. FHA requires they invest a minimum of 3.5% of the sales price into the transaction. Jane and John need to have $10,500 of their own funds (which can be gifted or loaned from a family member) invested into this transaction. Assuming they qualify for the First Time Home Buyer Tax Credit and the IRS figures out how to resolve the issues of how to pay the FTHB Tax Credit Advances, they could use the $8000 towards closing costs, prepaids and any extra funds (after paying closing costs and prepaids AND after they invest $10,500) could go towards downpayment. (Unless…see the update above).
This is not a zero down program and this is not like the ol’ DPAs (Nehemiah, etc.). This is (if the details are ever worked out in time) an advance or loan against your tax credit.
Haaa… I feel a little better now. 🙂 One of the benefits of blogging… venting!
Rhonda,
In my research, I found that there are, currently, ten states (CO, DE, ID, KY, MO, NJ, NM, OH, PA and TN) whose housing agencies offer loans against the $8,000 First Time Home Buyers tax credit which MAY be used as the 3.5% down payment required for FHA.
Links to all ten different programs collected on the National Council of State Housing Agencies web page here: http://www.ncsha.org/section.cfm/3/34/2920
That’s a lot of states, already, and, presumably, more to follow…
With these ten programs, in these ten states, 100% financing is allowable until December 1, 2009.
John Scott Smith
Twitter: http://twitter.com/johnscottsmith
Rhonda,
In my research, I found that there are, currently, ten states (CO, DE, ID, KY, MO, NJ, NM, OH, PA and TN) whose housing agencies offer loans against the $8,000 First Time Home Buyers tax credit which MAY be used as the 3.5% down payment required for FHA.
Links to all ten different programs collected on the National Council of State Housing Agencies web page here: http://www.ncsha.org/section.cfm/3/34/2920
That’s a lot of states, already, and, presumably, more to follow…
With these ten programs, in these ten states, 100% financing is allowable until December 1, 2009.
John Scott Smith
Twitter: http://twitter.com/johnscottsmith
John, HUD’s Mortgagee Letter is pretty clear that the buyer must meet the 3.5% down payment first and then the tax credit advance can go towards down payment–only AFTER the 3.5% is met.
Have you closed a transaction where the borrower used a first time home buyer tax credit ADVANCE (not the actual refund–an advance on the refund) for the 3.5% down payment?
I’ve heard some mixed things about the tax credit, but a lot of my clients are very interested in buying right now because of it. I’d be interested to see if it stimulates growth as much as Obama’s been pitching it.
Rhonda,
Just got in and your post Title had me Laughing Out Loud! Rhonda with a big NOT in all caps? I’m still laughing too hard to read the post.
Using a loan against a tax credit as part of a down payment (or the whole thing!), FHA or not, seems insane to me. So we’re going to prop up the housing market, by potentially getting more people in over their head?
Is it really so terrible to make people, you know, save up for a down payment (and cushion against problems too!)? If you can’t afford something, you work for it, and wait till you can buy it.
Rhonda, thank you for pointing out the HUD rules – it sounds lika a rule that makes sense.
Using a loan against a tax credit as part of a down payment (or the whole thing!), FHA or not, seems insane to me. So we’re going to prop up the housing market, by potentially getting more people in over their head?
Is it really so terrible to make people, you know, save up for a down payment (and cushion against problems too!)? If you can’t afford something, you work for it, and wait till you can buy it.
Rhonda, thank you for pointing out the HUD rules – it sounds lika a rule that makes sense.
Rhonda,
Long explanation, expanding on my story (http://www.seattlepi.com/local/406684_hug29.html), but I want to be complete.
The mortgagee letter (http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-15ml.doc) says: “the proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financing benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs.”
OK, that’s not completely clear.
The FHA’s announcement (http://portal.hud.gov/portal/page?_pageid=73,8026894&_dad=portal&_schema=PORTAL) said: “Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate.
… Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 percent minimum down payment, but, under the terms of today’s announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate. Buyers financing through state Housing Finance Agencies and certain non-profits will be able to use the tax credit for their downpayments via secondary financing provided by the HFA or non-profit.”
It’s that last sentence you need to pay attention to. What that means, and I confirmed this with HUD and the Washington State Housing Finance Commission, is that buyers can use tax-credit loans from state Housing Finance Agencies and certain nonprofits for the 3.5 percent.
Essentially, this is no different from the loans the agencies and approved nonprofits already give for down payments (http://www.wshfc.org/buyers/downpayment.htm). The only difference is that the buyers would chose to repay the loans after getting their tax refunds, rather than by making monthly payments for up to 15 years.
The main problem is that the state program, where the Housing Finance Commission gives the down payment loan as a second loan on top of the first mortgage it also originates, is quite limited at the moment. FHA, as I understand it, had no problem with the program the Legislature passed to have the commission issue tax-credit down payment loans (including for the 3.5 percent) where it wasn’t the first lender. The issue has been trying to get the IRS to agree to send the refund directly back to the commission, rather than the buyers. The commission feels it needs this because having just the second lien is not a very secure position.
Rhonda,
Long explanation, expanding on my story (http://www.seattlepi.com/local/406684_hug29.html), but I want to be complete.
The mortgagee letter (http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-15ml.doc) says: “the proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financing benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs.”
OK, that’s not completely clear.
The FHA’s announcement (http://portal.hud.gov/portal/page?_pageid=73,8026894&_dad=portal&_schema=PORTAL) said: “Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate.
… Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 percent minimum down payment, but, under the terms of today’s announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate. Buyers financing through state Housing Finance Agencies and certain non-profits will be able to use the tax credit for their downpayments via secondary financing provided by the HFA or non-profit.”
It’s that last sentence you need to pay attention to. What that means, and I confirmed this with HUD and the Washington State Housing Finance Commission, is that buyers can use tax-credit loans from state Housing Finance Agencies and certain nonprofits for the 3.5 percent.
Essentially, this is no different from the loans the agencies and approved nonprofits already give for down payments (http://www.wshfc.org/buyers/downpayment.htm). The only difference is that the buyers would chose to repay the loans after getting their tax refunds, rather than by making monthly payments for up to 15 years.
The main problem is that the state program, where the Housing Finance Commission gives the down payment loan as a second loan on top of the first mortgage it also originates, is quite limited at the moment. FHA, as I understand it, had no problem with the program the Legislature passed to have the commission issue tax-credit down payment loans (including for the 3.5 percent) where it wasn’t the first lender. The issue has been trying to get the IRS to agree to send the refund directly back to the commission, rather than the buyers. The commission feels it needs this because having just the second lien is not a very secure position.
Sorry… forgot to say great post – can’t wait to read your next one!
Aubrey, are you sure it’s not “additional down payment” once the 3.5% is met?
From HUD’s press release:
“Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate….”
http://www.hud.gov/news/release.cfm?content=pr09-072.cfm
I’ll see if I can get someone from my office to confirm w/HUD too.
Aubrey, are you sure it’s not “additional down payment” once the 3.5% is met?
From HUD’s press release:
“Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate….”
http://www.hud.gov/news/release.cfm?content=pr09-072.cfm
I’ll see if I can get someone from my office to confirm w/HUD too.
I couldn’t wait for my office to open…I just called FHA and talked to Bob. He confirmed that the 3.5% must be met by the borrowers own funds and not the FTHB tax credit advance.
FHA can be reached at 1-800-CALL-FHA (1-800-225-5342).
By the way, since I had Bob from FHA on the phone, I asked him if the FTHB tax credit advance could be used to pay for the upfront mortgage insurance (1.75% of the loan amount) instead of financing…he said that there are no guidelines against or for that. To not financing the upfront MIP could be an interesting use of these funds.
ARDELL, I’m glad to have amused you on your birthday 😉 I hope it was great!
The news release also says: “Buyers financing through state Housing Finance Agencies and certain non-profits will be able to use the tax credit for their downpayments via secondary financing provided by the HFA or non-profit”
That’s why I emailed HUD spokesman Lemar Wooley at the time. I just dug out his response:
From: Wooley, Lemar C [mailto:Lemar.C.Wooley@hud.gov]
Sent: Fri 5/29/2009 9:38 AM
To: Cohen, Aubrey
Subject: HUD Response / Tax Credit
Aubrey,
The short answer to your question is:
* Through State Housing Finance Agencies, it can be applied to the downpayment.
* Through FHA Lenders, it can be applied to the downpayment above the 3.5% FHA requirement or for closing costs.
Audrey’s explanation, though much more eloquent than mine, was what I was talking about. It is up to the individual states whether they have their state housing agencies set it up so that the tax credit can be applied to the required 3.5% down.
And, so far, there are ten states that allow it.
Nice involvement on your blog, here! Well done.
John Scott Smith
Twitter: http://twitter.com/johnscottsmith
John, it’s up to FHA and HUD what they will allow for down payment–not the States. I don’t disagree with you that States may be funding the tax credit…
I just got off the phone w/FHA this morning and they confirmed this post.
John, it’s up to FHA and HUD what they will allow for down payment–not the States. I don’t disagree with you that States may be funding the tax credit…
I just got off the phone w/FHA this morning and they confirmed this post.
Aubrey, I just fished your comment 10 out of moderation… and I’m calling FHA again… 😉
Aubrey, I just called FHA again and spoke to a different representative. I specifically asked her “what if the FTHB tax credit is monatized by a State Housing Finance Agency and she gave me the same answer as Bob (comment 8).
She referred to page 2, last bullet of Mortgage Letter 2009-15 (the paragraph I referenced in the body of this post).
Bottom line to me, it sounds like HUD needs to provide more clarity if we have 2 different representatives from FHA this morning stating that buyers must still meet the 3.5% and the tax credit advance may not be used (regardless of where the advance comes from) AND representatives from HUD saying that it can be used towards the 3.5% if it comes from a State Housing Finance Agency.
Ugh. My brain hurts…
Thank you for researching that. Please, let us know if you hear anything different.
John Scott Smith
Twitter: http://twitter.com/johnscottsmith
John, it makes my brain hurt too! LOL Why don’t you give FHA a call and let us know what answer you get.
Ridiculously confusing for everyone:) I still think it should have been $15k across the board as a tax credit period, but hey, what do I know. I tweeted this:) Thanks for being on top of it, girl!
I just asked HUD for confirmation of what’s correct (with Rhonda CC’d). Will post when I get a response.
Thanks, Aubrey…and thanks for participating at Rain City Guide!
Haven’t learned anything yet from this housing crisis. If someone needs a gift of $10,500 to purchase a house, they should not be buying a house.
Just got response from HUD spokesman Lemar Wooley:
“I just double-checked with the Director of the program. She says my original response is correct and she will make sure our Homeownership Centers understand.
“Sorry about the confusion.”
His original response was: “Through State Housing Finance Agencies, it can be applied to the downpayment.” (meaning the 3.5 percent)
So, does no one in the real estate industry see a problem with using a tax credit as a down payment (ie. “potentially no down payment”)?
Sure, it creates a great opportunity for real estate agents, but is it really what is best for the potential homeowner (or “home-ower”)? They do end up with some equity, but it does not show they have the financial savvy or ability to save for a home.
In many areas, including most of Seattle, it is still cheaper to rent than own, so this seems to help push people into spending more money on housing than they need to. Most of the forecasts are for housing prices to continue to decline through at least this year, so I guess I am missing the benefit of something like this to anyone but those in the real estate industry?
Gene
FACT: equity position is the #1 risk variable and carries more weight than debt ratio, credit scores, length of employment, savings, etc., when it comes to lending mortgage money.
FACT: mortgages originated with Down Payment assistance have the highest default ratio, higher than “Stated Income” loans, higher than Pay Option ARMS. Before the “housing crisis”, the BEST wholesale lenders were eliminating the use of the DPA’s for the FHA mortgages they’d eventually sell to investors, as per the investors, these were the worse investments. Nobody STAYS in business appeasing to this category of demand.
How CA Congresswoman Maxine Waters can justify otherwise is irrational and insane, given the facts above and the fact it was these policies for “fairness” that got us into this economic/mortgage mess, respectively.
If you don’t have any skin in the game, you are MOST likely to walk away if/when things don’t go your way (job loss, rate adjustment, etc.). Make customers put 3.5%, or 5% or 10% down, then they’ll take an active interest in making sure they make their note payments on time. The quicker we can translate $ into our own personal energy and time spent, the quicker the anti-banking revolution.
anyone working with these customers have positioned themselves that way with their marketing. These borrowers and the mortgage brokers and real estate agents that pursue them are simply bottom feeding. I personally hate wasting my time with this segment of the market.
In looking for exact default rates on these, I was able to find this: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1330132
Regarding the default rates, this study states that the default rate among borrowers who utilized DPA (called “DAP” for the purpose of this study) was 15-20% versus roughly 7-10% for borrowers who received gift funds, versus 3-7% for borrowers who used all their own funds for downpayment.
If you look at nothing but these numbers, then, yes, clearly there are valid reasons to consider the elimination of DPA. (Disclosure, my FHA mortgage lead generation company stands to sell many more leads if DPA were reinstated.)
There are also valid reasons to consider the elimination of gift funds, as well. And, for that matter, there are sound, valid fiscal reasons to eliminate FHA from the government dole. These are all reasonable debates to be had.
FHA was brought about to increase home ownership for the entire country. It is expected with ALL mortgages, including FHA and traditional, that there will be a certain level of foreclosures. We need to determine more than if the foreclosure level of FHA is acceptable. We need to decide what value of government investment we are willing to spend in order to increase home ownership, and whether allowing applicants born into wealthy enough families to provide them with “gift funds” is more appropriate than allowing DPA or borrowing against their income tax credit for families who are not as fortunate.
Thanks for the link and reply.
Who is John Galt, anyhow?
Have you seen anything related to this as it compares to stated income loans, or low credit score loans?
You’re quite welcome. When these blogs foster good discussion, I am very happy to participate, and Rhonda’s is one of the better blogs that I’ve ever seen.
I assume that you’re being facetious about John Galt?
And, no, I haven’t found anything that compares these to stated income loans or low credit scores. Nor, unfortunately, have I found anything that compares them to Option ARMS: which I personally believe will be the death of us all…
I loved that book and its philosophy. I read it for the first time about a year ago. My difficulty with applying it to today’s environment is the lack of responsiblility that coincides with capitalism, on all fronts (politicians, lobbyists, banks, customers). Free-markets have loop holes and its too much to expect people not to exploit them at the expense of the innocent.
I have heard the same thing about the Option ARMS. I actually heard we still haven’t felt the reprecussions of the Alt-A markets. I wonder how the Fed family will handle it….
So, does no one in the real estate industry see a problem with using a tax credit as a down payment (ie. “potentially no down payment”)?
Sure, it creates a great opportunity for real estate agents, but is it really what is best for the potential homeowner (or “home-ower”)? They do end up with some equity, but it does not show they have the financial savvy or ability to save for a home.
In many areas, including most of Seattle, it is still cheaper to rent than own, so this seems to help push people into spending more money on housing than they need to. Most of the forecasts are for housing prices to continue to decline through at least this year, so I guess I am missing the benefit of something like this to anyone but those in the real estate industry?
Gene
Thanks, Aubrey… I’ve amended the title adding “unless…” in CAPS to get a giggle out of Ardell.
Great investigation!
Another reason Aubrey gets my vote as best reporter in Seattle; dead paper or no.
He also has taken over my favorite column, Getting There, and handling it with skill!
Okay, you rock too, Rhonda.
Great investigation!
Another reason Aubrey gets my vote as best reporter in Seattle; dead paper or no.
He also has taken over my favorite column, Getting There, and handling it with skill!
Okay, you rock too, Rhonda.
Thanks, Cam. I’d feel better if I were right! But both reps from FHA confirmed how I read the Mortgagee Letter and HUD’s press release. bleh!
Aubrey does rock and I’m glad Seattle still has him around too!
Gene, I’d personally rather see people have at least 6 months of living expenses saved up–they could use the tax credit for that instead of the down payment.
There are still zero down programs out there like USDA and VA.
Gene, I’d personally rather see people have at least 6 months of living expenses saved up–they could use the tax credit for that instead of the down payment.
There are still zero down programs out there like USDA and VA.
Reading Aubrey’s comments #10 and #21, I am not comfortable [meaning not comfortable enough to guarantee it to my clients] that he added his own interpretation, which is somewhat contradicted in his comment #10:
Aubrey from comment #21 “His original response was: “Through State Housing Finance Agencies, it can be applied to the downpayment.
Reading Aubrey’s comments #10 and #21, I am not comfortable [meaning not comfortable enough to guarantee it to my clients] that he added his own interpretation, which is somewhat contradicted in his comment #10:
Aubrey from comment #21 “His original response was: “Through State Housing Finance Agencies, it can be applied to the downpayment.
Gene asks: “So, does no one in the real estate industry see a problem with using a tax credit as a down payment (ie. “potentially no down payment
In my reading up on this, that means “no” in WA, at least not yet. I am not familiar with a program in WA that yet exists that would allow borrowers to use the tax credit toward their required 3.5% down payment.
The lenders who are my customers work in many different states, which is why this has become a bit of a “pet” research project of mine. If anyone is familiar with a program in WA that DOES already make that allowance, please, post. I’m certain that my WA customers would be excited to learn of the new development.
John Scott Smith
Twitter: http://twitter.com/johnscottsmith
Rhonda,
Which “State Housing Finance Agency” would people use to accomplish this in the Seattle area?
Thank you, John comment #30. I believe that to be the case as well. It seems everyone is missing the “only in States that…” part.
Ardell, I’ve heard it could be the Washington State Housing Finance Commission… I just looked up the site and voila:
The site states it was last updated 5/20/2009.
Ardell, I’ve heard it could be the Washington State Housing Finance Commission… I just looked up the site and voila:
The site states it was last updated 5/20/2009.
Lacking any proof to the contrary, that means your big NOT in the post Title is still correct and your update may need to be deleted (for now)
I like Aubrey Cohen, a lot, but I’m not advising my clients based on his say so 🙂
Rhonda left off the rest of the information on the WSHFC page:
“First-time homebuyers needing assistance with a downpayment and/or closing costs may qualify for one of the Commission’s existing downpayment programs. Please view the Commission’s downpayment assistance page for further details or contact a Commission-trained loan officer to discuss your loan options.”
Kim Herman, executive director of the Housing Finance Commission, told me (http://www.seattlepi.com/local/406684_hug29.html) that buyers could use the commission’s existing down payment loan programs (referred to above) and then repay the loan once they got their refund or continue to make monthly payments for up to 15 years. So get a mortgage with an already approved dpa program like Washington’s and then use the refund to repay it if you want to.
The program “currently in a stage of discussion and development” would have the commission give down payment loans for mortgages where it’s not the first lender.
I have accurately reported Mr. Wooley’s response.
Here’s the email I sent to him (and cc’d Rhonda on):
From: Cohen, Aubrey [mailto:AubreyCohen@seattlepi.com]
Sent: Wednesday, June 10, 2009 12:35 PM
To: Wooley, Lemar C
Cc: rhonda@rhondaporter.com
Subject: RE: HUD Response / Tax Credit
Dear Mr. Wooley,
Rhonda Porter, a local loan originator and well-respected blogger, spoke with two FHA representatives today who told her even state housing finance agencies could not give tax credit loans for use toward the required 3.5 percent down payment on FHA loans. This is the opposite of what you told me in May (see email below).
So I want to:
1. Clarify what is correct.
2. Draw your attention to the conflicting information FHA is putting out.
Please respond to me and Rhonda, who is copied on this message.
Thanks for your time,
Aubrey
Here’s his response:
I just double-checked with the Director of the program. She says my original response is correct and she will make sure our Homeownership Centers understand.
Sorry about the confusion.
LCW
Aubrey,
I still recommend that any buyer using the tax credit as part of the 3.5% down, reserve an out in the Finance Contingency in case the use of the tax credit as part of the 3.5% down is not permitted in the last week of escrow prior to closing. Sh-t happens 🙂 No one likes to lose their Earnest Money.
Maybe Craig could comment on that.
I find it hard to believe that the FHA underwriter has no allowance to deny the loan when borrower is using the $8,000 tax credit, if the strength of the borrower overall is shakey and on the fence. That would not be good.
How about “Proceed with Caution” 🙂
Happy belated birthday Ardell.
I think the state agencies that allow it were being put inplace for when it was thought to be allowed.
#5 100% loans were not the real or whole culprit. It was more stated income loans at any loan to value, people just could not and never could have afforded the payments.
FHA is a full doc loan, so people have to prove they can make the payment at any ratio.
When you figure it out tweet it.
Happy belated birthday Ardell.
I think the state agencies that allow it were being put inplace for when it was thought to be allowed.
#5 100% loans were not the real or whole culprit. It was more stated income loans at any loan to value, people just could not and never could have afforded the payments.
FHA is a full doc loan, so people have to prove they can make the payment at any ratio.
When you figure it out tweet it.
Thanks for the birthday wishes, Rob. I’m still trying to get used to the whole being 55 thing since it happened yesterday 🙂
I’m more concerned about the buyer’s protections against #fail as Earnest Money at risk is not acceptable.
I know underwriters, and if you make them do this, they can reject you on that. Approved/denied and exactly why, is not as easy to pin down as people think it is. Underwriters have the power.
Underwriters totally have the power… and they’re scrutinizing EVERYTHING. 🙂
I am really confused on how not letting people use that as a down payment would hurt. Can someone explain? I think lenders have gotten stricter about not approving people for homes they cant afford which I think was a far worse problem than zero down payment although with the low down fha loans I think most people could budget to save that if they are really serious about buying a home. My bank (Wells Fargo) said I couldn’t be approved for a loan where the mortgage/tax costs plus my car payment/student loan payment was more than 36% of my gross. I have very little credit card debt and my fico is 717. The maximum home price that they said I should look at is 100,000 with an fha with 3.5% down to keep that 36% debt ratio which in my area (Auburn) pretty much limits me to condos which being single with four parakeets and no children is all I want anyway although I’ve looked at a few fixer houses. My rent plus debt right now is about 35% of my gross and I live fairly comfortably in a rented mobile home. I have garbage/water included in my rent but pay my own electric. I put money into savings every month. I am considering going on my work’s health plan which meants I might not get to eat out or travel on weekends as often but won’t kill me.
Maybe there are still lenders who will approve people for more than 36% percent of their gross going to home and debt and maybe some people can still get that through wells fargo but the mortgage person I talked to there said not more than 36% percent. The sad thing is I’ve talked to apartment managers who were willing to rent me an apartment where the rent alone was up to 40% of my gross not counting my debt payments and there would be no utilities included which is how I ended up renting a mobile home. Only catch is i have to take care of a yard.
I’m not overly knowledgable on lending practices. 0r credit reports. I’ve been pre approved but I am worried about my credit report still listing a totalled car that insurance paid off a year ago. I explained to my lender that I no longer own the car as it was rear ended and the back end completely ripped off and that gap coverage completely paid it off and they based my pre approval and loan amount on my owning just my current car but I am not sure what’s going to happen when I finally do go to buy a home. Even with pre approval I’m worried this car being listed is going to hurt me since it makes it look like I have double the car payments.
What is a little disturbing is that the underwriters and appraisers alike don’t always keep up with guidelines.
Appraisers are in a pretty good position to drive the bus also. Thanks to some yahoo in NY consumers now are subject to the spin of a wheel and for that privilege consumers get to pay more.
I am sorry, I like different appraisers for different areas. We have a couple areas of old homes that is a challenge for those that do not specialize in those areas.
What is a little disturbing is that the underwriters and appraisers alike don’t always keep up with guidelines.
Appraisers are in a pretty good position to drive the bus also. Thanks to some yahoo in NY consumers now are subject to the spin of a wheel and for that privilege consumers get to pay more.
I am sorry, I like different appraisers for different areas. We have a couple areas of old homes that is a challenge for those that do not specialize in those areas.
Katy, you might want to consider a USDA loan–they allow 100% financing and flexible underwriting. There are income restrictions (sounds like you would qualify) and the home must be in a rural area.
It’s possible that you could qualify for a few dollars more than Wells Fargo is offering–but it won’t be much…especially with the current mortgage rate environment.
If you’re able to rent more than you can buy, why not rent?
With regards to the car showing on your credit report, you should contact the creditor with documentation showing that the car was paid off. If the car was not paid off in full by the insurance company, you may still have a balance. 🙁
Boy, you got some ink with that one!
Rhonda, correct me if you think I’m wrong on the following statements taken directly from a lender’s FHA guideline (in this case TBW)
1. FHA allows gifts to be used for the minimum down payment requirements, within restricted parameters.
2. FHA allows GRANTS from legitimate non profits to be used for the down payment requirement. In SOME cases, they will allow a “soft lien” to be placed on the property (recapture in event of sale).
3. FHA does not allow a 2nd mortgage or loan (regardless of source or type) to be used to meet the down payment requirement.
At least that is how I read the guideline.
Lender’s guidelines may not be up to date, but that is what they base loan approvals on.
Now, from the HUD Mortgagee letter, it says
Secondary Financing
Consistent with existing FHA policy, FHA will permit entities covered by Section 528 of the National Housing Act to use the current authority to offer tax credit advances with second liens in a manner consistent with the requirements in 12 U.S.C. 1709(b)(9). Eligible government agencies and instrumentalities of government are described in handbook HUD-4155.1 5.C3 and 5.C4.
Conditions:
1. The tax credit advance, when combined with the FHA-insured first mortgage may not result in cash back to the borrower.
2. The second lien may not exceed the total amount needed for the down payment, closing costs, and prepaid expenses.
3. Secondary financing may be “soft
Boy, you got some ink with that one!
Rhonda, correct me if you think I’m wrong on the following statements taken directly from a lender’s FHA guideline (in this case TBW)
1. FHA allows gifts to be used for the minimum down payment requirements, within restricted parameters.
2. FHA allows GRANTS from legitimate non profits to be used for the down payment requirement. In SOME cases, they will allow a “soft lien” to be placed on the property (recapture in event of sale).
3. FHA does not allow a 2nd mortgage or loan (regardless of source or type) to be used to meet the down payment requirement.
At least that is how I read the guideline.
Lender’s guidelines may not be up to date, but that is what they base loan approvals on.
Now, from the HUD Mortgagee letter, it says
Secondary Financing
Consistent with existing FHA policy, FHA will permit entities covered by Section 528 of the National Housing Act to use the current authority to offer tax credit advances with second liens in a manner consistent with the requirements in 12 U.S.C. 1709(b)(9). Eligible government agencies and instrumentalities of government are described in handbook HUD-4155.1 5.C3 and 5.C4.
Conditions:
1. The tax credit advance, when combined with the FHA-insured first mortgage may not result in cash back to the borrower.
2. The second lien may not exceed the total amount needed for the down payment, closing costs, and prepaid expenses.
3. Secondary financing may be “soft
Roger, it’s confusing.
And I believe that FHA will allow loans, in lieu of gifts, from immediate family members which could be in the form of a second mortgage towards the 3.5% required minimum down.
Add Virginia to that list of ten states . They are doing it through their HFA. The link is http://www.vhda.com/vhda_com/apps/DocumentLibrary/document_load.asp?docid=3148
It makes absolutely no difference. 4% on $250K is $14000, on $250K is $10000.
No one should pay a bank to make a loan. A bank’s business is to lend money and take deposits.
In addition of giving a bank a gift of a “down payment” which is a ridiculous term, a buyer also pays fees.
All of this money is given to a lender for the privledge of being saddled with a thirty year debt obligation.
We are also talking about FHA. Our tax dollars heavily subsidize the banking industry for these low risk loans.
The bank should pay any buyer agreeing to pay a Note for thirty years. The system is backwards.
It makes absolutely no difference. 4% on $250K is $14000, on $250K is $10000.
No one should pay a bank to make a loan. A bank’s business is to lend money and take deposits.
In addition of giving a bank a gift of a “down payment” which is a ridiculous term, a buyer also pays fees.
All of this money is given to a lender for the privledge of being saddled with a thirty year debt obligation.
We are also talking about FHA. Our tax dollars heavily subsidize the banking industry for these low risk loans.
The bank should pay any buyer agreeing to pay a Note for thirty years. The system is backwards.
Joe P,
Thank you for the heads up! I’m forwarding that link, right now, to all of my customers in VA.
John Scott Smith
Hey all of you experts.
I am a veteran eligible and prequalified for a VA loan and was considering the possibility of looking into the tax credit bridge loan to pay for my closing costs since there is 0% down payment. However, I’ve only seen this topic discussed with respect to FHA loans.
Am I correct in assuming that this is a moot point for me?
Thanks,
Joe E.
Joe, I’ll need to check into that… in WA State it could be.
If you’re going VA, why not go “double zero down” and let the seller pay your closing cost?
What I found out from the lender is that the VA will only allow the seller to credit back 4% of the value of the loan/home. So in my case that is only about 50% of my closing costs – which are at about $9K.