Mortgage Rates

I came across a funny article and just had to laugh at it.  It's title: "Mortgage Rates Rise Despite Fed Intent".  What made me laugh was the comment that rates "jumped" up in the latest week 10 basis points from a national average from 3.52% to 3.62%.

I mean this is hysterical; we're seeing sub 4% interest rates and it's crazy busy in this business right now and a fraction of a percent raise is considered a "jump".  This kind of talk is just nonsense.  The problem is that rates have been so low for so long that people are just immune to it like they are to advertising messages.  Ever notice how many messages are thrown into our face everyday through several media modalities and outlets? You have some that catch you eye every now and then but for the most part, we ignore them.

Same philosophy here; people are immune to the low rate environment but a 10 basis point increase is no where near a jump.  To give you a perspective on how much of an increase that is; 1 basis point is 1/100th of a percent.  So we're talking 10/100ths of a percent increase in rate.  On $165,000 loan you're talking $9 a month.

That's not exactly breaking the bank here folks.  The article you can find here.. I don't care what they say, and of course I could be wrong, but artificial low rates are here to stay.  They can't lower them.  I think the FED has done so much for so long; they're all in now baby...We'll be riding this wave for a while.

If you're in the market to buy or refinance it a good time but keep in mind that lenders are slammed right now and loans are taking longer to close and documentation requirements are still heavy so make sure you see both of my posts on Today's Mortgage Environment and Mortgage Application Tips...

These will help get your mindset right, explain a little bit about what's been transpiring on the back end and how to be full prepared at application to help improve the processing, underwriting, and closing of your loan.

D...out..

FHA Fund In Deep Doodoo

FHA's Finances

You're probably laughing at the title but it's true folks...FHA is in DEEP doodoo (my spelling I don't care) and has been for a long time.

Rueters released an article recently stating that unless FHA does something soon it will be drawing money from the Treasury...

So what's new in Washington? More taxes, more bailouts, more losses being covered up and now FHA will increase fees yet again to try to shore up the balance sheet and avoid a so called bailout.  However what's the difference right? All of us as consumers are bailing them out by paying higher fees for the mortgages.

The fund is a total disaster and the program is so outdated it's had little changes since it's inception in the 30's.  They know it needs restructured but choose to kick the can down the road. (just like everthing else, ha)

FHA now insures 1.2M mortgages and their share of the market has increased to 15% from 5% in 2006. The article went on to say that it missed needing to draw from the Treasury due to $1B in settlements from servicers...hmmm.. could that be why Wells was the next target?

Estimation is the fund will not be back to it's 2% capital ratio requirement until sometime in 2017...this just strengthens my prediction we're not going to see rates go anywhere upward - they just can't - anytime soon; they're relying too much on new activity and higher fees to keep the ponzi going.

Plus with the lawsuits they're hoping to generate some more revenue for the fund.

We're playing a dangerous game of Russian roulette here.    Just see this quote from Maxine Waters below

"At a time when the private market constricted, the FHA stepped up, providing crucial liquidity and access to the mortgage market," said Representative Maxine Waters, a senior Democrat on the House Financial Services Committee.


She warned against taking any actions that would "precipitously" choke off loan availability.

Oh yea...they know what's up.  If we choke off credit - crash and burn baby...

So What Mindset Should You Have About All of This?

So what does this mean for those in the industry? Consumers? Well folks you can't change it; it's happening and you're not personally going to do anything about it so if you're shopping for a loan and all you qualify for is FHA, you're just going to have to take it from behind...and you'll be forced to like it.

If you're in the business like I am I know what's going on and I understand it.  For the consumer I know it's hard as you don't go through it every day like we do.

The good news, because I try to focus on the good because you'll cause nothing but anxiety and stress if you don't, is that there is a real opportunity to utilize a program FHA offers and to take advantage of it.

What is it? It's the 203k renovation program.  I've said in earlier posts that this will be the new real estate trend, and it already is beginning to be, for some time to come.  Without going into full detail as my blog post will explain, you can buy a fixer upper and finance the cost of the improvements into the loan...
and your maximum financing is based on after improved value of the property...This is an awesome program but it does suck that it will be more expensive now...

However - if you find a property that is priced well below market value and put the right improvements into it, you CAN create instant equity.  Go here for details and read my blog post on it. 

Again folks, please keep in mind it's not your loan officer or realtor who caused all this mess...(see below)


Yeah Buddy!



It's these guys...they know, knew it, and let it happen because there buddy lobbyists were filling their pockets full of cashish. 

Stayed tuned and lets see what happens now that the election is over and we'll get to hear some nice juicy stories like we've been like the General Petraeus's little affair and whatever else they want to release now that Obama is back in for 4 more years.

Hold your hats...







Can Mortgage Rates Stay This Low?

What is really going on behind the scenes? Well, in a shortened version, it started with a bubble caused by the Federal Reserve, Alan Greenspan, during the Clinton Administration that burst in 2001 and we know what happened next - 9/11. Alan Greenspan dropped the short term federal funds rate to super low of 1%. While this doesn't have a direct effect, mortgage rates dropped to 50 year lows fueled by purchases of treasury bonds and mortgage backed securities by foreign countries and hungry investors for high returns.

Wall Streets ingenious plan of packaging subprime loans into mortgage backed securities and collateralized debt obligations to pension funds, institutional investors, etc, and finally came to a crash with the bust of Bear Stearns two hedge funds that went broke. These two hedge funds bought Alt A and subprime loans packaged into securities with loans that were 2 and 3 year Arms, 100% percent no income no asset loans, and all the other stated income, no income, low credit score loans, that nobody ever thought would go bad. Please, WAKE UP!

The same idea that Wall Street sold to investors about Internet company stock prices that would just go up and up and up, with no fundamentals backing them, or earnings being put back into the companies, would last forever, is exactly what happened to the Real Estate market. Now you see the mess that we are in. So what does the government about all the foreclosures on homes from people who couldn't afford them? We borrow and spend more money to get people to borrow more. How does that make sense?

The treasury has spent billions of money that we don't have, that we are just borrowing from the Fed at interest, to temporarily price fix to subsidize mortgage rates to...... ta da, get people to borrow more! If we borrowed and spent to much to get into this mess why would borrow and spending more get us out. Multi billion dollar bailout after bailout will cause inflation to rise, interest rates will go back up, and we'll be still in debt paying interest on that debt at higher and higher interest rates crippling us from the debt load.

So back to the question, can mortgage rates stay this low? They can if demand for mortgage backed securities begins to rise again. Now that the treasury has wained from buying MBS, the FED has stepped in and committed to $500 Billion, of which its spent a good portion of it.

I don't like negative thinking or being a doomsdayer, but this low rate environment can't sustain itself. Back in the hottest moment of subprime loans, 65% of those loans were repackaged and given AAA credit ratings. That is the best credit rating you can get. How is that possible to rate subprime mortgage backed securities with the "best credit" ratings available. Sounds kinda of silly don't it?

So where are we going from here? Could we see another Carter Administration with interest rates in the teens? Probably not but I can tell you one thing. If you are in the market, and can afford to buy a home, now is a wonderful time to purchase with lower home prices and interest rates temporarily low by government subsidies. If you are looking to refinance out of an ARM or payoff high interest debt into a longer term fixed rate mortgage, now is the time.

Guidelines have tightened so be prepared for some surprises along the way. Get your information together and speak with a mortgage professional about your financial situation today.

God Bless

New Mortgage Rate Lows

Well how about those mortgage rates? Right after Thanksgiving mortgage rates plummeted to new lows driving up refinance volume to new highs. How did this happen? Why the sudden drop? What is going on and how long will it last?

Readers what we're seeing is yet more government intervention trying to stimulate the housing market, which is roughly 16% of the U.S. economy. Starting in 2007 we started to see home prices drop and record foreclosures pulling home prices down even further. Yes i know it sounds so horrible and people are losing their homes and causing banks to lose billions and billions of dollars, but, home prices must come down to restore equilibrium.

You're probably thinking I'm crazy right now. Dustin what are you talking about? Well its simple. Home prices were artificially inflated and rose too high for incomes to catch up. We're not seeing incomes rising in America and with home values and prices sky rocketing into double digits, people couldn't afford to purchase homes. Not to mention the very lax regulatory initiatives from the government to keep predatory lenders at bay. If anything they promoted it.

The Community Reinvestment Act provisions in 1995 set off a chain of events that led us to the current sub-prime, Alt-A meltdown. Guess what? We're not finished. So what has the government been doing lately to promote growth in the housing sector? Well first the Treasury, and now the FED - also known as the Federal Reserve - has been buying up billions of dollars in mortgage-backed securities issued by Fannie and Freddie. Without going into too much detail, mortgage-backed securities are bonds issued by Fannie Mae and Freddie Mac - which are government sponsored enterprises known as the Federal National Mortgage Association and the Federal Home Loan Corporation - aka Fannie/Freddie.

These companies buy mortgages from banks and mortgage lenders, and promote the funding of mortgages by providing liquidity to lenders, through their purchases, freeing up lender capital to continue to fund these loans. Fannie and Freddie then package these loans into securities and sell them to investors worldwide while providing a specific guarantee to investors for any losses and receipt of timely interest payments. When money flows into this secondary market, it drives the price of these bonds higher, resulting in lower yields, thus lower mortgage rates.

Well before the Treasury and Fed stepped in, this market was unstable and had little confidence from investors, and for good reason. Our country was seeing rapid foreclosure with no end in sight. So steps were taken to try to subsidize mortgage rates in hopes that it would make mortgages more affordable thus bringing buyers back into the market, stabilizing home prices, and stimulating the economy.

Its worked in generating business but very few realize what had to be done in order to do this. The Treasury, in order to pay for this, has been issuing billions of new bonds, which is debt, in order to achieve its goal. Now for many of you, this may not send off red flags in your head. Not because you're unintelligent, but because nobody explains it to you. Believe it when I say, if it doesn't want to be known, it won't be told, but that doesn't mean you can't find out or learn.

The government is expected to run a 1.2 trillion dollar deficit in 2009. YES YOU READ THAT RIGHT, 1.2 TRILLION DOLLARS. This means that we are spending 1.2 trillion more than we're taking in and on top of that we are borrowing this money from the Federal Reserve and foreign countries. If Obama gets his stimulus package through Congress it'll turn into 1.6 trillion dollars.

So while I'm very happy to be busy behind keeping up, I'm very concerned about our countries debt load, and the burden it will place on my children and their children for years to come. This debt must be paid and if interests begin to rise again, and they will, this debt will become harder and harder to service putting an even greater burden on the government and leave them to no other option but raise taxes on EVERYTHING they can.

Be very aware of what our government is doing and speak out against actions that will jeopardize the well being of our economy, families, country, and our civil liberties. We are spending our way into bankruptcy leaving us at the mercy of foreign countries who, some of them, don't like us very much. Think your dollar is worth something? Think again. Since the inception of the Federal Reserve in 1913, our dollar has lost 96% of its value and it continues to drop.

WAKE UP AMERICA, its time to be heard!

God Bless!

Copyright © 2008 by Dustin Swigart

State of The Housing Market

Wow its been a very busy two weeks. Starting November 25 rates took a dive and have stayed down to levels not seen since the beginning of the refi boom in 2002. About mid week, rates had only been lower on 5 days in the last 50 years and 6 days where they were the same. this should be some great news for the market but we haven't seen alot of buyers jump back in yet.

I've been so busy with refinances working morning and night. While this is good for business, the whole purpose of the Treasury buying plan was to pull buyers back in helping to reduce our bloated inventory and stabilize home prices. I'm already starting to see some signs of stabilizing home prices and I think we've reached the lowest point we're going to see so and only back up is where we should focus our attention.

You'll hear alot of professionals and economists give their opinion on the market saying we're going to see more declines, mortgages are few and far between, and credit is so tight; just to name a few. I'm not saying credit hasn't been tight, I'm just saying that the media does make it sound alot worse than it is creating even more fear. Fear is the worst thing we need right now.

What happened in the mortgage market needed to happen to flush out the risky loans, bad mortgage brokers, and corrupt title companies. I'm not happy about the record foreclosures but little was done to regulate these people. The few bad apples ruin it for everybody else. Loans are plentiful, especially government insured loans like FHA, VA, and Rural Housing loans.

When shopping for a mortgage make sure you work out your budget, that you have at least 3.5% down (this will be the new FHA requirment Jan 2009), and take into consideration costs that are associated with buying a new home. Its been communicated by the media that you can't get a loan unless you have 20% down. This is simply not true.

Copyright © 2008

FHA vs Conventional

Not many people know the difference between conventional and FHA loans, and up until the recent market turmoil, FHA was a bad word in the housing market. What's the reason? FHA was a little archaic, with no modernized changes in many years, and the complex appraisal process made this program undesirable in a market flooded with no down payment programs.

Well I've got great news for you. I'm going to break down some differences between them. Now I won't be able to mention every single difference here, but I will give you some of the major differences in regards to rates, down payment, mortgage insurance, and underwriting differences.

Conventional loans are offered in many ways ranging from adjustable rates coming in 1,3,5,7,and 10 year hybrid arms, interest only loans, and 10,15,30, and 40 year fixed rate loans. FHA loans are offered in 3,5 yr arms and 15 and 30 yr fixed rate loans.

Some lenders offer different terms but these are the most common offered. Not ever lender will be the same in their product offerings.

So lets get into some of the differences now.

RATES:

Conventional loans in terms of pricing, or rates, have very high risk adjustments for lower credit scores and higher loan to values. Loan to values are calculated on purchases, as the loan amount divided by the purchase price. For example lets use a purchase price of $125,000 and a loan amount of $100,000. The loan to value would be calculated as 100,000/125,000 = 80%.

In this scenario the ltv (or loan to value) is 80% meaning the borrower is putting 20% down. The higher the ltv the higher the pricing. Lets say a borrower has a 650 credit score and they have 10% down, their rate would be considerably higher than someone with a 720 credit score and the same down payment. Conventional loans will also have pricing adjustments for multi-family properties, FHA does not.

MORTGAGE INSURANCE:

Conventional mortgage insurance is issued through private providers such as MGIC, Radian, RMIC, and PMI. These companies have their own guidelines when issuing mortgage insurance on conventional loans. In recent months all of them have gone to minimum credit score requirements and specific underwriting guidelines to mitigate risk. I've seen loans make it all the way to closing and fall apart because mortgage insurance could not be obtained. Mortgage insurance for multi-family properties will vary on conventional loans but will not be impacted on FHA.

Another note on this is unlike conventional loans that use private companies to obtain mortgage insurance, FHA is fully self funded by the upfront and monthly mortgage insurance premiums they collect. When comparing FHA you will see that the upfront costs associated with the loan are a little more expensive. This is because FHA will charge an UFMIP (up front mortgage insurance premium) that is equal to 1.75% (on purchases, streamline refinances are lower) of the base loan amount - I'll explain this in more detail under the down payment section. The monthly mortgage insurance premium will depend on the ltv. It'll will either range from .005% to .0055% of the loan amount. So for a $100,000 dollar loan amount the yearly mortgage insurance would be $500-$550 a year respectively. This is considerably lower than conventional which would range from .0075% - .0099% of the loan amount. Do the math that almost twice as much.

FHA 15 year loans have lower mortgage insurance, and if you put 10% down on a 15 yr loan, there is NO monthly mortgage insurance. This is not the case with Conventional.

Since FHA is fully self-funded, if you are approved for the loan, you're automatically approved for the mortgage insurance. This is not the case with the private mortgage insurance companies.

DOWN PAYMENT:

While as I write this we'll probably be in the process of receiving more changes, this is the most updated information available in regards to down payment. Conventional loans, non jumbo, which are loans above the annual Freddie Mac and Fannie Mae conforming limits, require 5% down payment. If the property is located in a declining market - which would be determined by the appraiser, Freddie or Fannie, or the MI company, you would need an additional 5% down payment. Below is the list of the conforming loan limits for 2009.

General max limits (for single family residences) are $417,000 and high cost areas $625,000.
For Alaska, Guam, Hawaii, and U.S. Virgin Islands, general is $625,000 and high cost is $930,000. For 2, 3, and 4 units these limits are higher. You can visit Fannie Mae's website at www.efanniemae.com for a full chart of loan limits.

For FHA, as of 2008, will be 3% down payment. Starting January 2009 minimum down will be 3.5%. Congress deliberated awhile on what to change the down payment requirements to on FHA loans. Ideas were thrown around for 1.5% or even $0 down. The fear was that FHA would be the new "sub-prime", so they changed it to 3.5%. The idea here is for people to have some skin in the game. If they've invested their hard earned money into the home, they are less likely to walk away from it without exhausting every avenue. FHA loan limits will vary by county and state and will adjust for high cost areas just as Fannie and Freddie do. You can find a detailed list at http://www.hud.gov/pub/chums/file_layouts.html

Now above I spoke about the UFMIP (up front mortgage insurance premium). How this would be calculated is to take the purchase price, in this case we'll use $100,000. You reduce this by the amount of down payment, for this example lets just say you are putting 3% down. This would be a base loan amount of $97,000. You then multiply this by the 1.75%, which equals $1697. This would be added to the base loan amount to get your total loan amount, which would equal $98,697. This is also the number used to calculate your monthly mortgage insurance. This was the additional up front cost I was talking about earlier. Even though you have this on FHA loans, the overall costs after a full analysis could be substantially lower versus using Conventional financing.

UNDERWRITING DIFFERENCES:

I could spend awhile on this section so I'll try to keep it short and sweet. Most lenders use Freddie Mac and Fannie Mae's automated underwriting systems, LP and DU - loan prospector and desktop underwriter - to evaluate loan candidates and shorten the time taken to make an underwriting decision. These systems have built in risk models that evaluate the data submitted and either give an approval or a denial based on that information.

FHA doesn't technically have a minimum credit score requirement, but this doesn't mean that you can get any credit score approved. When talking about having a no minimum credit score requirement, this is concentrating on those who do not have enough credit to pull a credit score. When this is the case, FHA underwriting guidelines will allow you to get what is called non-traditional credit references establishing a credit history with rent payments, utility payments, cell phone, etc. Not having a credit score will not eliminate the borrower from obtaining FHA insured financing. With the private mortgage insurance companies now implementing minimum credit scores for approval, FHA insured financing is the better option for the borrower.

While this isn't nearly all the differences when underwriting these loans, just know that FHA insured financing has more flexible guidelines then conventional loans, so this would be the better option for borrowers who've had credit issues in the past. This would provide them with low cost financing, making the purchase of the home more affordable, which is the goal of the program.

Please keep in mind this is only some of the major differences between the programs and you should still consult a professional when evaluating your options on buying home. This does not mean you shouldn't sit down at the dinner table with a piece of paper and write out ALL of your expenses, to determine if purchasing a home is right for you.

When being qualified for a loan, lenders only use debt reporting on the credit report for qualification purposes so please, do your due diligence and write out how much you have coming in and how much you have going out, taking into consideration things that may come up, before you invest savings, 401k, or other sources of funds into purchasing a new home.

Please be an informed buyer.

Copyright © 2008

Credit is Starting to Ease

As we all know we've been hammered everyday about the economic conditions we face. It's funny though how, when speaking about mortgages, the media fails to talk about government backed loans. They only talk about Fannie and Freddie but leave out Ginnie, which backs FHA securitized loans.
We still have financing available for first time homebuyers and marginal credit loans through financing with FHA, VA, and USDA rural housing loans. When talking with prospective buyers I keep hearing how "scared" people are to make a move. After I explain some of the conditions in the market and why the stock market is so volatile they settle down and understand what is happening with market dynamics.

The automobile industry used to be the main driver of the economy and signaled the dominance of manufacturing in our economy. Well now the main driver is housing. Yep that's right back in 2001 after the 9/11 attacks government was reluctant to impose regulation on the only part of the economy that appeared to be thriving, the red hot real estate market. Now we are facing the problems that all the credit default swaps, collateralized debt obligations, and other derivatives, that have caused problems for the banks and institutions that had them on their balance sheet.
We are in a flushing out phase and it will end, just not immediately. The Housing Recovery Act of 2008 made great strides to modernize FHA and come out with a tax credit for first time homebuyers in order to get them back into the market. Lets face it we need the first time homebuyers back in to purchase bloated inventory so we can start the domino effect again.

I want to explain a little bit about what is going on in the credit markets. I believe through education, you can ease your prospects minds with important information and convert more leads into sales.

Lets start with the credit markets. Credit markets are vital for individuals and businesses who need to access credit in order to purchase goods and services, make payrolls, expand business operations, make capital expenditures, school loans, and more.

The most important spread being watched right now is the LIBOR/OIS Spread. This is the spread between dollar LIBOR (london inter bank offered rate) and the Overnight index swap rates. This is a good indication of the willingness of banks to lend to each other. To give you a comparison before the credit crunch the LIBOR/OIS spread was 11bps (bps mean basis points which is 1/100th of a percent, example 11 basis points is .11% - 100bps is 1%.) The higher the spread the less likely banks will lend to each other. This week it closed at an a staggering 331bps but dropped from 341bps, which means we are seeing slight improvement.

Now what about all the selling? Well with the craziness in the market and Hedge Funds, investment vehicles for the wealthy, are deleveraging their positions and being forced to sell due to redemptions from their wealthy clients. Hedge funds are down about 19% ytd (estimate), some hedge funds after fees return 20%-26% annually. Hedge funds make their money in the stock market, credit markets, and derivative markets but in some cases borrow heavily to invest and hedge their bets. That's fine and dandy in an economic boom but in a slowdown like this they must sell and deleverage their positions causing downward pressure in the markets and then also selling on the down side, short selling, put options, etc, to keep from losing money from long, bullish positions, which causes more downward pressure. Not to mention mutual fund clients are selling their positions to meet growing redemptions from their clients as well. Thus creating the volatile environment we find ourselves in.

If you had some extra money laying around right now would be the best time to invest in real estate, and stocks pounded and are now undervalued.

The moral of the story, educate your clients in contrary to what is being splattered on the media, we are in election time and some news stations with political agendas are attempting to make this look like this is all the Bush Administrations fault and are attempting to make it sound so HORRID. Both parties failed to take action but many attempts were made but shot down by democrats in Congress. Right now is the best time to buy a home and with the Treasury recently being given 1.1Trillion dollars in buying power to purchase mortgage-backed securities (the main driver of mortgage rates) we should see some easing in the rate volatility here shortly as well.

If I can help with anything feel free to call or email me. Stay positive, do your homework on the market, this kind of thing happened in 1987 as well but how soon we forget.

God Bless!

Questions and Answers to $7,500 Tax Credit

$7,500 First Time Homebuyer Tax Credit

1. How does a tax credit work?

Reduces income tax liability.
Credits are claimed on an individual's income tax return.
Maximum credit amount is $7500.

2. Who can use the new tax credit?

First-time homebuyers or individual who has not had an ownership interest in a principl residence in the previous three years.

3. What if my taxes due on my return are less than $7500?

The difference would be treated as an overpayment and the purchaser(s) would receive a tax
refund.

4. Is there an income restriction?

Based on tax filing status.
Single or head of household < $75,000.
Joint filing < $150,000.

5. Do individuals with incomes higher than the $75,000 or $150,000 limits lose all the benefit of the credit?

No, individuals making up to $95,000 and joint filers making up to $190,000 are eligible for a partial tax credit.

6. Is the amount of the credit tied to the price of the home?

Yes, credit is 10% of the cost of the home, maximum credit of $7,500.
Amount of credit is same for all taxpayers, married or single.

7. Are there property location restrictions?

Property must be located within the United States.

8. How do I apply for the credit?

Claim the credit on the appropriate IRS form 1040, or any special forms the IRS requires.
No pre-purchase authorization, application or similar approval process.

9. Can I use the credit amount as part of my downpayment?

Cannot claim the credit any earlier than the 2008 tax return that will be filed in 2009.

10. What is the repayment feature of the credit?

There is no precedent for repayment of a tax credit created for individuals at this time.

11. Terms for repayment?

Repaid in increments of 6.67% of the amount over 15 years.

12. When do I make a repayment?

Credits taken in 2008 will not be repaid until 2010.

13. Can the IRS put alien on my property for the amount of the credit repayment?

The statue does not grant the IRS that authority.

14. What if I sell my home before the 15-year repayment period?

Any amount of the unpaid credit will be reduced from any proceeds.
If there is a loss or the gain from the sale is less than the amount of the repayment then the liability is forgiven.
15. Any other exceptions to repayment?

If the person dies before credit is repaid the amount is disregarded
There are special adjustments to people who sell as part of a divorce and/or homes that are part of an involuntarily conversion.

16. If I received a refund of a portion of the tax credit because my total tax liability was less than the amount of my tax credit, do I have to repay the amount of the refund?

Yes

This should cover most of the questions. I do not see anything on the IRS website as of yet regarding this but you can call the IRS directly.

FHA's Comeback

One of the things I want to talk about is FHA loans. This program up until earlier this year had maybe 2% penetration into the market place. Reason for this is the influx of money, from investors, into the mortgage market thus creating a plethora of alternative loan programs that were giving borrowers more options. These loans include no income verification loans, stated income an asset loans, piggyback loans to avoid pmi, and others.

The market became very creative and helped fuel a red hot real estate market that set record sales for 5 years in row. Many people don't realize that while the market was creative in providing alternative loan programs to borrowers, lax underwriting guidelines and fraudulent activity created the majority of the mess we now see today. A severe decline in home values played and is playing a major role itself. I'm not going to talk about a lot of bad news here I think we get enough of that already from the media. Lets face it bad news makes the front page. My intent is to provide information about a old but new program that many steered away from but now is one of the only high loan to value options left.

Lets talk about the benefits of an FHA loan.

1. No minimum credit score- FICO scores over the last 15 or so years have been used heavily by lenders to determine the creditworthiness of a borrower to repay a loan. Being in the people business for 7 plus years now and pulling credit and looking over credit reports I can tell you it doesn't give a very good indication. The system is designed to give you a snapshot in time of what borrowers score is and not a trend of creditworthiness. I say this because I've pulled credit on someone with a 700 credit score and 6 months later they have one late payment and their score dropped to 550. Now is that a good indication of the borrowers ability to pay back a loan? Let me answer that for you NO! With FHA you don't need a minimum credit score to qualify however common sense is needed here. A 400 credit score is highly unlikely to get approved. Now this year FHA has added risk-based premiums to their upfront mortgage insurance and that is credit score driven but overall there is not a minimum criteria for a score to qualify.

2. Low Down payment - With FHA, up until Oct 1, 2009, only has to contribute 3% down payment. After October 1 it goes up to 3.5%. The 3% can come from a relative as a gift or borrowers own funds. This is powerful because right now in the conventional world you need a minimum of 5%, if the property is located in a declining market as indicated by the mortgage insurance companies, you'll then need 10% down. Not to mention you need over a 680 credit score to get the mortgage insurance approved. You might be approved for loan but can't get the insurance. Which moves me into my next benefit.

3. Low mortgage insurance - FHA handles their own mortgage insurance so if you are approved your loan will have the mortgage insurance on it. FHA mortgage insurance also is at a lower expense then conventional and if you put 10% and take out a 15 yr fixed loan no monthly mortgage insurance is required.

4. No income restrictions - For the first time home- buyer group this is huge. Most first time home-buyer programs are designed to meet the needs of low to moderate income borrowers. Well if you make more than the income limit these programs are unavailable to you. FHA has no income restrictions to qualify.

5. Purchase or refinance new or existing 1-4 unit homes - This is a big plus. You can still get 97% on the purchase of a 1-4 unit primary residence. Conventional requires more down payment on multi-unit properties. On cash out refinances there are limitations to loan to value.

6. Financing for manufactured homes - With the credit tightening in the mortgage market some areas have an ample supply of manufactured homes. The same 97% guidelines apply on these but they must meet FHA guidelines and be on a permanent foundation.

7. You can use a non-occupying co-borrower - This is a forgotten rule but if you can have a non-occupying co-borrower, as long as they are a relative, sign on the loan and the borrower can still get the maximum financing of 97%. This is limited to 1 unit properties if the ltv is over 75%. Certain restrictions apply.

These are just a few of the many benefits to FHA financing. It provides a solution for many borrowers needs and helps them fulfill the American Dream of owning a home. I've been in the industry over 4 years now and I love providing solutions for my clients to purchase their first or next home. I get great joy out of what I do.

Stay tuned for more of my blogs and industry news. I've never been a big fan of bad news I like to spread good news but we are facing problems in the housing industry but i believe it when I say its a cycle and we'll survive this storm and come out of it with better times. Remember the market is what you make it. There are still many opportunities out there you just have to change your marketing strategy, do things a little differently, try something new to see what works and what doesn't.

Never become victim of all the bad news because you can sure find a lot of it. Now is the time to become more proficient at what you do and become a trusted adviser to your clients and business partners.

God Bless

"Whether you think you can or you think you can't, either way you're right"

Henry Ford

Copyright © 2008