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In the fashion world, the color black is an icon. It is THE color that never goes out of style and will always have a place in every persons closet. However, every year someone touts that latest fad color as the New Black meaning its going to be a classic that will never go out of style either (but usually its something off the wall, like Lime Green!)Well, FHA financing has been one of the staples of homeownership for decades, although it fell out of favor in the last few years because of Fads like pay option arms, 100% My Community, and other such colors. In fact, in 2005, there were only about 5,000 FHA loans made in the entire country! But all of that has changed... after 2005s abysmal showing, the leadership up at HUD (Department of Housing and Urban Development) actually asked real estate agents and mortgage professionals why they were no longer using FHA financing for their clients. Not only did they ask... they actually listened! And starting in early 2006 theyve been rolling out several changes to make FHA more attractive, and I do say it couldnt have come at a better time! Lets look at some of the highlights of the current FHA 203b program (203b is the standard purchase program), some are new and some have been around a while but thought you might need a refresher!- No Minimum Credit Score, in fact, a no-score may still be acceptable if you can build whats called Alternate Credit such as insurance payments, cell phone, utility bills, buy-here-pay-here, and other regular payments that dont report to a credit bureau- Bankruptcy guidelines: 2 years since discharge of chapter 7 (1 year in certain cases) and can be currently in a chapter 13 with one year pay history- Collections and Judgments dont necessarily need to be paid off- 3% Buyer Total Investment:Borrowers own funds, Gift from relative, employer, or union (cannot be a loan) Gift, grant, or secondary financing from a government agency or a non-profit 501(c)3 organization (note, HUD is trying to disallow the charities that are funded by a donation from the seller. As of this writing, they are still acceptable, but probably not for much longer!)- Seller can contribute up to 6% towards closing costs (borrower still needs minimum of 3% as shown above)- Automated underwriting is used in about 65% of the loans closed, resulting in less paperwork and less hoops for the parties to jump through- Higher debt ratios are now acceptable- Seller no longer is required to pay the FHA Non-allowables of $600-900And heres my favorite part (by the way, the #1 reason professionals stated for not using FHA financing any more) No More Property Condition Reports!Some of you may remember the 4-page VC (Value Condition) report that appraisers had to complete, and if it was on their report, your seller was fixing it! (my favorite was must have a handrail if 3 or more steps down) Under the new kinder, gentler FHA guidelines you will notice several changes...- No more mandatory standard tests for termites, flat roofs, septic, and well water- No more 4-page VC sheets. Uses Fannie Mae appraisal forms- No repairs required for minor items like leaky faucets, cracked windows, worn carpeting, deferred maintenance, hand rails, etc.- Appraiser must report ALL property conditions, even minor ones, and then- Underwriter will determine if any repairs or tests are required- Watch out for: If a pre-1978 house has peeling paint, that WILL need repairing- Minor weather related items will be able to be escrowed for repair at closingFHA has also simplified their 203k Rehabilitation loan program, which is where your client can buy a house that needs rehabilitation and roll the repair costs right in with their loan. The entire transaction will be based on the value of the house after repairs. These used to be very hard to deal with all of the inspections and consultants, but the new Streamline 203k doesnt need any inspections at all if the repairs are under $15,000 (there is no maximum on the repairs in a 203k, but the program will require inspections and/or consultants depending on the job scope). This may be the perfect answer to we love the neighborhood... if it only had an updated kitchen and a new roof, it would be perfect!Think you want to start recommending FHA Financing to your buyers?Its very important to find a mortgage professional that has experience in FHA loans. Since these loans have not been as popular in the last few years, there are not a lot of loan officers with FHA knowledge right now. Dont trust your clients to someone that is new and inexperienced. Find someone that has been around a while and used to close FHA back in the late 90s and early 00s. Many very good loan officers still want and need your business right now and your buyers are too few and far between to take that chance.
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