Everything You Wanted to Know to Secure
100% and HIGHER Financing for Your
Clients in a Declining Market but
Were Afraid to Ask —
Including 2nd Homes & Investment Properties!!!
FHA LOANS
WHAT IS FHA?
Federal Housing Administration (division of HUD)
Any and all changes are legislated-no major changes can be made without
going through Congress
Insures/endorses loans – does not purchase them
Pays lender if borrower defaults
WHO CAN DO FHA LOANS?
Only originators with FHA – Approved Company
Approval is difficult
1. Must have audited financial statements
2. Quality Control Plan
3. Store Front Operation
IT’S THE GOVERNMENT!
They are so busy they are not even answering the phone in
their lender – approval department
60 days behind on opening their mail
Pays for itself – doesn’t use taxpayer money
Funded through the Mortgage Insurance Premiums
(1.5% up front, .5% per month)
FHA MORTGAGE LIMITS
Walton County - $362,790
Okaloosa County - $312,500
Bay County - $396,250
Higher limits for 2-4 family residences
(Great rates - buyer must occupy one of them!)
REASONS NOT TO USE FHA
FOR A BUYER
FHA loans are for
owner-occupied,
primary residences only
Buyer must occupy the
property within 60 days
of closing and use for
primary home for at
least a year
Highly enforced
MORE REASONS NOT TO USE
FHA
Full-doc loan – have to verify income for 2 years
Files are much thicker due to additional documentation
required
Always has mortgage insurance for at least 5 years even
with 20% or more down
FHA IS FILLED WITH
GOVERNMENT RULES,
EXCEPTIONS, AND
EXCEPTIONS TO THE
EXCEPTIONS
FHA IS OFTEN THE BEST FOR
YOUR CLIENT
Assumable loan – new borrower has to qualify
Geared for borrowers with little to no money
No prepayment penalty
Better rates, especially for higher LTV’s
Very little risk-based pricing
Lower monthly MI for higher LTV’s
No hit for declining market!
FHA APPRAISALS AND
UNDERWRITING
Processing has been
streamlined
Automated underwriting
Appraisal requirements have
been greatly relaxed
Some minor repairs no longer
require automatic repair in
order to close
FHA AND CREDIT
Far more lenient than FNMA or FHLMC and MI
companies
500 minimum score if financing above 90%
No minimum if less than 90% (although almost impossible
to find investors taking credit scores less 580!)
Rate is not increased for lower credit score –
everybody is equal
Can use alternative credit – 3 trade lines, one of which is
housing related
Can do an FHA loan 2 Years after a Chapter 7 Bankruptcy
(1 year under extenuating circumstances)
In many cases, collections are not required to be paid off
prior to closing
HOT FEATURES OF FHA
3% down payment
Source of funds – 6% seller concessions
All funds can be gifted
No reserve requirements
2nd loan from immediate family okay
Cookie jar or mattress money okay!
Can use down payment assistance
(seller can help with this) to get 100% financing
EVEN HOTTER
FEATURES
Non-occupant co-borrowers can be used
Neither income nor assets from the occupying borrower
are required if non-occupant co-borrower used
95% cash-out refinance even in declining market (must be
owner-occupied for the prior 12 months to do this)
No income limits
With lower credit scores, in some cases payment is lower
than Fannie or Freddie even with over 20% down
Seller not *required* to pay any of the closing fees
anymore!
NEW RULES – JULY 14, 2008
Risk based MI, but not rates
FHA Secure is expanded – will no longer have
to be delinquent to qualify
POSSIBLE CHANGES,
DEPENDING ON LEGISLATION
New loan limits are set to expire on
December 31, 2008
Back to how it was before
FHA Secure expires
December 31, 2008
FHA Modernization Act (HR1872) – passed the house
9/18/07 – up to 100% financing available
Senate Bill – passed 98.5% max financing and increase
loan limits permanently
QUESTIONS?
VA LOANS
WHAT IS VA?
The Department of Veterans Affairs
Government regulated and endorsed
Government guarantees portion of loan
WHO CAN DO VA LOANS?
originators with
Only
VA –Approved Company
VA MORTGAGE LIMITS
$417,000 for 2008
($625,000 for Hawaii, Alaska, Guam & Virgin Islands)
Only U.S. properties, it’s territories or possessions
WHO QUALIFIES FOR VA?
Retired U.S. Veterans
with Certificate of
Eligibility
Active Duty with
proof of military
service
Unmarried surviving
spouse of veteran
deceased from service-
related death
VA UNDERWRITING
Automated
Underwriting
Flexible Manual
Underwriting
Speedy process because most information for
eligibility can be obtained online
VA & CREDIT
Rates are typically lower
No minimum score requirement for eligible veterans
Most lenders/investors will require a minimum 580
Rate does not increase/decrease because of credit score
Can be approved for VA 2 years after Chapter 7
Bankruptcy (1 year in extenuating circumstances)
REASONS TO NOT USE VA
VA loans are owner-occupied only
Buyer must occupy the property
within 60 days of closing and use
for primary home
Remarried spouse of deceased
veteran is not eligible
Full-doc loan requirements
HOT FEATURES OF VA LOANS
Negotiable interest rates
All funds can be gifted
No Monthly MI
No down payment unless required by lender
Reduced fees if put 5% down
Able to finance funding fees into the mortgage
May use non-veteran 2nd party income to help qualify
(only the veteran’s portion is secured)
QUESTIONS?
RURAL
DEVELOPMENT
WHAT IS RURAL
DEVELOMENT?
Census-based
US Department of Agriculture
Guaranteed against loss by USDA
Pays lender if borrower defaults
WHO CAN DO USDA LOANS?
Approved lender with HUD, VA, Fannie Mae
or Freddie Mac
State Housing Agency
Farm Credit Service
IT’S THE GOVERNMENT, TOO!
Pays for itself – doesn’t use taxpayer money
Funded through the 2% Funding Fee
(which can be financed into the loan!)
LOAN PURPOSE
Purchase new construction
Purchase existing home
Refinance (only if currently
have a direct Rural-
Development Loan)
Purchase Mobile Home
(very limited; difficult)
REASONS TO NOT USE
RURAL DEVELOPMENT FOR A BUYER
Geographical Limitations
Maximum Income limitations
Can’t buy house with in-ground pool
Owner-occupied only
INCOME QUALIFICATIONS
Household adjusted annual income cap uses
ALL occupants whether on the loan or not,
that are 18 and over
Counts gross income, overtime, commission,
bonuses, net self-employment income, Social
Security, Child Support, unemployment, etc.
Based on family size & county where
property is located
http://eligibility.sc.egov.usda.gov
ADJUSTMENTS TO INCOME
$480/Year per minor or full-time
student
Verified child care expenses
$400/Year if borrower or co-
borrower is over 62 or disabled
1- 2- 3- 4- 5- 6- 7- 8-
Counties person person person person person person person person
All Florida & 49,550 56,600 63,700 70,750 76,400 82,050 87,750 93,400
Virgin Island
Counties EXCEPT
those listed below*
Clay, Duval, 51,400 58,750 66,100 73,450 79,350 85,200 91,100 96,950
Nassau and
St. Johns
Collier 56,200 64,250 72,250 80,300 86,700 93,150 99,550 106,000
Palm Beach 55,700 63,650 71,600 79,950 85,900 92,300 98,650 105,000
Gadsen, Jefferson 50,000 57,150 64,300 71,450 77,150 82,900 88,600 94,300
and Leon
Okaloosa 50,850 58,100 65,400 72,650 78,450 84,250 90,100 95,900
* Broward, Pinellas and Monroe are NOT eligible
GEOGRAPHICAL
QUALIFICATIONS
ALL of Walton County
Destin
Niceville
Valparaiso
Crestview
West of Hurlburt in Okaloosa County
ALL of Santa Rosa County
GEOGRAPHICAL LIMITATIONS
FT. WALTON BEACH
&
SHALIMAR
DO NOT
QUALIFY*
(But we have a program that does!)
BENEFITS TO BUYERS
Can finance 102% of appraised value, without getting
cash back at closing (can get EMD, but no more)
No Mortgage Insurance
30-Year fixed rate with very competitive rates
No loan limits (DTI/income limitations)
Closing costs can be financed
Unlimited gift or seller contributions
No reserves required
Sales Price: $100,000
Appraisal: $110,000
Seller Paying: $0 Closing Costs
EMD: $500
Closing/Prepaids $3,000/$2,000
2% Funding Fee: $2,000
Can Finance: $107,000 and get $500 EMD back
Sales Price: $100,000
Appraisal: $105,000
Seller Paying: ALL Closing/Ppds.
EMD: $500
2% Funding Fee: $2,000
Can Finance: $102,000 and get $500 EMD back
QUALIFYING
Debt to Income Ratios = 29/41
Debt to Income Ratios = 31/43
(for homes built after January, 2001)
Can go higher on DTI w/compensating factors:
660+ Credit Score
Zero or little payment shock
2+ years continuous employment at same job
Rental/Housing history for 12 months required if
credit score 619 or less (cancelled checks)
OTHER CRITERIA
Do not own a dwelling currently
Lack sufficient resources to secure conventional credit
US Citizen, Permanent Resident, Resident Alien, or
Qualified Alien
Have legal capacity to enter contract
Primary Residences Only
PROPERTY ELIGIBLITY
Must have access from a street, road or driveway
Site value less than or equal to 30% of total value
Leasehold estates (where applicable)
OTHER PROPERTY
REQUIREMENTS
If on a well & septic, must be
tested and meet county
requirements
Pest inspection required –
deficiencies must be corrected
Escrow for repairs under certain
limited circumstances and will be
150% of cost
New construction –
must have warranty
FUNDS AVAILABLE
RD Has annual amount of funds
(ends Sept. of current year)
Funds must be reserved by the lender
but can’t be until there is a contract
Reservation is valid for 60 days
Have been known to run out before
end of fiscal year (not recently)
QUESTIONS?
FLORIDA
KEYS to HOME PROGRAM
WHAT IS THE KEYS TO HOME
PROGRAM?
Serves diverse population of low- to moderate-
income borrowers and communities
Entire state of Florida is eligible - no geographic
restrictions placed
Not a bond program
No 1st time buyer requirement
No recapture tax required to be repaid
Limited Forms/thinner file
Purchase of primary home only
WHAT TYPE OF
FINANCING IS AVAILABLE?
1st/2nd combo (2 loans), but only one payment is made
1st up to 97% is combined with 2nd up to 7%
for a total of 104% total financing – based on contract
price, not appraised value
Can go 105% if financing the MI
30-year or 40-year fixed or 5/1 or 7/1 ARM
Will have mortgage insurance on the 1st mortgage
2nd mortgage is 20-year fixed rate at 7%
Can use 2nd to pay closing costs & pre-paids or reduce
amount of the first so mortgage insurance is less monthly
CREDIT/
DEBT TO INCOME RATIO
600 score required for
97% 1st mortgage
Subject to approval by
Mortgage Insurance
company
640 required for 2-unit
property. (Home-buyer
counseling required for 2-
unit purchase)
INCOME REQUIREMENTS
Determined by county in
which the property is
located
Only counts income for
person(s) on the loan, not
the entire household
No non-occupant co-
borrowers/co-signers
allowed
RESERVES/
SELLER CONTRIBUTIONS
No minimum reserve requirement
3% seller contributions allowed
Buyer can get in with no cash
contribution as 2nd can be used
for pre-paids & closing costs
QUESTIONS?
IS 100% FINANCING
REALLY AVAILABLE
FOR 2ND HOME &
INVESTMENT
PURCHASES?
YES!!!
CO-COLLATERALIZED
LOANS
WHAT IS A
CO-COLLATERALIZED LOAN?
A loan where the Lien
(note) is on more than
one property
HOW DOES IT WORK?
Borrower uses “lendable equity” in another property in
lieu of down payment on purchase of subject property
Lendable equity equals value of additional property
x 75% less total of all liens (mortgages (1st and 2nd) and
equity lines)
Additional property would have a “soft” 2nd, or even
3rd, mortgage on it
EXAMPLE
Purchasing 2nd home at $200,000
Max total LTV for both properties would be
75%
Lendable Equity is:
$600,000 x 75% - $350,000 = $100,000 to use in
lieu of down payment
This would work!
HOW MUCH CAN I REALLY
BORROW?
The total value of all properties (value + sales price) x 75%
Purchase price is $200,000 & value of additional property is
$600,000. Current loan on additional property is $350,000 and
want to borrow 100% ($200,000) of sales price.
Total owed on both after closing would be $550,000 with total
value of $800,000 (value + purchase price)
$800,000 x 75% = $600,000 max loan amount
This is more than the new loan + current lien, so it works!
HOW CAN I SELL ONE PROPERTY
& NOT THE OTHER?
Partial release clause –
must pay mortgage down to
where loan to value on
remaining property is 75%
QUESTIONS?
PLEDGED ASSET
LOANS
(PAL)
WHAT IS A PAL & WHAT ARE
THE BENEFITS?
Allows up to 100% financing of the subject property
Pledge eligible assets and eliminate the need to liquidate
assets in order to obtain cash for down payment
Avoid capital gains associated with a liquidation
Maintain a more liquid position
Continue to benefit from any future earned interest,
appreciation or dividends
WHAT ARE ELIGIBLE ASSETS?
Stocks listed on NYSE, AMEX or NASDAQ
with share price of $5 or higher
US Dollar– denominated mutual funds
Interest-paying corporate debt
(Moody’s or S&P rated)
Municipal zero coupon debt
(Moody’s or S&P rated)
Bills, notes or bonds guaranteed by US Government
Debt securities issued by Government Sponsored
Enterprises or Agencies of the US Government
Mortgage pass-through certificates issued by
FNMA, FHLMC or GNMA
CD’s
Money Market Funds
Cash Accounts
WHAT ARE NOT CONSIDERED
TO BE ELIGIBLE ASSETS?
Options
Warrants
Stocks purchased on margin
IRA or 401(k) plan
Shares held in an account less
than 30 days
We will now go over the
handouts given to show
examples on the Pledged
Asset Loan
HOW DOES MY CLIENT
DO THIS?
Client provides proof of the asset
Completes Pledged Asset Worksheet & agreement
Gives contact information for the asset (broker)
Copy of monthly statement is sent to the investor
QUESTIONS?