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Dear Mr. Noble,

I just wanted to thank you for all of your hard work on our recent closing. I was aware that my client had serious credit problems as well as some building violations on her property. Great Northern Mortgage was able to get her a loan when nobody else could. I will recommend you in the future to all my clients. You are the best.

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HOME / FHA Loans  

FHA Loans

FHA Loan Process



The FHA Program - Advantages

• Purchase and Refinance
• One to Four Units (owner occupied only)
• No maximum or minimum income limits
• Government insured loans
• No citizenship requirement, although must have 2 year employment history 
• Little cash needed 
• All funds can be gifted, that is gift considered borrowers own funds
• Borrowers can have Gift-of-Equity for closing costs, prepaids and down payment

FHA Downpayment, LTV and Other Requirements

• One single down payment requirement of 3.5% for all purchases
• Closing costs/prepaids are in addition to the 3.5% down (6% seller contribution allowed)
• The max LTV for rate & term refinances (including streamlines WITH an appraisal) is 95%* 
• The max LTV for cash-out refinances is 85%. (Must have 12 months seasoning and no 30 day late payments)
• The mortgage must be current for the month due.
• New or current 2nd mortgages are eligible with no maximum CLTV. 
• Loan amount for streamline refinances WITHOUT an appraisal cannot exceed the original loan amount.
• All cash deposits reflected on the two most recent personal bank statements MUST be sourced and explained. Avoid any cash deposits for two months before the application date. 
• Loan amount CAN include: Closing costs, discount points, current interest, prepayment penalties, prepaids, late charges, and escrow shortages.
• Cash back on rate & term and streamline refinances CANNOT exceed $500.

*All LTVs are before adding the Up Front Mortgage Insurance Premium 

Up Front Mortgage Insurance Premium rates (UFMIP)

• 1.75% for all rate & term cash-out refinances and
• 1.75% for all streamline refinances, except single family forward streamline refinance transactions that are refinancing existing FHA loans that were endorsed on or before May 31, 2009; the UFMIP rate for those streamline transactions is 0.01% of the base loan amount
• 2% for all Home Equity Conversion Mortgages (HECM)

Annual Mortgage Insurance Premiums rates (Annual MIP)

For all mortgages with FHA case numbers assigned on or after January 26, 2015, annual MIP will be as follows:

The first table below shows the previous and the new duration of annual MIP by amortization term and LTV ratio at origination.

Term LTV (%) Previous New
≤ 15 yrs ≤ 78 No annual MIP 11 years
≤ 15 yrs > 78 - 90.00 Cancelled at 78% LTV 11 years
≤ 15 yrs > 90.00 Cancelled at 78% LTV Loan term
> 15 yrs ≤ 78 5 years 11 years
> 15 yrs > 78 - 90.00 Cancelled at 78% LTV & 5 yrs 11 years
> 15 yrs > 90.00 Cancelled at 78% LTV & 5 yrs Loan term

The second table below shows the annual MIP rates by amortization term, base loan amount and LTV ratio.

Term > 15 Years
Base Loan Amount LTV MIP
≤ $625,500 ≤ 95.00% 80 bps
≤ $625,500 > 95.00% 85 bps
> $625,500 ≤ 95.00% 100 bps
> $625,500 > 95.00% 105 bps
Term ≤ 15 Years
≤ $625,500 78.01% - 90.00% 45 bps
≤ $625,500 > 90.00% 70 bps
> $625,500 78.01% - 90.00% 70 bps
> $625,500 > 90.00% 95 bps
Any Amount ≤ 78.00% 45 bps

Read the full FHA Mortgagee Letter (pdf)

Example of Annual MIP for Loan Amount of $386,000, 30 Year Term, >95% LTV, MIP 85 bps or 0.85%

Sales Price - $400,000
Minimum Down payment (3.5%) - $14,000
Mortgage Amount without UFMIP - $386,000
FHA Annual MIP (monthly payment) - $273.41 ($386,000 x 0.85% : 12 = $273.41)

Credit Requirements

• No Minimum Credit Score limitation if there is no FICO. If the credit score is available, minimum FICO is 550.
• Chapter 7 Bankruptcy will not disqualify you if 24 months from the Discharge Date have passed and you have reestablished credit. FHA will consider a loan after 12 months if you can document the bankruptcy was caused by events beyond your   control (extenuating circumstances).
• Chapter 13 Bankruptcy is allowed after 12 months of the pay out period has elapsed with court approval and 0x30 payment to trustee.

Required bankruptcy documents include:

   • Evidence plan has been confirmed
   • Trustee rating
   • Written demand from trustee
   • Notice of Right to Encumber or Trustee Letter from court (written approval)
   • No major lates after bankruptcy

Previous Mortgage Foreclosures

A borrower is generally not eligible for a new FHA-insured mortgage if, during the previous three years
* his/her previous principal residence or other real property was foreclosed, or
* he/she gave a deed-in-lieu of foreclosure.

Exception: The lender may grant an exception to the three-year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower, such as a serious illness or death of a wage earner, and the borrower has re-established good creit since the foreclosure.

Divorce is not considered an extenuating circumstance. An exception may, however, be granted where a borrower's loan was current at the time of his/her divorce, the ex-spouse received the property, and the loan was later foreclosed.

Note: The inability to sell the property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance.

Short Sales

A borrower is not eligible for a new FHA-insured mortgage if he/she pursued a short sale agreement on his or her principal residence simply to
* take advantage of declining market conditions, and
* purchase a similar or superior property within a reasonable community distance at a reduced price as compared to current market value.

Borrower Current at time of Short Sale: A borrower is considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage, all
* mortgage payments due on the prior mortgage were made within the month due for the 12 month period preceding the short sale, and
* installment debt payments for the same time period were also made within the month due.

Borrower in Default at time of Short Sale: A borrower in default on his/her mortgage at the time of the short sale (or pre-foreclosure sale) is not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclousre sale
Note: A borrower who sold his or her property under FHA's pre-foreclosure sale program is not eligible for a new FHA-insured mortgage from the date that FHA paid the cliam associated with the pre-foreclosure sale.

Exception: A lender may make an exception to this rule for a borrower in default on his/her mortgage at the time of the short sale if the
* default was due to circumstances beyond the borrower's control, Such as death of a primary wage earner or long-term uninsured illness, and
* a review of the credit report indicates a satisfactory credit prior to the circumstances beyond the borrower's control that caused the default.

• Delinquent credit history is acceptable if sensible explanations provided
• Recent and/or undisclosed debts: A satisfactory explanation of new credit or inquiries will be required
• Judgments will be required to be paid before your loan closes
• Previous rental or mortgage payment history. Your payment history is reviewed for the previous 12 months. Mortgage must be current at approval.
• Chargeoffs and child support will be required to be paid at closing
• Collections may be required to be paid at closing
• Medical collections may be ignored
• Borrowers can pay down installment loans or credit card debts to qualify
• No open government loan defaults (student loans and etc.)
• No credit is OK. Can provide three alternative trade lines for 12 months (such as utility bill)

• Cash out refinances permitted
- One and Two Family - 85% of appraised value plus allowable closing costs if there is a 12-month perfect mortgage history. No lates allowed to get the maximum loan to value (LTV) on cash out refinance. If 1x30 or 2x30 – the LTV will be reduced to   85%. Extenuating circumstances and proof are required for 1x60 (illness, loss of   job, etc.)
- Three and Four Family – 75% of appraised value plus allowable closing costs if there is a 12-month perfect mortgage history

• No cash out refinances allowed up to approximately 95% of appraised value
• Unlimited loan amounts on cash out refinances up to maximum allowable LTV
• Sellers concessions are permitted up to 6% of sales price
• Allows streamline refinancing
• One Year, Three Year and 5 Year adjustable rate mortgages are available
• Use of su-su funds are acceptable
• Non-owner occupying parents (close relatives) can purchase with occupying mortgagors to qualify to assist in qualifying. For Refinance, Non Occupying
  Co-Borrowers must be on the deed previously
  - single family and condo only


• Two years of continuous employment necessary for primary Borrower (does not have to be the same job)
• Part time job can be 1 year minimum


• Reserves for Refinance: not required (all LTVs, all property types)
• Reserves for Purchase: required only for Three and Four family – 3 months PITI (principal, interest, tax and insurance)
• 6% seller’s concession permitted on all LTVs
• Secured borrowing such as 401k, etc. permitted and monthly repayment does not need to be counted into debt income ratio
• Funds for down payment, closing costs and reserves, where required must be seasoned for 3 months. Any large deposits must be sourced and explained
• Must verify assets with most recent two months bank statements or verification of   deposit
• Gifts (any amounts and any LTVs) considered borrowers own funds. Acceptable gift letter, proof of funds, and transfer (certified check and deposit into borrowers account) are required
• Down payment and closing cost assistance are permitted (such as Nehemiah)

• 203k rehabilitation loans are available for borrowers to finance the costs of rehabilitation
  - you can close on the loan and have the work done after closing for 203k loans
  - you can finance store front properties
  - Commercial property must be:
    a) 49% or less on 2 story buildings
    b) 33% or less on 3 story buildings
    c) 25% or less on 4 story buildings
  - a staircase to the second floor is considered residential space

• FHA loan limits for New York City five boroughs (Manhattan, Brooklyn, Queens, Staten Island and The Bronx), Nassau, Suffolk, and Westchester.

  1Family - $729,750
  2Family - $934,200
  3Family - $1,129,250
  4Family - $1,403,400

  - a staircase to the second floor is considered residential space

FHA’s temporary waiver of the anti-flipping regulations

With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days.  FHA temporarily waived this regulation through December 31, 2004-, unless otherwise extended or withdrawn by FHA. The new extension will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.
The waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers.  The Waiver continues to be limited to sales meeting the following conditions:
•  All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.

•  In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value.

•  The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

The FHA Program – Disadvantages

• FHA charges an up front mortgage insurance premium ("UFMIP") of 1.75%, which is added into mortgage amount on all purchases and refinances. FHA streamline refinances and reverse mortgages have also UFMIP indicated above.

- $300,000 mortgage
- $5,250 up front MIP
- $305,250 will be the total mortgage amount

• FHA has annual MIP, which will be added to the regular monthly mortgage payments of principal, interest, tax and insurance
• 3 and 4-family homes must have 3 months PITI reserves
• Borrowers must have computerized pay stubs or 1040s in addition to employment verification or a gross pay letter with canceled checks (FULL INCOME AND ASSETS DOCUMENTATION ONLY. See below.)
• Occupancy:
  a) Primary Residence
  b) Secondary Residence - only permitted under specific circumstances allowed by Home Ownership Center
• ITINs (Individual Taxpayer Identification Numbers) are not acceptable. Must have social security.

Compensating Factors

1. Single family dwelling
2. Low debt to income ratios
3. Less than 10% increase from old rent/house payment to the new housing expense
4. Three or more months cash reserves (house payments after closing) that are not part of a gift
5. Borrower has potential for increased earnings (ex. Graduates)
6. Borrower has income that cannot be used as qualifying income
7. Larger than minimum down payment (more than 3.5% down)
8. Strong credit or credit scores
9. Time on the job. The longer the better
10. Time at current residence. The longer the better
11. Down payment saved by the borrower verses a gift
12. Minimal payment shock
13. No recent derogatory accounts

Document Requirements

1. Two most recent pay-stubs and 2 years W2 (Form 4506 is required and will be checked prior to closing)
2. If Self-Employment or more than 25% income from bonus or overtime – must provide last two years tax returns (all schedules) and YTD Profit & Loss for current year from CPA
3. Last 12 month’s rental history or mortgage history
4. Fully executed Contract of Sale, including all the amendments to contract if any changes have been made after signing the contract
5. Latest two month bank statements (all accounts if applicable)
6. Satisfactory explanation for all derogatory accounts that appear on the credit report   (collections, charge offs, satisfied judgments should be paid in full prior to closing)
7. Two pieces of ID (driver’s license, social security card, or other photo ID)
8. Copy of the Alien Resident Card (if non citizen)
9. All FHA disclosures signed


Appraisal must be done by an FHA licensed appraiser

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