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Fha Just Made It Easier To Buy After Foreclosure, Short-Sale Or Bk


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#1 Steve Heard

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Posted 29 August 2013 - 11:30 AM

For those who  lost their homes due to foreclosure, short-sale or went through bankruptcy over the past few years, if you’ve recovered economically, you may be able to buy, sooner than you think.

FHA has announced it has shortened the waiting period for homeowners who went through true hardships to purchase a home again.

The move is part of the Federal Housing Authorities ‘Back to Work’ program, intended to provide relief to those who have recovered from their economic troubles and who desire to re-enter the housing market.

Previously, guidelines required a wait of as much as 7 years

It is a three-step process, involving first the proof that there truly was an ‘economic event’ such as a loss of job, resulting in a 20% reduction in income. Those who just decided ‘I’m underwater so why should I keep paying for it?’, won’t qualify.

Second, they must prove that they’ve fully recovered and that purchasing a home would not create further hardship.

Lastly, they must complete one-on-one counseling program from at Department of Housing and Urban Development-approved counselor.

If they meet all of these requirements, they may qualify for an FHA loan which allows them to put down as little as 3.5% on a purchase.

“This is what the market needs, new people coming in and buying homes to live in,” said Stuart Vener, President of Willshire Holdings, a firm which helps underwater home owners.  ”This whole real estate debacle is not going to be cured by real estate investors buying homes, renting them and hoping to flip them at some time.”

www.steveheardrealtor.com

What do you think? Good thing? Bad? Indifferent?

 


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#2 The Average Joe

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Posted 29 August 2013 - 11:34 PM

Guess I should have just given up when my wages crashed, let everything go, and I'd sure be sitting pretty now. I know a couple people that got principal reductions on their homes. It made me sick. Basically, the government (ahem, you and me) gifted them equity that they will be able to cash out at some point. ANd what did the responsible people get? Only the bill.

 

IMHO, all these programs SUCK. They reward irresponsible behavior (buying beyond means, pulling money out for frivolous things, etc) , and punish those that made sacrifices (not buying too much house, saving money, working harder when things went downhill, etc).

 

For those that made smart choices but lost their jobs, that really blows. But lay-offs have been going on for as long as people have been buying homes. Why should we subsidize that now?


"Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive" -- C.S. Lewis

 

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#3 Steve Heard

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Posted 30 August 2013 - 09:56 AM

I understand how you feel.

 

When my business went in the tank I sold my wife's car to pay the bills and bought her a new(er) one when we were back on our feet, and there are plenty of folks in similar positions who gave up instead.

 

Although it is popular to characterize those who lost their homes as irresponsible and living beyond their means, that was not always the case. 

 

There are plenty of stories of people refinancing to get cash to buy new stuff with, but there were many more who genuinely had hardships and had little choice.

 

I know someone in the construction industry who bought a big house, filled it with new furniture, refinanced and bought a Harley and a new car for his wife, went on a cruise, and then when construction dried up just stopped making payments and stayed in the home until it was auctioned off and he was evicted.   

 

I had one client who had lived in his home for 15 years, owed about $130,000 on it, but lost his job as an aircraft mechanic just about the time his wife left him. He had a daughter in college and employment didn't make ends meet. 

 

Another bought here, lost his job, and could only find another in his field in the Bay Area, for less money. After commuting for a time, and with 2 small kids, he decided he'd have to rent in the Bay. He quickly discovered that his home was worth over $100K less than he owed on it, and if he had rented it out, the rent would not cover the mortgage, and he would not be able to afford the rent on his new place.

 

Each of these two had the banks foreclose on them while they were attempting, in good faith, to get a short-sale. 

 

This isn't about the government rescuing people who 'gave up' after being irresponsible. It is about allowing them buy a home sooner than they normally would have if they can prove their hardship and recovery. 

 

Unfortunately, I think the guy in the first example might qualify as well as the other 2. 


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#4 The Average Joe

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Posted 30 August 2013 - 09:45 PM

Yeah, that is the problem with most government hand outs. Those that really need the help are often left wanting because those that are looking for a "free ride" clog up the system.

Your other two examples are very sad. But that type of thing has been going on forever (divorce, job loss, medical expenses, etc). I don't see why suddenly we need to collectively pay for it.

But those are general thoughts. As for a reduced time before being able to repurchase, I don't think it should be a law, but I also don't think you should be "sentenced" to a generic 7 years. If you can afford it, and had a good reason for your previous financial issues, you should get some consideration.


"Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive" -- C.S. Lewis

 

If the only way to combat "global warming" was to lower taxes, we would never hear of the issue again. - Anonymous

 

"Society in every state is a blessing, but Government, even in its best state, is but a necessary evil; in its worst state an intolerable one" — Thomas Paine, 𝘊𝘰𝘮𝘮𝘰𝘯 𝘚𝘦𝘯𝘴𝘦 (1776)

 


#5 4thgenFolsomite

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Posted 31 August 2013 - 05:55 AM

When Aerojet reorganized back in the 1960s, hundreds of employees were suddenly either laid off or relocated to San Diego and couldn't sell their homes here (which dropped in value with the sudden glut on the little Folsom housing market and lack of demand. People begged (seriously begged) people to assume their loans so they wouldn't ruin their credit through foreclosure and be prevented from buying somewhere else where they could find a job. They didnt want any money for their equity, they just wanted to be able to walk away with their credit intact. It was a very hard time, but people survived and worked it out.

I agree with Joe and Steve. I don't think the frugal and practical should bail out the risky or unlucky, but in this case the housing financial collapse was so widespread nationwide that if housing sales didn't pick up, the entire economy could grind to a halt and collapse. I don't think the government really cared that much about people. I think they were afraid if they didn't get the market moving we would slip into depression.
Knowing the past helps deciphering the future.

#6 rip

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Posted 31 August 2013 - 01:34 PM

Perhaps I'm missing something, but not seeing how the program Steve is referring to is a "bail out" or a "hand out".  It's simply reducing the time some one would need to wait until applying for an FHA loan if they had a previous foreclosure.  They would need to explain their default, and would still need to qualify for a new loan.  Doesn't seem like a bad idea to me, but doubt it will have much impact on the over all housing market.  I've also read recently that FHA loans will now be required to carry permanent mortgage insurance.  Is this true Steve?  If so, FHA loan's end up not being a very good deal and will further erode the buying power for first time home owners.



#7 Steve Heard

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Posted 31 August 2013 - 02:32 PM

Perhaps I'm missing something, but not seeing how the program Steve is referring to is a "bail out" or a "hand out".  It's simply reducing the time some one would need to wait until applying for an FHA loan if they had a previous foreclosure.  They would need to explain their default, and would still need to qualify for a new loan.  Doesn't seem like a bad idea to me, but doubt it will have much impact on the over all housing market.  I've also read recently that FHA loans will now be required to carry permanent mortgage insurance.  Is this true Steve?  If so, FHA loan's end up not being a very good deal and will further erode the buying power for first time home owners.

Yes, it is true that the mortgage insurance on FHA is permanent, but I believe one can buy it out or down by paying higher closing costs.

 

Check with your lender to be sure.

 

For some, FHA is the ONLY deal they can get, particularly if they don't have 20% down, so even with higher costs, they go for it.  


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#8 rip

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Posted 31 August 2013 - 05:54 PM

That's just depressing.  Say you are paying $200 per month in PMI and pay off the loan in 30 years.  That is $72000 in mortgage insurance over the life of the loan.  All of which protects the bank (not you) in case of default, even though they hold the house as collateral.  I don't have an issue with PMI until reaching 80% LTV, but requiring for the entire term of the loan seems like gouging.  



#9 WealthWiseMortgagePlanning

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Posted 02 September 2013 - 07:56 AM

Just to answer a few of the questions regarding FHA and Mortgage Insurance:

  1. FHA Mortgage Insurance is now required for the life of the FHA loan.  You can refinance out of FHA once you're eligible for another program (you must fit in the new loan's guidelines--so many years after foreclosure/short-sale/deed-in-lieu/BK, etc).
  2. FHA Mortgage Insurance costs:  1.75% of the original loan amount is added into the loan; 1.35% of the loan (for LTV >95%; 1.30% for LTV <=95%) is paid annually (divided into 12 monthly payments).
  3. FHA Mortgage Insurance in the past:  It was removed at 78% loan-to-value with these caveats (assuming you haven't refinanced out of FHA):
    1. You had paid on it for at least 5 years
    2. 78% loan-to-value was of the original loan amount, arrived at through principal reduction only (regular payments and/or writing a check for extra principle).  Appreciation in the home (Private Mortgage Insurance, used with Conventional financing allows for this) doesn't count towards the loan-to-value calculation.

A Loan Officer who is proficient at loans will be able to walk a potential borrower through options and lay them out so you can choose the one that fits you best.

 

Hope this helps.


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#10 rip

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Posted 02 September 2013 - 09:52 AM

Hey Andrew, 

Thanks for posting.  Very informative.  I didn't know the previous rule regarding the 78% LTV had to come from principle reduction vs appreciation.  Just so I am understanding what you are saying the 1.75% is added to the loan balance AND you need to pay 1.35% (or 1.3% depending on LTV) per year?  So as an example, on a loan balance of $350k you would add $6125 to the loan and also pay $4725 per year ($393 per month) in mortgage insurance?  If so seems like an incredibly expensive way to get a home loan.



#11 WealthWiseMortgagePlanning

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Posted 02 September 2013 - 11:21 AM

Hey Andrew, 

Thanks for posting.  Very informative.  I didn't know the previous rule regarding the 78% LTV had to come from principle reduction vs appreciation.  Just so I am understanding what you are saying the 1.75% is added to the loan balance AND you need to pay 1.35% (or 1.3% depending on LTV) per year?  So as an example, on a loan balance of $350k you would add $6125 to the loan and also pay $4725 per year ($393 per month) in mortgage insurance?  If so seems like an incredibly expensive way to get a home loan.

 

Yes, it is expensive.  But, FHA guidelines allow people to get into homes quicker than other programs.  If our clients want to buy--and FHA is the only option at the time--we will offer it as an option.  At the end of the day, it's the borrowers' choice to evaluate the cost--and whether they want to incur it--to proceed, or not.

 

There are lots of reasons to use FHA over other loan programs, as it allows for:

  • Shorter waiting period after a derogatory credit event (foreclosure, etc.)
  • Lower FICO scores
  • Higher debt-to-income ratios (the portion of monthly payments divided by the gross monthly income)
  • Gift funds without any being required to come from the borrower
  • Lower down payment (3.5% minimum)

If the issue is other than the waiting period after foreclosure, etc.,--like needing gift funds for the minimum down payment (conventional financing guidelines require 5% of the borrower's own funds be used if the down payment will be less than 20% of the purchase)--we might suggest FHA.  The loan would start with 96.5% LTV, but after a few months--and with some appreciation of the home value (to at least 5% equity)--we'd look to refinance into conventional financing using PMI (or nothing, if there is 20% equity based on appraised value or principle reduction). 

 

With Conventional financing,

  • PMI cost is lower on an annual basis (with 720+ FICO @ 95% LTV, annual cost is .67% vs 1.30% for FHA)
  • Depending on credit, a person may be able to pay a one-time fee to "buy-out" the mortgage insurance

In the refinance case, the new Conventional interest rate may be higher than the original FHA rate, but the over-all payment lower, due to lower monthly mortgage insurance payment).

 

Every situation is different, but FHA is expensive which is why we look at other options, too.

 

BTW:  VA financing--for those active-duty and retired military who--is, by far, the best option for those who are eligible.


Always in your best interest,

 

 

Andrew Vierra, NMLS 230799

Branch Manager

Certified Military Home Specialist

Financing:  VAConventional • FHA • USDA • Reverse

 

916-932-7160  Office

866-386-8390  Fax

Andrew@WealthWiseMortgage.com

www.WealthWiseMortgage.com

www.VALoansOfCalifornia.com

 

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101 Parkshore Drive

Folsom, CA  95630

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#12 caligirlz

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Posted 02 September 2013 - 11:23 AM

I had an FHA loan with PMI for my very first house. It was the part of the requirement in addition to all the other fees. I never thought I was being ripped off. Thankfully, I had 20% down for my next & subsequent home purchases.

#13 rip

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Posted 02 September 2013 - 12:00 PM

@caligirlz  I agree, in the past FHA was a pretty good deal.  The rules and costs have recently changed and is now considerably more expensive than it use to be.



#14 rip

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Posted 02 September 2013 - 12:28 PM

My broader question for the pros (Steve and Andrew) is what does all of this mean for the overall housing market?  So far we've seen a rapid rise in appreciation, a significant spike in interest rates, and now a a program traditionally aimed at first time home buyers become more expensive.  Are you guys seeing an effect?  I know all these changes aren't "baked in" to current sales data as the July numbers are based on contracts started in May and June before the rate increase and increase in FHA costs.  Thoughts?



#15 Steve Heard

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Posted 02 September 2013 - 12:56 PM

My broader question for the pros (Steve and Andrew) is what does all of this mean for the overall housing market?  So far we've seen a rapid rise in appreciation, a significant spike in interest rates, and now a a program traditionally aimed at first time home buyers become more expensive.  Are you guys seeing an effect?  I know all these changes aren't "baked in" to current sales data as the July numbers are based on contracts started in May and June before the rate increase and increase in FHA costs.  Thoughts?

Well, we're certainly seeing more homes coming on the market and they're staying there longer. 

 

Taking a look at month-end numbers, we've been averaging less than 90 per month for the past year and a half. May ended with 82 on the market, 126 in June, 144 in July, and currently there are 161 homes on the market in Folsom.  

 

Sales have been pretty strong though, with 129 sold in May, 117 in June, 100 in July, and although final numbers aren't in, 107 reported sold in August. 

 

There are several factors to figure in the equation:

  • Interest rates are up about 1% from May
  • FHA closing costs are higher, with the permanent mortgage insurance and a higher rate for it
  • Big investors such as Blackstone aren't buying 30 to 40 homes per month any more, as rising prices are making it harder to get positive cash-flow
  • Some folks who were upside down in their homes now see they have equity and are selling now.
  • Buyers aren't panic-buying as they have more to choose from

There are probably other factors but those are the ones that come to mind


Steve Heard

Folsom Real Estate Specialist

EXP Realty

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Owner - MyFolsom.com

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