After a brief return to lower, pre-2009 levels, FHA loan limits have been restored. As signed into law last Friday, maximum FHA loan limits are — once again — as high as $729,750.

The move creates additional mortgage financing possibilities in more than 650 U.S. counties, and promises to increase the FHA’s mortgage market share, which has grown from 6% in 2007 to roughly 30% today.

The change in FHA loan limits also marks the first time that FHA loan limits exceed those of conventional mortgage-backers Fannie Mae and Freddie Mac.

Conventional loans remain capped at a maximum of $625,500.

For home buyers in Longmont and nationwide, FHA-insured mortgage offer several advantages over comparable conventional loans, the most commonly cited of which is that FHA-insured loans require a down payment of just 3.5 percent.

FHA-insured mortgages carry other advantages, too, however.

First, FHA home loans are not subject to loan-level pricing adjustments (LLPA). This means that, all things equal, buyers and would-be refinancers with credit scores below 740; or, who live in multi-unit homes; or, who have high loan-to-values are not subject to additional loan fees as a conventional mortgage applicant might.

Second, after 6 months of on-time payments, FHA-backed homeowners are eligible for the FHA Streamline Refinance. The FHA Streamline Refinance is among the simplest loan products for which to qualify with no appraisal required. Even if you’re “underwater” on your mortgage, you can still be streamline-eligible.

And, lastly, at least in today’s market, FHA mortgage rates are below those of the conventional market.

The downside of FHA financing, however, is that all FHA mortgages require mortgage insurance and FHA mortgage rates are often higher versus a comparable conventional loan. This means that, although its mortgage rate may be lower, the payment for an FHA home loan may be higher as compared to a Fannie Mae mortgage with similar credit traits.

FHA loans aren’t always optimal, but with higher FHA loan limits, expect the FHA’s market share to increase.

Check your local FHA loan limit at the HUD website.

Yes I know…what a deceptive way to attract readers to my Boulder real estate blog but how else do you dress up the process of obtaining an FHA/VA loan in a smooth manner?  In Part I of my blog, Uncle Sam Passes Housing Stimulus Bill , I summarized what the new FHA reform laws mean for all of us when purchasing Boulder real estate using a government loan. 

In Part II, I am recommending 10 steps you can take to help ensure your FHA/VA mortgage experience is VERY satisfying.  Now it may not be as satisfying as sex for most you but I’m sure some of you, unfortunately, may experience the same satisfaction .

Here we go:

1.) Please, plz, puhleese sign and date all forms properly.  Time and time again there are unnecessary delays because signatures, initials, and dates are not properly inserted.  All tax returns and bank statements (all pages should be dated/stamped if provided by bank, online statements must come from a secure site and show the URL, customer name, account number and bank name) must be properly signed.  Self employed buyers must complete IRS form 4506.

2.) If possible keep seller concessions out of the contract.  Any seller concessions paid to the buyer must be toward closing costs or paid directly to third party vendor.  Personal property, money for repairs, etc. can not be included.

3.) Turn in the contract early.  Eager beaver is the attitude to have.  All parties must sign and date the contract and all changes must be made in advance…not at closing! 

4.) Buyers must show two years of work history or related education leading to employment.  Buyers must provide pay stubs and W2s verifying two years of employment.  A job offer letter will not suffice and current pay stubs with 30 days employment is required.

5.) VA loans require a Certificate of Eligibility (COE).  This form is obtained online but working intimately with you mortgage broker may prevent delays.

6.) Provide an adequate paper trail for gifts.  A gift letter must be signed and dated by all parties and include documentation of the transfer of funds.  Cash deposits may require further documentation.  Donors may be asked for bank statements to prove their ability to gift the funds.

7.) Title checks must show the seller’s compliance with FHA requirements.  The seller must have acquired the property at least 90 days before execution of the sales contract.

8.) Make all repairs recommended by inspectors.  Make sure the sellers complete the recommended repairs before closing.  Contact your mortgage rep for details as the required inspections vary by state.  Some inspectors can be very anal.

9.) Be prepared to provide all documentation.  To ensure a smoother transaction, advise your buyers to respond promptly to all requests.  The amount of documentation required will vary depending on each buyer’s profile.

10.) Be available throughout the process.  Buyers should keep in contact with their mortgage rep during the process and be available several days after the scheduled closing date.  Please refrain from going on vacation or setting appointments with movers, contractors, etc.

Suddenly I feel like I need a cigarette….

The Housing and Economic Recovery Act of 2008 was made official on July 30, 2008.  This housing stimulus bill passed the House and Senate by overwhelming numbers and President Bush was quick to follow suit.  Hopefully these changes will help jump start the slumping housing market but some feel it is too little too late.  Regardless, there are still many home buyers who need affordable homes and FHA financing is one of the most popular means to obtain a mortgage loan.

If you are wondering what an FHA loan is it is a loan insured by the Federal Housing Administration (FHA) and made by an approved lender in accordance with the FHA’s regulations.  FHA requires that the property being purchased meets certain minimum standards.  This mortgage may be easier to qualify for than a conventional mortgage, but it also has a lower maximum loan limit that varies depending on the average cost of housing in a given region.  FHA loans require the borrower to pay mortgage insurance premiums (MIP) if the down payment is less than 20%.  Fixed and adjustable rates are available with FHA loans.

If you are considering an FHA loan, please remember FHA loans do take longer to process than conventional loans and the current average days to close is 35+ days.  Also, FHA inspectors are more finicky when it comes appraisal time and there may be two inspections required for the property.  This may be an important factor if you plan to buy a bank owned property which may have one or more inspection issues which could define if the property is considered habitable.

What does this mean for you if you plan to obtain FHA financing?  A few key points of the bill are: 

1.)  Home buyer tax credit -  a $7,500 tax credit which would be available for any qualified purchases between April 8, 2008 and June 30, 2009.  The credit is repayable over 15 years making it an interest free loan rather than a tax break or credit.

2.) Seller funded down payment assistance programs – existing FHA proposal to prohibit the use of down payment assistance programs funded by those who have financial interest in the sale, does not prohibit other programs such as nonprofits, churches, employers, or family members.  Say goodbye to Nehemiah, Genesis, AmeriDream , etc. for FHA loan assistance.

3.) Down payment requirement on FHA loans will increase from 3% to 3.5%.

• GSE Reform – including a strong independent regulator, and permanent conforming loan limits up to the greater of $417,000 or 115% local area median home price, capped at $625,500. The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).  Click the link below to obtain limits in Boulder, CO.
  View 2009 FHA and GSE loan limit estimates (PDF)

• FHA Reform – including permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM program, and reforms to the FHA manufactured housing program. The down payment requirement on FHA loans will go up to 3.5% (from 3%). The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).  Click the link below to obtain limits in Boulder, CO.
  View 2009 FHA and GSE loan limit estimates (PDF)
  FHA Reform Chart (PDF)

• Home buyer Tax Credit – a $7500 tax credit that would be would be available for any qualified purchase between April 9, 2008 and June 30, 2009. The credit is repayable over 15 years.
  First-time home buyer tax credit chart
  Frequently asked questions about the first-time home buyer tax credit

• FHA foreclosure rescue – development of a refinance program for home buyers with problematic sub-prime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.
  FHA Foreclosure Rescue Chart

• Seller-funded down payment assistance programs – codifies existing FHA proposal to prohibit the use of down payment assistance programs funded by those who have a financial interest in the sale; does not prohibit other assistance programs provided by nonprofits funded by other sources, churches, employers, or family members. This prohibition does not go into effect until October 1, 2008.
  More about the seller-funded down payment assistance provision
  Tips to finding down payment assistance programs (PDF)

• VA loan limits – temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.

• Risk-based pricing – puts a moratorium on FHA using risk-based pricing for one year. This provision is effective from October 1, 2008 through September 30, 2009.

• GSE Stabilization – includes language proposed by the Treasury Department to authorize Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.

• Mortgage Revenue Bond Authority – authorizes $10 billion in mortgage revenue bonds for refinancing sub-prime mortgages.

• National Affordable Housing Trust Fund – Develops a Trust Fund funded by a percentage of profits from the GSEs. In its first years, the Trust Fund would cover costs of any defaulted loans in FHA foreclosure program. In out years, the Trust Fund would be used for the development of affordable housing.

• CDBG Funding – Provides $4 billion in neighborhood revitalization funds for communities to purchase foreclosed homes.
  More about the CDBG funding provision

• LIHTC – Modernizes the Low Income Housing Tax Credit program to make it more efficient.

• Loan Originator Requirements – Strengthens the existing state-run nationwide mortgage originator licensing and registration system (and requires a parallel HUD system for states that fail to participate). Federal bank regulators will establish a parallel registration system for FDIC-insured banks. The purpose is to prevent fraud and require minimum licensing and education requirements. The bill exempts those who only perform real estate brokerage activities and are licensed or registered by a state, unless they are compensated by a lender, mortgage broker, or other loan originator.

Stay tuned for my next blog on 10 steps you can take to ensure a smoother governmnet loan experience!