New FHA Requirements Increase Minimum Down Payments For Many Kansas City Home Buyers

Checking The Pulse Of The Kansas City Real Estate Market

For the past several years it’s become more difficult for home buyers to secure financing. There’s been an obvious over-correction in the market as lenders went from giving your dog a loan for his dog house to not giving a self-employed borrower with 50% down and an 800 credit score a loan. But things have opened up enough now that solid buyers can secure loans and purchase a great home. But just when we need some more good news, FHA comes out this month with requirements making it more difficult for borrowers to secure an FHA loan.

If you’re credit score is anywhere below 500 you can not get an FHA loan any longer. Period. Though when I asked a few lenders just how many borrowers this would affect, they all said very few… because they weren’t giving loans to sub 500 credit score buyers in the past, even though FHA would have allowed it. The real change is for the borrowers with credit scores in the 500 to 579 range. Those borrowers must now have a TEN PERCENT down payment — rather than the 3.5% minimum down payment that previous borrowers with the same credit score needed.


Posted by Jason A. Brown

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New 2010 Good Faith Estimates Haven’t Led To Self-Inflicted Injuries In Kansas City

Checking The Pulse Of The Kansas City Real Estate Market

The new 2010 Good Faith Estimate has been in effect for more than a month and I’ve yet to see any mortgage lenders, borrowers or real estate agents climbing buildings or jumping off bridges. The changes do however have people talking and will certainly change the way loans have been handled over the years. For the best mortgage lenders, these changes won’t have the same drastic effect they’ll have on shady or unorganized lenders. The lenders I know well have also taken on the changes head on in educating agents and borrowers alike about the changes.


The January 1st 2010 Real Estate Settlement Procedure Act (RESPA) has certainly made the
Good Faith Estimate a lot more good faith — and a lot less Que Sara, Sara. Lenders will have to educate borrowers on what’s being charged for their loan, why they’re being charged each amount and in many cases, who exactly is charging the fees. I’m expecting it will clearly educate borrowers on the risks of ARM loans and other creative financing methods that are at the root of our current financial mess. I’ve read many places online that it will make it very easy to compare the Good Faith Estimate that was given out early in the process to the actual HUD-1 Settlement Statement that will be produced  for the real estate closing.

The new Good Faith Estimate requires that mortgage lenders show all the key loan terms and closing costs to borrowers. More importantly, if the lender half-asses a Good Faith estimate, the lender could be on the hook for overages in many instances. I’m thinking this will give home buyers some good assurance that the Good Faith Estimates will be reasonably accurate and minimize or eliminate the junk fees seen all too often over the years. Finding junk fees on the HUD-1 has put many a borrower in the difficult circumstance of not being able to fight it because they’ve already closed on their home sale.  And, if you’re thinking ahead like me, this seems likely to lead lenders to work closely with closing agents to build a comfort level that the fees quoted early on are  more-or-less guaranteed come closing time.

Different aspects of the new Good Faith Estimate (GFE) are defined at different tolerance levels. The one I’ve commonly heard referred to is the 10% tolerance of quoted fees. This applies to settlement service fees where the lender specifies the provider to be used in the transaction. But there’s also many that fall under zero tolerance, including fees the lender was in direct control of when they were listed on the GFE – such as the lender’s own origination fees, underwriting fees and processing fees.  Then there’s the unlimited tolerance for items that the borrower is in control of – such as title insurance, home inspections and homeowner’s insurance. You can see how the lender can’t be expected to guarantee the latter.

It’s worth noting that many lenders believe any money saved by the new GFE could be lost due to the extra time and costs required to make sure they are in compliance with the changes — all costs they’d likely want to pass on to consumers. But if lenders start erring on the safe side, competitors who are on the ball and quoting accurate fees and costs will undercut them and secure the borrower’s business. So I find it unlikely that lenders will simply quote high amounts on the GFE, because if they do they may go  out of business – due to having no business. The new Good Faith Estimate is a 3-page document  that provides a break down of loan costs in layman terms. ALL mortgage lenders are required to use  this document going forward and you can check out some of the most common GFE questions here on these 57 pages of frequently asked RESPA questions.

A down side that I’m pondering is whether lenders will refuse to give borrowers a Good Faith Estimate early in the home buying process. If they refuse until a buyer has applied for a home loan and gone under contract, this would keep a borrower from really knowing the costs of the loan until they’re already under contract. Although I could argue that’s no worse than what’s been dealt with before these changes were made. We’ll need several more months to see how things play out and make any definitive assessments of the effect of the new GFE. Irregardless, it’s as critical as ever that borrowers work with a reputable and trust-worthy lender. If you’re looking for a good lender to finance your home purchase or refinance your current home, here are three lenders that I would trust to handle my own Kansas City mortgage loan…

Jill Underwood with Pulaski Bank
Email:
jill@jillunderwood.com
Phone: 913-915-0150
www.JillUnderwood.com

Alan Scarpa with National Bank Of Kansas City
Email: ascarpa@nbofkc.com
Phone: 913-253-0189
www.nbofkc.com

Rick Woodruff with Metropolitan Mortgage Corporation
Email: rick@e-metropolitan.com
Phone: 913-642-8300
www.emetropolitan.com
Posted by Jason A. Brown

Get That 3.5% Down Payment Together Before You Head Out To View Homes

Hands On The Heartland
Checking The Pulse Of The Kansas City Real Estate Market


Unless you’re paying cash for a home or have VA loan eligibility, there’s no point in heading out to view homes if you aren’t able to make a 3.5% down payment. On a $200,000 home that means you need to have $7,000 saved up. That’s what FHA requires and it’s 1.5% less down payment than you’d have to have if doing a conventional loan. I was surprised to read this week that FHA is currently backing 25% of all mortgage loans in today’s market! That’s about double what they were doing less than a year ago. My first reaction was that FHA is playing an important role in trying to pull our real estate market out of the funk it’s in. My second thought was they sure are taking on a lot of risk at time when few are willing to step up. My fears were eased when I saw that the average  FHA buyer’s credit score had jumped from 630 to 690 – that’s a huge jump. FHA is still taking on some risky buyers with credit scores below 500 but the risk involved with a potential default is lessened by their requirement that these buyers have a 10% down payment.

This leads to me to a question I often here from Kansas City home buyers… “Should I get an FHA or conventional loan?”.  If you’re a buyer who is scraping together a down payment, there’s a huge advantage in the 3.5% minimum FHA down payment versus the 5% minimum conventional loan down payment. And that’s the main reason many buyers go FHA. Yet Conventional loans are still the most popular loans made today and that’s because their less complicated all the way around.  Yet there are many distinct advantages to going FHA as well and here ‘s some random FHA loan versus Conventional loan thoughts to consider…

  • The maximum FHA loan amount for the Kansas City area is currently $271,050.
  • Conventional loans USUALLY don’t have a pre-payment penalty; FHA loans NEVER have a pre-payment penalty.
  • FHA loans require about TWICE as much effort on the borrower to provide the lender with necessary supporting documents on employment, income, etc.
  • Although proving qualifications is harder, the actual qualifications for an FHA loan are less restrictive than on a conventional loan.
  • FHA allows up to 6% in Seller concession (i.e. seller payed buyer closing costs); Conventional loans only allow up to 3% in Seller concessions.
  • FHA loans require a 3.5% minimum down payment; Conventional requires a 5% minimum down payment.
  • Unlike conventional loans, the down payment on an FHA loan can be gifted by a relative.
  • To get roughly an equivalent interest rate on a conventional loan, you’d need a 10% down payment (although only 5% is required); Conventional rates are often better than FHA rates if buyer has more than a 10% down payment.
  • Conventional loans with less than 20% down payment go through TWO underwriting procedures (one for the loan and one for the PMI); FHA loans go through just one underwriting procedure.
  • Conventional loans have no up-front PMI; FHA loans have a significant up-front PMI fee of 1.75% of the loan amount (the fee can be financed into the monthly payments).
  • FHA loans have a streamlined refinance process and the loans may also be assumable by another buyer later.
  • Contrary to many rumors FHA loans are not just for First Time Home Buyers.
  • There are no income minimums or maximums to qualify — yes, Donald Trump can go FHA.
  • FHA won’t make loans on homes that were involved in a sale within the past 90 days.
  • FHA won’t make loans on homes with major structural or condition issues.
  • Seller’s don’t like FHA loans because the appraisals are more strict and take longer to fund at closing.
  • Appraisers are held to strict FHA guidelines for declining markets (which has been just about every market).
Posted by Jason A. Brown
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