For the longest time, FHA and VA were not useful
tools in the San Diego market. Sales prices
were too high to allow FHA and VA financing to be
viable alternatives for borrowers.
With the drop in home values, they are back and
many borrowers can now use them as effective tools
to finance their home purchases.
Let's take a look at some of the features and
benefits of these two programs.
VA
These loans are available to eligible veterans.
They require that the veteran obtain a Certificate
of Eligibility from the Veteran's Administration
that shows they have met the minimum service
standards of 181 days of active service and have
not had a dishonorable discharge.
VA loans are available for single veterans, a
veteran and spouse, or two unmarried veterans
buying together. There is no provision for a
veteran/non-veteran loan unless for a married
couple.
VA loan limits currently allow a qulaified veteran
with full eligibility to receive a loan with no
down payment up to a loan amount of $417,000.
At times, and subject to market conditions, VA
loans may exceed $417,000 with some down payment
required. VA guidelines allow for these higher
loan amounts, but the appetite by GNMA (Government
National Mortgage Association) to purchase these
loans is the determining factor for them to be
offered.
VA does require a funding fee from the veteran,
which helps defray some costs of administering the
program. For a first-time user of their eligibility
and with 100% financing, the funding fee is 2.15%
of the loan amount. Instead of the veteran having
to pay this in cash, VA allows for it to be financed
on top of the 100% loan.
For example, a home price of $400,000 would allow
for a no-down VA loan of $400,000 to a veteran with
full eligibility. The final loan amount would be
$408,600 after financing the VA funding fee.
VA does help protect the veteran by limiting some
of the closing costs that they are allowed to pay,
and makes broad allowances for a seller, or other
party, to pay expenses on the veteran's behalf.
VA's goal is to help as many veteran buyers as
possible succeed with home ownership by guaranteeing
the loan for the lender through the VA program.
If you think you are eligible for a VA loan and
want more details, get in touch with me so we can
discuss your individual circumstances.
FHA
FHA loans allow borrowers with good qualifications
purchase homes with a lower down payment than
conventional loans require.
FHA loans are generally available to any qualified
buyer and property, and are not limited like the VA
program is.
The basic FHA program allows a borrower to buy a
home for their residence with as little as 3.5%
down payment.
Similar to VA, there is a requirement for the payment
of Mutual Mortgage Insurance to help cover the costs
of the program. These loans are insured by the FHA
program to the lender.
The cost of the MMI is 1.75% at closing, which can
be financed, and .50% per year. The loan limits are
similar to VA. FHA allows for loans up to $417,000
and at times may exceed that amount if GNMA will
purchase the loans. Availability changes from time
to time.
Let's look at an example of a purchase price of
$400,000. This would require a down payment of
$14,000 (3.5%). The up front mortgage insurance
premium of 1.75% can be financed, bringing the
final loan amount to $392,755.
The mortgage payments will include the principal
and interest payment, an amount for property
taxes, property insurance and the mortgage insurance
premium (which comes to $163.65 in this example).
There are many details in obtaining an FHA loan.
They are in many ways easier to qualify for, but
attention to all the fine points is a must.
If you are hopeful to find a home, and have limited
funds for down payment and closing costs, let's talk
about how FHA might work for you.
Wednesday, May 20, 2009
Wednesday, May 6, 2009
The Home Valuation Code of Conduct (HVCC)
In January, I referenced an article by syndicated
columnist Kenneth Harney about the planned
changes to the appraisal process.
On May 1, the changes have gone into effect.
Here is a summary of what we are now facing when
coordinating your appraisal for your home financing.
The HVCC was part of a settlement involving New
York Attorney General Andrew M. Cuomo, and
Freddie Mac (FHLMC) and Fannie Mae (FNMA)and was a
result of an investigation of FHLMC and FNMA for
alleged appraisal overvaluations, and evidence
of illicit pressure on appraisers to "hit the
numbers" needed to close loans.
Appraisers found themselves facing the prospect of
delivering appraisals at predetermined values, or not
being hired again to perform appraisals by unscrupulous
loan originators.
Part of the standards was to create Appraisal Management
Companies (AMC) to insulate the appraiser from any one
having a direct interest in the valuation and the outcome
of the process, including lenders, mortgage brokers, or
real estate agents.
The HVCC will effectively eliminate all of the business
relationships that have developed over years of working
together. Instead, mortgage loan officers, who tradit-
ionally would be the one to make the appraisal assign-
ment, will be forced to shift the assignment to third-
party AMCs.
It actually bans brokers from any involvement in
selecting appraisers, or having conversations with them
that could be construed as trying to influence the value.
Even the innocent practice of asking an appraiser to give
a range of what the raw data indicates before asking the
borrower to pay for a full appraisal will not be allowed.
There are some significant consequences for borrowers
if the HVCC goes forward and is implemented.
* The fee that you pay for the appraisal will actually
be split between the appraisal management company and
the appraiser. A professional appraiser typically
earned about $400 for a single-family (non-custom)
home appraisal. Now, the AMC will receive a good
portion of the fee, and the appraiser will probably
be asked to work for about half of what they earned
before. Or, the AMC will add their fee on top of the
traditional fee and the cost to you, the borrower,
will go up.
* Experienced, career appraisers may be priced out of
the market if they are not willing to work for about
one half of what they normally earned. This will
put many more inexperienced appraisers on the rosters
for the AMCs to select from. Appraisers who are
less experienced may create less reliable valuations.
* The AMC is promoting their value by expediting the
process and offering quick turn-around times. If
Appraiser A does not respond quickly to a request,
they will move down to Appraiser B, and so on until
they find someone who can get the job done within
their time frames. The appraisers who are the busiest,
which may translate to being the most experienced
and in demand, may not get the assignment. The
appraiser waiting for the phone to ring will get
the business.
* The appraiser may be asked to complete their evaluation
more quickly and not have an opportunity to do all of the
research that is warranted to assess the comparable proper-
ties, sales contracts and local market trends. This
will not lead to a better valuation process.
* Professional appraisal groups have argued that the AMCs
place quality last while they press appraisers to finish
the appraisal quickly, many times within 24 to 48 hours
from the time of the assignment. If the appraiser does
not have time to verify the important details of their
assignment, the result will be unreliable.
* Low appraisals will reduce a borrower's ability to
negotiate an acceptable refinance, and force buyers
to come up with larger down payments. It is much less
likely that an appraiser will err on the side of being
too high on a valuation.
The old system worked very well for honest loan originators
and appraisers. If the lender used their quality control
systems to discover a concern over the valuation presented,
they always had the opportunity to request a review
appraisal by someone that they trusted and compare the
results.
This new AMC system puts more barriers in place to have
business conducted with effective communication, and it's
hard to believe that any of us will be happier with less
communication about something as important as your home
financing.
columnist Kenneth Harney about the planned
changes to the appraisal process.
On May 1, the changes have gone into effect.
Here is a summary of what we are now facing when
coordinating your appraisal for your home financing.
The HVCC was part of a settlement involving New
York Attorney General Andrew M. Cuomo, and
Freddie Mac (FHLMC) and Fannie Mae (FNMA)and was a
result of an investigation of FHLMC and FNMA for
alleged appraisal overvaluations, and evidence
of illicit pressure on appraisers to "hit the
numbers" needed to close loans.
Appraisers found themselves facing the prospect of
delivering appraisals at predetermined values, or not
being hired again to perform appraisals by unscrupulous
loan originators.
Part of the standards was to create Appraisal Management
Companies (AMC) to insulate the appraiser from any one
having a direct interest in the valuation and the outcome
of the process, including lenders, mortgage brokers, or
real estate agents.
The HVCC will effectively eliminate all of the business
relationships that have developed over years of working
together. Instead, mortgage loan officers, who tradit-
ionally would be the one to make the appraisal assign-
ment, will be forced to shift the assignment to third-
party AMCs.
It actually bans brokers from any involvement in
selecting appraisers, or having conversations with them
that could be construed as trying to influence the value.
Even the innocent practice of asking an appraiser to give
a range of what the raw data indicates before asking the
borrower to pay for a full appraisal will not be allowed.
There are some significant consequences for borrowers
if the HVCC goes forward and is implemented.
* The fee that you pay for the appraisal will actually
be split between the appraisal management company and
the appraiser. A professional appraiser typically
earned about $400 for a single-family (non-custom)
home appraisal. Now, the AMC will receive a good
portion of the fee, and the appraiser will probably
be asked to work for about half of what they earned
before. Or, the AMC will add their fee on top of the
traditional fee and the cost to you, the borrower,
will go up.
* Experienced, career appraisers may be priced out of
the market if they are not willing to work for about
one half of what they normally earned. This will
put many more inexperienced appraisers on the rosters
for the AMCs to select from. Appraisers who are
less experienced may create less reliable valuations.
* The AMC is promoting their value by expediting the
process and offering quick turn-around times. If
Appraiser A does not respond quickly to a request,
they will move down to Appraiser B, and so on until
they find someone who can get the job done within
their time frames. The appraisers who are the busiest,
which may translate to being the most experienced
and in demand, may not get the assignment. The
appraiser waiting for the phone to ring will get
the business.
* The appraiser may be asked to complete their evaluation
more quickly and not have an opportunity to do all of the
research that is warranted to assess the comparable proper-
ties, sales contracts and local market trends. This
will not lead to a better valuation process.
* Professional appraisal groups have argued that the AMCs
place quality last while they press appraisers to finish
the appraisal quickly, many times within 24 to 48 hours
from the time of the assignment. If the appraiser does
not have time to verify the important details of their
assignment, the result will be unreliable.
* Low appraisals will reduce a borrower's ability to
negotiate an acceptable refinance, and force buyers
to come up with larger down payments. It is much less
likely that an appraiser will err on the side of being
too high on a valuation.
The old system worked very well for honest loan originators
and appraisers. If the lender used their quality control
systems to discover a concern over the valuation presented,
they always had the opportunity to request a review
appraisal by someone that they trusted and compare the
results.
This new AMC system puts more barriers in place to have
business conducted with effective communication, and it's
hard to believe that any of us will be happier with less
communication about something as important as your home
financing.
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