WASHINGTON (Reuters) - The Federal Housing Administration will allow the new $8,000 first-time homebuyer tax credit to be applied directly toward home purchase costs when using an FHA-insured mortgage, the Department of Housing and Urban Development said on Friday.

The plan to "monetize" the tax credit up-front is aimed at more quickly stabilizing the housing market, HUD Secretary Shaun Donovan said in a statement.

But in detailed rules, the FHA will still require home buyers to provide a minimum 3.5 percent downpayment from other sources.

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The $8,000 tax credit for first-time home buyers was created as a part of the Obama administration’s $787 billion stimulus plan. Some private lenders already were allowing buyers to apply the credits directly toward purchase costs through special financing schemes.

With the FHA following in a similar vein, a significant portion of the first-time homebuyer market will have up-front access to the credits instead of waiting until tax returns are filed.

"What we’re doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing," Donovan said in a statement

FHA-insured loans, which largely have replaced the subprime mortgage market, now accounts for about 25 percent of new mortgages, senior HUD officials said, versus about 2 percent of the market two years ago. At this pace, the agency will insure some 2.2 million mortgages this year.

The National Association of Home Builders estimates that the $8,000 first-time homebuyer credit will stimulate 160,000 home sales across the United States — 101,000 purchases from first-time buyers and another 59,000 purchases by existing homeowners who sold dwellings to first-time buyers.

Most older houses have some level of termite damage that exists in the house structure.   And most purchase offers made by buyers call out as a condition to their offer that the buyer will do a pest inspection and the seller will be responsible to fix any section 1 termite damage.  Section 2 termite damage is more serious and not generally paid for by the seller, but of course can be negotiated to be cleared by the seller.

In the old days of FHA loans you had to get a termite clearance before the lender would fund your loan regardless of whether you called for a termite inspection in your purchase contract or not.  But these days if you do not ask for a termite inspection in your purchase contract, you will not have to get a termite clearance to get the FHA loan.

Now if you feel that your seller will pay for the termite work, it can be helpful to call out the termite report inspection as a contingency of your purchase.  But if you feel the seller will not pay of the termite work, you may want to leave the termite inspection out of the contract.  Because once it is in the contract, you will need a clearance before you close.  And if the seller will not pay for the work, the buyer will have to pay for it.

If you have any questions about this topic or any other questions about FHA, VA or conventional home loans, feel free to email or call me.  My contact info is below.

Warm Regards,

Rob Chomentowski

Sr. Loan Officer

rob@affinity-financial.com

858-922-7899

Most articles on this blog are geared towards FHA loans, which are for people purchasing their primary residences .  But we also handle all other available residential financing such as conventional loans, Jumbo home loans for large loan sizes over the conforming limits, and investor home loans to purchase rental property.  In this blog post I will write a quick blurb as to what is available right now for investors.

Basically right now if you buy a rental property you will have to put 20% down.   The interest rates will be better with 25% down.  You will have to qualify with full income documentation, that means if you are a W-2 employee 2 years of w-2’s + last 30 days paystubs.  If you are self-employed that means your last 2 years tax returns.   One nice thing is if you buy rental property is you can use the estimated rent as income to help qualify even if the property is vacant.  When the appraiser appraises the property they will estimate the market rent.  That is what you can use as income to offset the new housing payment.  This means you can buy a lot of property without if affecting debt ratios because the rent will cover a lot of the rental house payment.  You can also buy up to 10 total financed properties. 

I don’t usually comment on the housing markets, but in many high quality areas of the U.S. that have come down in price significantly (California, Arizona, Nevada Florida especially), there are some tremendous buys.  You can buy a property in a premium market and it will “cash flow”.  Meaning the rental income will cover the total housing payment and all expenses.  In many places in California for example, it has probably been nearly a decade since an investor could achieve this!

So if you have any questions or would like to get pre-approved to buy rental property, give us a call or email.

Warm Regards,

Rob Chomentowski

Sr. Loan Officer

rob@affinity-financial.com

858-922-7899

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The credit scoring system requires a person have active trade lines reporting so the 3 credit bureau’s Experian, Equifax and Trans Union can produce credit scores for that person.   These trade lines are usually loans or revolving credit accounts.  Such as auto loans, student loans and credit cards.  But there are some people out there that would like to buy a house but they do not currently have any trade lines.  They do not have a auto loan, credit card or other loan that reports to the credit bureau’s.  Well this is OK, because FHA loans allow something called “non-traditional” credit.

With a non-traditional credit borrower we can build a credit report for that borrower by other means.  What we will do is ask the borrower for the the following items:

1. Verification that rent is being paid for the last 12 months

2. Verification that utility bills are being paid on time the last 12 months (gas, electric, etc..)

3. Verification telephone service has been paid on time the last 12 months

4. Verification the cable TV bill has been paid on time the last 12 months

We will send a verification to your landlord to verify rent payments have been paid on time the last 12 months.  With items 2,3 and 4, you can call up the provider of these services and ask for a letter stating that you have paid your bill on time the last 12 months.   Then we will take these items to our credit services company and have them produce a “non-traditional” credit report.  This will allow us to get you approved for a 3.5% down FHA home loan.

If you do not have all of the 4 above credit sources.  We can also use 12 month payment verification on the following items to help produce a non-traditional credit report for you:

• Auto or medical insurance accounts
• Cell phone accounts
• Child care service
• Internet service
• Personal loans from individuals supported by cancelled checks

So if you are concerned that you won’t be able to qualify for a home loan because you lack a credit score, don’t worry, there is still a great chance you can get that loan.   However to clarify, non-traditional credit as discussed will not help if you if you already have poor credit.  This method is only for people who have “no” credit or insufficient credit.

Please feel free to call or email if you have any questions or would like to get a free pre-approval for a home loan.

Warm Regards,

Rob Chomentowski

rob@affinity-financial.com

858-922-7899

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Many people who think of using the FHA 203k loan to buy a fixer upper only think of buying a single-family house and fixing it up.  But you can also buy a condo and use the FHA 203k loan program to provide the funds to fix up a condo or townhome that you buy.  We have a number of detailed articles on the basics of 203k loans, so if you do a search of the site you can read those to learn the basics.  But to refresh here are the highlights of the FHA 203k loan:

• The lender will lend you the cost to buy + the cost to fix up, minus your 3.5% down payment
• The down payment can be a gift from a relative
• You start by gettig a detailed estimate from a contractor on the items you would like to fix on a the house you want to make and offer on
• The subject property must be your primary residence

Now let’s specifically talk about using the FHA 203k fixer-upper loan on a condo or townhouse.  First off, I also have another article on this site on the pro’s and con’s of condo’s and what to look out for when using an FHA loan to purchase a condo.  Do a search to find that and read it. 

Condo and townhomes have their postives and negatives.  Most people would rather buy a single-family home if they had the choice.  But the problem with that is that single-family homes can be out of the price range of many buyers in the better neighborhoods they would prefer to live.  If they buy a single-family, it may have to be further away from their work and/or in a less than desirable neighbood or school district in order to find something afforable. 

The positive side of condo’s and townhomes is that they can often be found in the really prime, close-in neighborhoods for the same or less price than a single-family out in the boonies.  And for some they offer less maintenance than a single-family and the ability to just lock the door and not worry about their place when they leave town.

Now back to using a FHA 203k loan to buy a condo.  Many times a buyer can find a drastically reduced price on a condo or townhome because the interior is in bad shape or needs updating.   Other buyers shy away from it so the seller can be negotiated with.   Using the 203k you can purchase the property and get the funds to completely update the interior of the condo and raise the value significantly.  Here are some items you might fix using the FHA 203k:

• Completely update the kitchen with brand new counter tops, cabinents, and appliances
• Re-finish the floors with polished hardwood, new tile or fresh carpeting
• Completly paint the interior with high grade paint
• Totally re-do the bathroom floors,  showers, tubs, faucets
• Update the lighting fixtures throughout
• Etc…

Now your get the picture.  You can use the FHA 203k loan to get a great price on a condo that needs cosmetic updating, and then you can completely spruce the place up beautifully with funds from the 203k loan.  The nice thing about the FHA 203k loan is the fix up funds you used to fix up the condo/townhome are part of your loan  balance.  So they are fixed at a low 30 year fixed rate and will be tax deductable as long as your own the property.

So as you can see, you can use the FHA 203k loan to find a great deal on a condo/townhome ugly duckling and then immediately turn it into a beautiful swan. 

Please call or email with any questions you have about the FHA 203k loan and/or if a condo you are interested is FHA approved or eligible for a FHA spot approval.

Warm Regards,

Rob Chomentowski

Sr. Loan Officer and FHA Loan Specialist

rob@affinity-financial.com

858-922-7899