June 2009

Since FHA loans require full income documentation from each borrower, here is a quick review of an FHA underwriter will be looking for with many different types of income.

W-2 employee

You will have to provide your last 2 years of w-2’s + your most 30 days pay stubs.  Any gaps in employment over 1 month during the last 2 years will need to be explained.  After a large gap in employment, the FHA loan underwriter may require 6 months on your current job before approval.  However there are exceptions to this rule if a borrower is getting out-of school or training and can provide a degree or transcripts.  Of if a borrower was on sabbatical or maternity leave for example.

Bonus and overtime income

Generally you need to document that you have received this for the last 2 years.  The underwriter will average of the last 2 years of this income. 

Part time job and seasonal work

You can count income for a part-time job if it has been consistent for 2 years and you can fully document the income.  Seasonal work is OK if you have worked for the last 2 years at it and it is likely to continue.

Commission income

You will have to document the last 2 years of commission and the FHA underwriter will average the last 2 years.  Copies of your last 2 years federal tax returns will be required.  Unreimbursed business expenses appearing on your ta returns must be subtracted from you qualifying income.

Alimony and child support

This income can be counted towards qualification.  You will need to provide final divorce decree or legal separation agreement.  This will have to document that support will continue for at least 3 more years.  You will need to document that you have been receiving it for the last 12 months (canceled checks, deposit receipts).   In some cases you can still count it if received for less than 6 months.

Interest and dividend income

You will need a 2 year history of this income and an average of those 2 years will be used.

Self-employer borrowers

Your last 2 years tax returns all pages and schedules will be required.  The FHA loan underwriter will take an average of your net income over the last 2 years.  It’s key to note that your net income AFTER deductions will be used to qualify, not your gross income.  There are some deductions that can be added back to your net income such as contribution to retirement accounts, depreciation, business use of a home, etc… (call or email rob@affinity-financial.com) for more info.  You will have to have a 2 year history of being in business to qualify.  If you just left a w-2 job 1 year ago to start a business, you may have difficulty qualifying.

There are of course many other variations and exceptions to the above regarding income and other items left out.  So if you have any questions about you particular income and if you will qualify, don’t hesitate to email or call me using my contact info below.

Warm Regards,

Rob Chomentowski

Sr. Loan Officer (and FHA specialist)

rob@affinity-financial.com

858-922-7899

There are a lot of potential homeowners that assume erroneously that they need to be U.S. Citizens to get a mortgage loan to purchase a house in the United States.   And there are others that believe that yes they can get a home loan as a non-permanent resident, but they would have to put a very large down payment down.  Both of these beliefs are false.   As long as you have a social security number and are eligible to work in the United States, you may likely be able to qualify for a 3.5% down payment FHA loan to purchase your primary residence.

A quick review of highlights of FHA home loans:

• only 3.5% down require and that can be a gift from a relative or lifelong relationship
• you do not need perfect credit
• flexible underwriting guidelines
• 30 year fixed rate mortgages that are still at historic lows
• low amounts all the way up to $729,000 in California

Warm Regards,

Rob Chomentowski

Sr. Loan Officer and FHA specialist

rob@affinity-financial.com

858-922-7899

There have been recent changes to home appraisals that don’t directly affect FHA Loans and changes to the general scrutiny of underwriting guidelines that directly affect FHA loans.  There has been a big recent change in how appraisals are ordered for conventional loans called HVCC.  They are now ordered directly through the bank and assigned by someone other than the bank.  For years prior all appraisals were ordered by the loan officer handling the loan.   With this new system of appraisals, the loan officer has no contact with the appraiser.   Through early feedback on this system, many are seeing appraisals come in very low for various reasons.  At this tme FHA loans can still be ordered by the loan officer, but this may change soon.

FHA appraisals are affected more from the general lender tightening of underwriting guidelines that has happened over the last 2 years.  Lenders are now being much more careful with appraisal values and they are doing internal appraisal reviews.   This affects you when you use a FHA loan to buy a house because the FHA appraiser may appraise the property for the price you are purchasing it for, but then 2 weeks later in the loan process the lender may review the appraisal and cut the value.  This means that you would either come in with cash for the difference, or renegotiate with the seller to lower the price to meet the lenders appraisal review in order to close on the house.

Comparable sales are the foundation of home appraisals.  The appraiser looks for 3-6 recent home sales that are comparable to your home in size, location and age.  They then use the sales prices of these recent homes to support the value they are giving your home with their appraisal.  Lenders are now requiring the appraisers to provide much more recent comparable sales.  Sales within 6 months used to be acceptable.  Now lenders are looking for sales within 3 months and even current listings and houses pending sale.  Also when lenders do their internal review appraisals, they generally do not go out and look at the property.  The do what is called a “AVM” or desk appraisal.  So if a house has been really upgraded or renovated, they are not giving a lot of value (if any) for that.  They may use a comparable that is a fixer but they don’t know that because they are not going out to the property physically to look at it.

So as a FHA buyer it is best to work with a excellent buyers real estate agent that can help you properly value the property before you make an offer.  That buyers agent should be looking at recent sales similar to the house you are making an offer on to make sure it is a realistic price that you will offer.

Warm Regards,

Rob Chomentowski (FHA loan specialist)

rob@affinity-financial.com

858-922-7899

I wanted to update some new information that has come out regarding using the $8,000 federal tax credit available to home buyers purchasing a home by November 2009.   Recently HUD has talked about allowing borrowers to “monetize” the tax credit and be able to access that money when they close to help them with the money needed to purchase the home.   There has been a lot of mixed information and confusion about this as HUD 1st issued a mortgagee letter about it a few weeks back and then retracted that.  But I will summarize the latest information on it.

HUD is basically saying now that they will allow borrowers using FHA loans to get a bridge loan for the tax credit the help with paying closing costs.  This bridge loan would be a “silent 2nd” loan for the amount tax credit that would eventually have to be paid back by the borrower.  It may or may not have payments.   However borrowers would still have to have the 3.5% minimum down payment needed for an FHA loan.   Government agencies and non-profit groups are supposed to be offering this bridge loan.  However to date there are no agencies offering the bridge loan. 

So in summary, in the near future you may be able to get a bridge loan in the amount of the tax credit due to you to help pay closing costs if you purchase a home with a FHA loan.   However at this time there no agencies set up to offer the bridge loan.  But stay tuned and we will update you when there are.

Warm Regards,

Rob Chomentowski

Sr. Loan Officer and FHA Loan Specialist

858-922-7899

rob@affinity-financial.com

Home buying is on the rise and with it the perception that real estate is a good long term investment. The Gallup Poll reported that 71% of Americans think that right now is a good time to buy houses. That is the highest it’s been in four years! Coupled with the fact that homes are more affordable now than they have been between 2003-2007, it makes a lot of sense.