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Acceptable Sources of Funds For Closing Costs / Down Payment

December 21, 2010 Leave a Comment

Every now and then, someone will ask me “is it okay if I ______________ to pay for my closing costs?” So I thought I would outline what most lenders will accept as an acceptable source of funds for closing costs and/or down payment when getting an FHA loan.

Remember: no matter what funds you plan on using, they are going to have to be documented as to the source of the funds.

Acceptable Sources of Funds For FHA Loans

  • Checking/Savings Accounts/CDs
  • Lease to Own/Rent Credit with Option to Purchase
  • Interested Party Contributions (subject to limitations)
  • Loan Repayment Proceeds (with appropriate and acceptable paper trail)
  • Corporate Relocation Buyout
  • Relocation Benefits
  • Use of Business Funds (as per policy and if allowed by underwriter)
  • Disaster Relief Grant or Loan
  • Non-Traditional Savings Plan/IDA Accounts
  • Employer Assistance
  • Gifts
  • Gifts-Pooled Funds
  • Gifts of Equity
  • Gifts/Grants from Non-Profit
  • Gifts – Wedding
  • Retirement Accounts
  • Proceeds from Sale of Home
  • Sale of Assets
  • Government Bonds
  • Stocks/Securities
  • Inheritance
  • Trade Equity
  • Land Equity
  • Trust Account
  • Life Insurance Net Cash Value
  • Bridge/Swing Loans
  • Income Tax Refunds
  • Saving Funds to Close
  • Gambling or Lottery Winnings (this is my favorite one)
  • Lawsuits or Insurance Settlements
  • Borrowed Funds Secured by an Asset
  • Financing Concessions
  • Cash-on-Hand

Whew. Sure, there might be more places that you could possibly come up with for a down payment / closing costs – but there are probably about 99% of all of the ones I have seen. Have questions about where your down payment can come from when getting an FHA loan? Be sure to ask your loan officer.

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FHA Financing With A Family Trust

December 20, 2010 Leave a Comment

Today, it seems to be somewhat common for someone to have a family trust set up for estate planning purposes. Family trusts are great, but when it comes to financing a home with an FHA loan, there are a few things that need to happen in order to have everything go smoothly and as it was intended.

FHA Financing For Trusts

Generally speaking, in order to be eligible for FHA financing using a trust, the borrower remains the beneficiary and occupies the property as a principal residence. Trust agreements are typically going to be required to be seen by the underwriting department and usually they will get the lenders attorneys to also review the trust (so be ready for it to take longer to close).

Eligible borrowers include:
One or more borrowers with one living trust, or Two or more borrowers with separate living trusts, or Multiple borrowers with one or more holding title as an individual and one or more holding title as a living trust.

Eligible properties include:

  • 1-4 unit primary residences
  • 1-2 unit second homes

FHA Financing With A Trust: What Documentation Is Required?

Although each lender may be slightly different when it comes to required documentation, at least one item that you can reasonably expect will be required is an Attorney’s opinion letter from the borrower’s attorney to the lender’s attorney verifying that:

  1. The trust is revocable,
  2. The borrower is the settler of the trust and the beneficiary of the trust,
  3. The trust assets may be used as collateral for a loan,
  4. The trustee is duly qualified under applicable law to serve as trustee and is the borrower,

Of course there are other requirements when it comes to FHA financing with a Family Trust – and because of the complex nature of these loans, you will want to be sure that you talk with a loan officer who has experience closing these.

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Filed Under: FHA Loans

FHA Guidelines on Mixed-Use Properties

December 18, 2010 2 Comments

From time to time we get an inquiry from someone who wants to have an FHA loan on a property that they also want to have a small business run out of.

For example, someone wants to buy a home and also run a day care facility from their home.

When it comes to FHA loans, you want to be sure to follow the rules when it comes to mixed use properties — otherwise, it could pose a problem.

FHA Guidelines on Mixed-Use Properties

A mixed-use property is a property has been modified to accommodate a small business, such as

  • a day care facility
  • a hair care salon
  • a professional service office like a medical or financial office
  • a photography studio

in addition to having the residents live in the property.  Anytime a property is going to be used for business and residential purposes, the appraiser must specify that the property is being used for that purpose.

Mixed-Use Properties Allowed For FHA Loans With Conditions

Mixed-used properties are allowed with the following restrictions:

  • Must be single family detached owner-occupied dwelling;
  • Must represent a legal, permissible use of the property under the local zoning requirements;
  • Borrower must be both the owner and the operator of the business.
  • Property must be primarily residential in nature;
  • There may not be any structural changes that affect the marketability of the property;
  • Market value of the property must be primarily a function of its residential characteristics rather than the business use of any special-use modifications that were made.

Just a couple more notes on getting an FHA loan for mixed-use properties:

  1. Mixed-use properties in urban areas where the business is at street level and the living quarters are either upstairs or behind the business are also acceptable. The appraisal should illustrate through use of similar and approximate comparable sales that this type of residential/business use is common to the area.
  2. Also eligible: condominium projects that do not have more than 20% of the floor space of the common areas devoted to commercial retail space, subject to credit policy verification that the investors will still accept this type of project.

Have more questions about mixed use properties and FHA loans? Be sure to contact one of our experts.

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VA Funding Fee: How Much Is It?

December 15, 2010 1 Comment

Many Veterans who are interested in getting a VA loan have heard about the VA funding fee – but aren’t quite sure exactly how much it is or maybe even exactly what it is.

What is the VA funding fee and how much is it?

The VA funding fee is a fee that may only be paid in cash or financed as part of the VA loan.

However, the funding fee may be split only when the total loan amount with the funding fee will exceed the current maximum mortgage amount. On loan amounts exceeding $417,000, if the combined loan amount plus the funding fee exceeds the county limit, the portion of the total funding fee that exceeds the county limit may not be financed into the loan amount.

Amount of funding fee charged is based on the loan-to-value, veteran status, transaction type, and prior use and here are a few graphics that show the percentages for the require VA funding fees for closing.

VA Funding Fee For VA Purchase Loans

VA Funding Fee: How Much Is It? %spacebasename

VA Funding Fee For VA Refinance Loans

VA Funding Fee: How Much Is It? %spacebasename

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USDA Home Loan: Your Spouse’s Credit

December 14, 2010 Leave a Comment

Non-Purchasing Spouse/ Disclaiming Spouse in Community Property States:

USDA Home Loan: Your Spouse's Credit %spacebasename

All of the debt, except for debt obligations that are excluded by state law, the debt obligations of a Non-Purchasing Spouse also known (according to USDA) as a “Disclaiming Spouse” (Spouse’s that is not applying for the loan) must be included in the primary borrower’s qualifying ratios when the home buyer resides in a community property state or the property guaranteed is located in a community property state.

The “Disclaiming Spouse’s” credit history is not considered as a reason to deny the applicant’s loan application.  However, the “Disclaiming Spouse’s” obligations will be considered in the debt-to-income ratio unless it is excluded by state law. A credit report that meets the USDA’s requirements must be pulled for the “Disclaiming spouse” in order to accurately find out whether the spouse’s debts  will be counted in the total debt ratio/ calculation. 

This could possibly adversely affect the primary borrower’s ability to qualify for a USDA Home Loan.

Community property states include:

Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

For more information, you can contact Ted Canto directly at 480.650.8602 or email me at [email protected]

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VA Loans: Closing Costs For VA Loans That Can Be Paid By Veterans

December 14, 2010 Leave a Comment

When it comes to VA loans, there are certain closing costs that Veterans can pay – and certain closing costs that the Veteran is not allowed to pay according to the VA.

VA Appraisal

When it comes to getting an appraisal done, it is allowable for the Veteran to pay the cost of an appraisal. It is also allowed for the veteran to also pay for a second appraisal if he or she is requesting reconsideration of value.

The veteran cannot pay for an appraisal requested by the lender or seller for reconsideration of value. It is also not allowed for the Veteran to pay for appraisals requested by parties other than the veteran or lender.

Discount Points on VA Loans

It is allowable for a Veteran to pay discount points on purchase, cash-out and no cash-out refinances, as long as they are considered to be reasonable.

The Interest Rate Reduction Refinance Loans (IRRRL) may include only up to 2 points in new loan. Additional discount points must be paid in cash.

Origination Point

An origination point of 1% of loan amount is allowed to be paid by the Veteran. If the 1% origination point is paid by the Veteran, then there are certain other fees that cannot be paid when the 1% origination fee is paid. These fees that cannot be paid include:

  • Amortization Schedule
  • Application Fee
  • Attorney Services (other than for title work)
  • Photos
  • Postage and other mailing charges, stationery, telephone calls, and other overhead.
  • Processing Fee
  • Closing Fee or Settlement Fee
  • Commitment Fee or Marketing Fees
  • Conveyance Fees or Preparing Loan Papers
  • Sales Commission
  • Protection Warranties (Homeshield, Ticor, etc)
  • Document Preparation Fee
  • Escrow Fees or Charges
  • Interest rate lock-in Fees
  • Trustee’s Fees or Charges
  • Lender’s Appraisals
  • Truth In Lending Disclosure Statement preparation Fee
  • Tax Service Fee Transfer Fee
  • Notary Fee

With VA loans, there are many fees that have different rules based on what the VA allows. If you have questions about whether or not a particular fee is allowed on a VA loan, be sure to contact your loan officer to learn the right answer.

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FHA Loan To Value: Maximum LTV For FHA Loans

December 13, 2010 Leave a Comment

When thinking about getting an FHA loan in Arizona, there are several things to consider – one of which is the maximum loan-to-value that you can finance.  In other words, how much money you have to put down for an FHA loan (or how much equity you need to have).

Maximum LTV on FHA Purchase Transaction

  • 96.50% of the lesser of the appraised value or adjusted sales price.
  • 90.00% of the lesser of the appraised value or adjusted sales price when buying new construction property that does not meet all HUD new construction requirements.

FHA No Cash-Out Refinance

Lesser of:

  • 97.75 % of the appraised value if the property was acquired > 12 mos. prior to loan application;
  • The sum of the loan payoff and all allowable costs or
  • If the property was acquired 12 mos. prior to application date the original purchase price, plus allowable costs.

FHA Streamline Refinance With An Appraisal

Lesser of:

  • The sum of the existing 1st mortgage outstanding principal balance, closing costs, prepaids, and up to a maximum of 30 days interest accrued for current month on old loan and subtract any refund of upfront MIP, if any. (May not include delinquent interest, discount points, escrow shortages or late charges); OR
  • Appropriate LTV ratio of 97.75% of the appraised value, plus the new MIP that will be charged on the refinance.

FHA Streamline Refinance Without An Appraisal

  • Primary Residence: Limited to unpaid principal balance, maximum 30 days of interest accrued on old loan, minus any refund of UFMIP, if any.
  • Investment Property & Second Homes: Limited to unpaid principal balance, minus any refund of UFMIP.

When getting an FHA loan, the exact loan-to-value that you can qualify for financing for is only one of the important things to know — be sure to speak with your loan officer about this in as much detail as you need to be comfortable with the guidelines.

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VA IRRRL Streamline Refinance: When Is An IRRRL Allowed?

December 13, 2010 1 Comment

When interest rates are low, many Veterans who have VA loans in Arizona are interested in possibly doing a VA IRRRL streamline refinance.

But when is the VA IRRRL allowed?

The VA IRRRL Streamline Refinance program allows a Veteran to refinance their existing VA loan to a new VA loan to a lower interest rate with a reduced amount of documentation.

VA Streamline IRRRLs are allowed under the following circumstances:

  • Pay off veteran‘s existing VA loan with current entitlement being transferred to the new loan. No additional entitlement will be used. Regardless of the amount of entitlement being transferred to the new refinance loan, the guaranty coverage will be 25%.
  • New interest rate must be lower than the existing interest rate (unless refinancing from an ARM to a fixed rate).
  • Veteran must sign statement acknowledging the interest rate and the payments of the new loan versus the old loan and how long it will take to recoup all closing costs paid (both those closing costs included in the loan and those paid outside of closing.
  • May include existing VA loan balance, allowable closing costs, prepaids, energy efficient improvements up to $6,000 completed within 90 days immediately preceding loan closing and up to a maximum of 2% discount points.
  • Pay off of second liens is not allowed. Second liens are to be subordinated with no consideration to the CLTV.
  • Total loan amount may not exceed the appraised value or original loan amount, which may include the funding fee.
  • Cash-out is not allowed. However, a maximum of $500 may be allowed due to computational error, changes in the final payoff, up-front paid outside of closing (POC) items being reimbursed or refund of an escrow account on the old loan if different lender other than the current holder originates loan. Loan amount calculated when submitting to underwriting should reflect no funds going back to the borrower. Any cash-out (other than POC items) on loans in Texas is not allowed.
  • High balance VA Streamline IRRRLs are not allowed.

If you are a Veteran who currently has a VA loan, it may make sense to speak with a loan officer about whether or not the VA IRRRL streamline refinance will help you lower your monthly mortgage payment – and now you have a good idea about when the VA IRRRL program is allowed.

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Buying A House With A VA Loan 2/1 Buydown

December 12, 2010 Leave a Comment

Many people who are Veterans are eligible to buy a house with a Arizona VA loan – and they may not be aware that there is a program available that they can “buy down” their interest rate for the first two years.

VA Loan 2/1 Buydown: How It Works

A temporary buydown is an arrangement wherein the property seller, borrower, lender, builder, developer, or real estate agent deposits money to an account so that it can be released each month to reduce the borrower‘s monthly payment during the early years of the mortgage. During the specified period, the borrower‘s effective interest is ―bought down.  This will reduce the monthly payment in the early stages of the loan, and may allow the borrower to more easily qualify for the loan.

Borrower must qualify at Note rate unless there is evidence that income to support the application will increase to cover the increases in loan payments. Routine Cost of Living Adjustments (COLA) raises cannot be used for this purpose.

The buydown arrangement can be considered a compensating factor. If the residual income and/or debt-to-income ratio is marginal, the buydown plan (used to offset a short-term debts), along with other compensating factors, may support approval of the loan.

Escrowed funds set up for the buydown may not revert to the party that established the escrow. If the property is sold subject to, or on an assumption of the loan, the escrow must continue to pay out on behalf of the new owner.

VA Loan Buydown Restrictions

  • Allowed on purchase transactions only.
  • Maximum 1% increase in one year.
  • Adjustments may only be one time per year.
  • Maximum 2% below note rate

Buying A House With A VA Loan 2/1 Buydown %spacebasename

If you are buying a house with a VA loan and think that you may want to participate in the VA 2/1 buydown program be sure to as your lender about it.

It will save you money each month on your monthly mortgage payment.

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