I have heard from more than one local Realtor that many mortgage professionals are telling them that there is a new FHA Loan that only requires only a 1% down payment.

I have good news and bad news.

First the bad: FHA has not changed their guidelines recently, they still require a 3.5% down payment.

Now the good.

FREE money. Money that I am pretty sure many, many people out there can take advantage of right now – assuming that they are aware of the program.

The mortgage program that many of these Realtors have been asking me about is called the National Stabilization Program and is even better than a 1% down payment requirement – AND – when the NSP program is combined with an FHA loan, only 1% down payment is required.

We all know that the devil is in the details, so here is my best shot at describing them.

I attended a training class on the NSP program taught by the Arizona NSP director and I took as many notes as I could to help me remember what the program is all about.  Do you Follow Me On Twitter Yet?

National Stabilization Program Highlights:

• If you own a residence, you must be leasing your primary residence at least 12 months before applying for the program.
• You must use us a lender from the ADOH participating lender list.
• You must attend and complete an eight‐hour Homebuyer Education Class provided by one of the ADOH participating homebuyer counseling agencies. (A list will be provided by your lender once you begin the process.)
• The property you purchase must be your primary residence.
• You must have a maximum debt‐to‐income ratio of 31/43.
• You must be AUS approved eligible.
• You must have two months PITI reserves.
• You can use any type of financing with the NSP program – including paying cash. That means you can still get up to 22% of the purchase price even if you pay cash for the house.
• You must be approved and have your paperwork completed for the program prior to submitting an offer on a house.

National Stabilization Eligible Property Types:

• Foreclosed properties only. A property is considered “foreclosed upon” at the point that the mortgage or tax foreclosure is complete.
• One‐unit detached single family homes, condos and townhomes.
• The property must be vacant at time of listing.

National Stabilization Program Purchase Price Limits:

National Stabilization Program Income Limits:

In order to qualify for the program, you must have a gross income (the total income before taxes, health care costs, social security, etc.) of no more than 120 percent of the average median income for the county they want to purchase a foreclosed house in.

Income Limits For Maricopa County:

National Stabilization Program: 1% Down Payment?

A minimum of 3 percent of the property purchase price is required as down payment. One percent must come from the borrower’s own funds. Two percent can come from any other approved source.

National Stabilization Program: FREE Money?

1. Up to 22 percent of purchase price
2. All loans are forgivable after a period of time based on the amount of the loan.
   * 5 years for assistance of $15,000 or less
   * 10 years for assistance of $15,001‐$40,000
   * 15 years for assistance of more than $40,000
3. All loans are zero percent interest with no monthly payment.
4. The balance of the loan is forgiven at the completion of the term.

My Take On The NSP Program

This is probably the most “real” program I have seen in years. There is money available, the steps to getting the money are fairly clear and there is plenty of housing inventory right now. If you are a Realtor, I am about 95% certain that you are probably currently working with someone who can take advantage of this program – and save tens of thousands of dollars when buying a home.

So if you think the 8000 tax credit is a good selling tool to help people get off the fence, wait until they hear about this pile of free money waiting for them.

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One of my good friends (and uber-smart, I’m-lucky-to-know-her-type-of-person) originally posted this on Zillow’s mortgage blog, and since she said it so well… I figured that there was no need for me to re-say it. Thanks Mary!

Speaking from the White House today, President Obama urged homeowners to refinance.  Mortgage rates are at historical lows, and the government’s new Making Home Affordable plan has been set into motion, opening the door for millions of homeowners to refinance at a lower rate to reduce their monthly payments.

Obama noted that refinance activity has spiked recently:  “We’ve already seen a substantial jump — 88 percent increase in refinancings over the last month.”  At Zillow Mortgage Marketplace, we’ve seen it, too.  Loan requests increased 164% in March vs. February, with more than 60% requesting a refinance loan.

If you are one of the 7-9 million people who could benefit from refinancing, make sure to check the most up-to-the minute mortgage rates, and then find out what rate you qualify for by submitting a loan request on Zillow Mortgage Marketplace to get personalized mortgage quotes from our network of thousands of lenders.

More info can be found at the official government Making Home Affordable website.

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Is now the time for an Arizona refinance?

Yes.

And here are just a few reasons why.

Arizona Refinance Reason #1: Interest rates are low and probably won’t move much lower.

Because of the actions taken by the US government over the last few months, interest rates are lower now than they have been in generations. Will they go significantly lower? Probably not. What is happening now is that the lending institutions are using interest rates as a way to control volume. They already have more loans than their operations staff can handle (some lenders are on 45 day turn times right now) and when this happens, they use interest rates as a way to slow down the volume of loans they are getting.

Arizona Refinance Reason #2: Guidelines are tough and probably only going to get tougher.

In the last couple of weeks, we have seen 2 major guideline changes: first, lenders are now requiring a 620 mid score for all FHA loans (Arizona FHA streamline and Arizona VA streamline loan programs included) and second, FHA issued a new rule allowing up to 85% cash out for an FHA refinance, down from 95% previously. In the last 12 months, guidelines have become significantly tougher – and I don’t think we have seen the last of tightening guidelines.

Arizona Refinance Reason #3: The Obama Refinance is now available.

Lenders are now taking applications for the “Obama refinance” – aka “the underwater refinance” plan. This plan is now in place where you can refinance your home even if you owe (slightly) more than it is worth. True, many people in Arizona who want to do an Arizona refinance probably won’t be eligible for this plan because they are 20-50% upside-down, but it will help a few.

Will the environment for refinancing get better in the future?

Maybe, but don’t count on it.

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For the last few years, one of the most popular Arizona FHA loan programs was the Arizona FHA 95% cash out loan. This loan program would allow eligible homeowners to get up to 95% of their homes value in cash to be used for pretty much any reason they wanted (pay off bills, home improvements, vacations… you name it).

For any Arizona FHA mortgage loans where the FHA case number is dated April 1, 2009 or later, the maximum cash out allowed has been lowered to 85% of appraised value. Details were released a few days ago in the official FHA Mortgagee Letter 2009-08 (it opens as a Word document).

A few highlights of the new FHA 85% cash out program include:

• It is officially on a “temporary basis” until HUD has a chance to analyze and review it’s portfolio and the housing market. That said, I would expect this to be in place for quite a while.
• The property must have been owned by the borrower for at least 12 months in order to qualify for 85% of the appraised value. If owned less than 12 months, the maximum loan is the lesser of 85% of the appraised value or the sales price.
• A second appraisal is required if the loan amount is higher that $417,000 and the property is in an area of declining values.
• Three and Four unit properties must still pass the self sufficiency test in order to be eligible.
• You must be current on your mortgage – delinquent borrowers are not eligible for the 85% cash out program.

Many people have been expecting this change – so it didn’t really come as a surprise. There is starting to be talk about the FHA insurance fund having financial problems with the amount of money in the insurance fund and the amount of money being paid out in claims (or projected to be paid out) — and this is just one way that FHA is attempting to reduce their exposure to these possible future claims.

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Arizona FHA guidelines are getting tougher.

If you are interested in getting an Arizona FHA loan, most lenders are now requiring that you have a minimum of a 620 mid credit score. For many people who are currently in an Arizona FHA loan and are thinking of refinancing by taking advantage of the Arizona FHA streamline program, the mid credit score requirement of 620 will pose a problem.

Up until last week, if you wanted to participate in the FHA streamline program to lower your interest rate without having to completely re-qualify for a new loan, you would be able to do an FHA streamline and as long as you had made your mortgage payment on time for the last 12 months, your credit score didn’t matter.

Now, your credit score matters.

If you are interested in getting an FHA loan, but you have a mid credit score that is lower than 620, it doesn’t mean that you are completely “out” – it just means that you will need to do a little work to get your score higher than 620 before a lender will lend you money.

Fortunately, for people who may be in this boat and have a credit score that needs a little bit of help, we have programs available to help them improve their credit in the shortest possible time.

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Earlier today, the details were released about the “Making Home Affordable” plan outlined by the Obama administration.

When this plan was first announced by President Obama here in Mesa a few weeks ago, my first reaction was “let’s wait for the details“.

My reaction now the “details have been released”?

I don’t know.

Really.

I really don’t have an opinion on whether or not the plan will actually help the number of homeowners as claimed by the media (9 million) – because after all, what most people really want to know is “will the plan help me in my situation” as in… “what’s in it for me“?

And each situation is individual, so be sure to speak with as many people as you can about your options. Real Estate Agents, Loan Officers, Hope Now, Loan Modification Companies, Loan Modification Attorneys – speak with all of these people if you are having trouble making your mortgage payment.

And it is entirely probable that they will all tell you different information — and hopefully with the sum of the pieces, you will be able to paint the picture of what is best for you in your situation.

Ok, sorry to ramble a little. Here is more information about the Making Home Affordable plan – be sure to read through it if you are wondering if the plan will help you in your situation. As always, let me know if you have specific questions.

Making Home Affordable — More Information From FinancialStability.gov:

Borrower Information: Making Home Affordable Refinance and Modification Options

Fact Sheet

Summary of Guidelines

Modification Program Guidelines

Counselor Q&A

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Closing costs.

Due to some very slick marketing by the mortgage industry, many people know that “closing costs are bad” and that they don’t want to pay them. They aren’t exactly who is going to pay them, but they know that they don’t want to.

Here is an ad that I came across from Countrywide.

Does this add say “no closing costs”?

No.

It says “No Cash Required For Closing Costs.” – or in other words – there are closing costs and you are going to pay them, but they can be rolled in to your loan.

Hence the term “no out of pocket closing costs”.

The interchangability of the two terms can be confusing, I realize this. But I just thought I would go on record as saying:

You can pay your closing costs or the seller can pay your closing costs. If you want the lender to pay your closing costs, be ready for a higher than market rate – because in exchange for paying your closing costs, the lender will require a higher interest rate.

Oh, and I rarely if ever see people bringing money for closing costs on a refinance – they are almost always rolled into the loan.

Is it better to pay your closing costs and have the rolled into your loan or is it better to get the bank to pay your closing costs for you in exchange for a higher interest rate?

It depends.

Make sure that when you speak with a loan officer about your situation, you ask them that question.

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If you are considering doing an FHA refinance and getting cash out, as of January 1, there are some new rules regarding FHA refinances where the borrower gets “cash out” and the loan-to-value ratio is greater than 85%.

These guideline changes apply to the FHA 95% cash out program and are effective for all FHA case numbers that are issued after January 1, 2009. If you are getting less than 85% of the value of your home, these guideline changes do not apply.

• The property must have been owned by the borrower as his or her principal residence for at least 12 months preceding the date of the loan application.
• If the property is encumbered by a mortgage, the borrower cannot have been more than 30 days late within the last 12 months and the borrower must be current on their mortgage payments.
• The property must be either a 1or 2 unit property, 3 and 4 units are not eligible.
• Second mortgages may remain in place, but must be in 2nd place behind the FHA insured first mortgage.
• If another person is added to the loan in the refinance, the person must be an occupant of the property. You cant add someone who doesn’t live in the property to the loan in order to meet FHA’s credit underwriting guidelines for the mortgage.

Whenever you go up to 95% loan-to-value, you will now be required to get two appraisals done.

From Mortgagee Letter 2008-40:

In addition, FHA will now require a second appraisal for all cash-out refinances where the LTV, exclusive of the UFMIP, will exceed 85 percent of the appraiser’s estimate of value.  This second appraisal requirement applies regardless of the loan amount or the location of the property, i.e., whether the property is in a “declining area” or is not.  This second appraisal requirement for cash-out refinances is effective for all case number assignments on or after January 1, 2009 and is to adhere to the instructions set forth in ML 2008-09.  Please also note that cash-out refinances with LTVs exceeding 85 percent will be over-selected for post-endorsement technical reviews (PETR) to assure the quality of the underwriting.

Mortgagee Letter 2008-09 sets out the requirements for the 2nd appraisal. It must be done by an FHA approved appraiser engaged by the lender and the costs may be passed on to the borrower. If the second appraisal has an estimated value more than 5% below the first appraisal, the maximum mortgage must be determined based on the lower appraised value.

What this means in simple english is that if you want to get cash out of your home, it is going to be more difficult than it has been in the past.  Lenders are going to require two appraisals and lenders are going to be picking apart the appraisals more than ever. For people who are thinking of using the 95% cash out program, that means somewhere in the neighborhood of $700 in appraisal fees.

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I was speaking with someone today about the FHA streamline program and they asked me the following question:

“When I go through the streamline program, do I get to skip a payment?”

To which I replied:

“Technically, you are allowed to defer a payment when you participate in the FHA streamline program, but we officially can’t call it a skipped payment“.

What is the difference between a skipped payment and a deferred payment?

I truly don’t know – but at some point along the way in my mortgage career, someone told me that it wasn’t okay to advertise a skipped payment, but you could call it a deferred payment.

What does this mean?

Simply put… when you participate in the FHA streamline program in order to put yourself in a better financial position, FHA will allow you to defer one months payment.  This means if you close your FHA streamline loan in the month of January, you will defer February’s payment and your first payment will be due on March 1.

Skipped payment, deferred payment — no matter what you call it, it is just one more reason to find out if the FHA streamline program can benefit you by lowering your interest rate and putting yourself in a better financial position.

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Arizona FHA Streamline: Who Qualifies?

The FHA streamline is more popular today than it was a few years ago because of the number of people who currently have an FHA mortgage is higher than it has been in recent years.

And if you are currently in an FHA loan, often times your best financial move when rates drop is to participate in the FHA streamline program.

Can anyone participate in the FHA streamline program? Almost.  There are 3 basic criteria to the FHA streamline that must be met in order for someone to participate.

Criteria to Participate in the FHA Streamline Program

1. You must currently have an FHA loan and live in the property
2. You can’t have more than 2 30 day late payments in the last 12 months
3. FHA won’t let you participate if the FHA streamline program doesn’t improve your overall financial situation (lowers your rate, fixes your adjustable rate, etc.)

Most people that I speak with are eligible for the FHA streamline program and with rates lower than they have been in years, if you currently have an FHA loan, it probably makes sense to find out if you meet the 3 criteria to qualify for the FHA streamline program.

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