FHA, VA, Conventional, High Cost Financing, Competitive Rates

[Jerry Padilla]

Starting out with an FHA Primary residence in a high cost area, can give you the greatest investment with the lowest down payment.

House hacking with an FHA mortgage can be difficult in high cost area's.

Competition is fierce. You have to get ahead of the game and think outside the box to get your offer accepted on the home you dream of. FHA Primary residence in a high cost area, can give you the greatest investment with the lowest down payment. (Only 3.5% down & up to 6% sellers concessions- closing costs paid by seller and negotiated on at time of negotiation.)

• When it comes to financing, typically clients get pre-approved with a loan officer. When a property is found they submit all of their required documentation along with the purchase offer.
• To get ahead of the game, you can get pre-approved directly through underwriting, giving you a stronger offer than any other financing client who has just been pre-qualified. You would submit all your required documentation ahead of time to the loan officer who would then pass this on to the underwriter, proceeding to get you cleared by underwriting prior to the offer, rather than after, for a specific maximum price. This will help you to close quicker, as you can bypass most of the underwriting system ahead of time.
• Offer a large deposit if offer accepted (maybe your 3.5% down along with an aggressive offer.) as you are now pre -approved versus being pre-qualified.

FHA Maximum financing for high cost areas....

FHA Basic High Cost area limits are:

1 unit - $636,150

2 unit - $814,500

3 unit - $984,525

4 unit - $1,223,475

Maximum Conforming limits are below (If Your Area Qualifies, For Specialty Financing);

Honolulu; Kalawao, Maui; Kauai;

1 unit - $721,150 1 unit - $657,800 1 unit - $713,000

2 unit - $723,050 2 unit - $842,100 2 unit - $912,750

3 unit - $1,115,800 3 unit - $1,017,900 3 unit - $1,103,350

4 unit - $1,386,650 4 unit - $1,265,000 4 unit - $1,371,150

Links to FHA Financing;

2017 FHA Mortgage Loan Limits From Floor -Ceiling

2017 Cities & Counties at Ceiling

FHA Mortgage Limit Look Up For 2017

Keep in mind......when you are Purchasing a 3-4 unit multi-family with FHA - The full fair market rent determined by the appraiser must meet or exceed the mortgage payment. Also including a 25% vacancy factor.

You are also limited to a maximum of 7 units total including subject and investment properties!

House Hacking With An FHA Mortgage - FHA Financing;

Maximum Financed Properties - 4 including subject!

Inducements to Purchase

• Contributions up to 6% of the sales price from seller towards closing costs.

Credit Requirements & Derogatory Remarks

• Required is 600.
• Minimum of 2 trade lines are required
• No more than $1,000 in disputed collections
• Must be all on time payments in the past 12 months of mortgage history
• No more than $2,000 in collections ........ Medical bills are excluded.
• Minimum of 2 years from Chapter 7 or 13 bankruptcy discharge
• Minimum of 3 years from Preforeclosure, short sale, deed in lieu, foreclosure from discharge date or release date.

Down Payment Requirements

• Minimum down payment into the transaction of at least 3.5%. Gift funds are considered part of borrower’s own funds.
• 60 day history is required to verify the source of the down payment. Down payment can not be borrowed, from any source.
• Gifts may be funded by an immediate family member....... But must be verified by 60 day history, and must be a gift with no requirement to pay back.

Reserve Requirements

• 3-4 Unit owner occupied properties must have 3 months PITI

Three (3)- and Four (4)-Unit Property

The maximum mortgage amount for 3-4 unit properties is limited, so that the ratio of the monthly mortgage payment, divided by the monthly net rental income does not exceed 100%, regardless of the occupancy status. This is also taking into consideration, a 25% vacancy factor.

FHA also limits you to having 7 units or less, including subject property and all other rental properties.

• Upfront mortgage insurance premium (UFMIP), and
• Annual insurance premium which is collected in monthly installments

Mortgage Insurance Premium - For 15 year and greater than 15 years.

• 1.75% of purchase price

Annual Insurance Premium

• Greater than 15 years & greater than or = 95% LTV - 0.8%
• Greater than 15 years & less than 95% LTV - 0.85%
• Less than or = 15 years & Grester than 90% LTV - 0.7%
• Less than or = 15 years & less than 90% LTV - 0.45%

Annual Insurance Premium For High Balance Loan Amounts

• Less than or = to $625,000 & less than or = to 95% LTV - 0.8%
• Less than or = to $625,000 & greater than 95% LTV - 0.85%
• Greater than $625,000 & less than or = to 95% LTV - 0.1%
• Greater than $625,000 & greater than 95% LTV - 0.105%

INCOME—RENTAL

• Any net rental income from the subject property must be added to the borrower’s qualifying gross monthly income by applying 75% of the lesser of;
• Fair Market Rent reported by the appraiser; or The rent reflected on the existing or proposed lease agreement.

History of Rental Income.

When a borrower has a history of receiving rental income from the subject property since the previous tax year, the borrower must provide most recent Federal Tax Returns, including IRS Schedule E, covering the previous two (2) years

FHA Rate and Term Refinance -

Maximum LTV is 97.75%

FHA Cash Out Refinance -

Maximum LTV is 85% of appraised value if property has been owned 12 months or greater, and if less than 12 months from purchase than the lesser of purchase price or appraised value is used.

Here is a link with a list of the conforming loan limits for 2017

PDF List of Counties With Conforming Limits For 2017

Here is the site to look up FHA and Fannie Mae/Freddie Mac Loan Limits.

Look Up For Fannie Mae/Freddie Mac Limits For 2017

You can borrow for up to 10 conventional mortgages, down to a price of 10k, and up to confirming limits in your county. You have the option of a 15, 20 or 30 year term.

You can have an unlimited amount of mortgages and still obtain Primary Residence Financing. You are limited to 6 financed properties for investment properties with high balance financing ( the point between the standard ceiling limit and your area's ceiling limit - if above the standard )

Standard Conforming limits are below;

1 unit - $424,100

2 unit- $543,000

3 unit - $656,350

4 unit - $815,650

Maximum Conforming limits are below (If Your Area Qualifies, Please Use the Look Up Link Above to see where your location falls);

1 unit - $636,150

2 unit - $814,500

3 unit - $984,525

4 unit - $1,223,475

Maximum Conforming limits are below (If Your Area Qualifies, For Specialty Financing);

Honolulu; Kalawao, Maui; Kauai;

1 unit - $721,150 1 unit - $657,800 1 unit - $713,000

2 unit - $723,050 2 unit - $842,100 2 unit - $912,750

3 unit - $1,115,800 3 unit - $1,017,900 3 unit - $1,103,350

4 unit - $1,386,650 4 unit - $1,265,000 4 unit - $1,371,150

Anything above this limit, but below your specific counties conforming limit is considered high balance financing. There are different guidelines for both standard conforming limits and for high balance financing. Jumbo loans are for primary residence only and above conforming limits.

Standard Conforming Limit Financing

For A Fixed Rate Purchase, Primary properties, Mortgages 1-6;

• A SFR requires a LTV of 97% (first time buyer only, 95% if not your first purchase)
• A Duplex requires a LTV of 85%
• A Triplex & Fourplex requires a LTV of 75% (possibly 80% with Freddie Mac)
• A minimum credit score of 620

For A Fixed Rate Purchase, Investment properties, Mortgages 1-6;

• A SFR requires a LTV of 85%
• A MFR requires a LTV of 75%
• A minimum credit score of 620

For A Fixed Rate Purchase, Investment properties, Mortgages 7-10;

• A SFR requires a LTV of 85%
• A MFR requires a LTV of 75%
• A minimum credit score of 720

High Balance Limit Financing (Within Conforming limit for individual county specific, & above standard conforming limit)

For A Fixed Rate Purchase, Primary properties, Mortgages 1-6;

• A SFR requires a LTV of 95%
• A Duplex requires a LTV of 85%
• A Triplex & Fourplex requires a LTV of 75%
• A minimum credit score of 620

For A Fixed Rate Purchase, Investment Properties, a maximum of 6 financed properties ONLY ALLOWED. You can not do a high balance loan on an investment property if you have greater than 6 mortgaged properties, including subject property!

• A SFR requires a LTV of 85%
• A MFR requires a LTV of 75%
• A minimum credit score of 620

Here are some answers to FAQ as well;

1. For all 1- to 4-unit investment property transactions.

Cash Reserves Required For Other Properties Owned by Investor;

Cash Reserve Requirements;

6 months Fannie Mae's Requirement for 1-4 Mortgaged Properties.

Fannie Mae's Requirements for 5-10 Mortgaged Investment Properties

Freddie Mac Requirements for 1-6 Mortgaged Properties.

These California cities are in the High Cost areas for 2017;

Los Angeles, Anaheim, Long Beach, San Jose, Sunnyvale, Santa Clara, San Francisco, Oakland, Hayward, Santa Barbara, Santa Maria, Santa Cruz, Watsonville

The CA counties are included in the high cost areas;

Alameda, Contra Costa, Los Angeles, Marin, Orange, San Benito, San Francisco, San Mateo, Santa Barbara, Santa Clara, Santa Cruz

These Colorado cities are in the High Cost areas for 2015;

Edwards, Glenwood Springs, Steamboat Springs, Breckinridge

The CO counties are included in the high cost areas;

Eagle, Garfield, Pitkin, Routt, San Miguel

Washington and Arlington - District of Columbia

These Hawaii cities are in the High Cost areas for 2015;

Kahului, Wailuku, Lahaina

The HI counties are included in the high cost areas;

Honolulu, Maui, Kalawao, Kauai

These Idaho cities are in the High Cost areas for 2015; Bailey, Hailey

The ID counties are included in the high cost areas; Blaine, Camas, Lincoln, Teton

The NY NJ PA counties are included in the high cost areas;

Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union, Bronx, Dutchess, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Suffolk, Westchester

These New York, New Jersey, Pennsylvania cities are in the High Cost areas for 2015;

Jersey City, Newark, New York

Elizabeth City in NC with counties of Camden, Pasquotank, Perquimans

In DC, VA, MD, WV - Washington, Arlington, and Alexandria

In MA - Vineyard Haven - Dukes and Nantucket

Fannie Mae/Freddie Mac High Cost are limits are the same as FHA for 2017. VA is the same as FHA for 2017

FHA and VA are owner occupied and have to be mortgage 1-4. Conventional can be both owner occupied or investment with up to 10 mortgages.

1. Purchasing With A VA Loan Criteria

   Service Requirements For Eligibility

   Obtaining A Certificate of Eligibility

   Explanation of Entitlement and Second Tier Entitlement

   VA Loan Limits are the same as Conforming Loan Limits for 2017

   ELIGIBLE PROPERTY TYPES

   1 – 4-unit properties

   Condominiums—per VA guidelines and must be on VA approved list.

   INCOME

   • In order to be considered for approval of a VA home loan, income stability is a mandatory requirement
   • Veterans recently separated from the service must have a minimum 2 year work history in the same line of work that he/she did in the service. The veteran should be in his/her most recent job for at least 12 months.
   • Rental Income *** Rental income verified as stable and reliable may be included in effective income. Must have prior experience managing rental units or other background involving both property maintenance and rental.
   • Rental Income *** Multi Unit Property Securing the VA Loan (2-4 units) cash reserves totaling at least 6 months PITI
   • 75% of verified Rental history, or the appraisers opinion of market rent
   • Rental Income*** Property the applicant occupied prior to the new VA Loan, use the prospective rental income to offset the mortgage payment only It may only be used to offset the mortgage payment on the departed residence.
   • If no rental income is needed to support PITI - no cash reserves needed!

MAXIMUM FINANCED PROPERTIES

The maximum number of financed properties that the borrower can have is 4. However, the borrower must still have remaining VA eligibility for a VA loan.

GIFTS

A gift letter, source of funds and evidence of transfer of gift funds is required.

MAXIMUM LTV

100% for Purchase transactions
100% for Refinance transactions
100% for IRRRL Refinance transactions

MAXIMUM LOAN AMOUNTS, MINIMUM FICO SCORE AND RESERVE REQUIREMENTS

• Base Loan Amount - Up to the applicable county loan limit for the subject property - including high cost counties

Minimum FICO - 600

Required Reserves - none

• If Base Loan Amount - Above County Loan Limit - $750,000

Minimum FICO - 640

Required Reserves - 2 Months PITI

• If Base Loan Amount - $750,001 - $1,000,000

Minimum FICO - 680

Required Reserves - 4 Months PITI

• If Base Loan Amount - $1,000,001 - $1,200,000

Minimum FICO - 720

Required Reserves - 6 Months PITI

OCCUPANCY

Owner-occupied, primary residences are allowed. Second homes or investment properties are not allowed.

RESERVE REQUIREMENTS
RESERVES – must be liquid, readily accessible funds (non - retirement ) Cash reserves are required under the following circumstances:

1. • If the borrower uses rental income to qualify and the subject property is 2-4 units, six (6) months cash reserves
   • If the borrower uses rental income from other rental property(s), three (3) months cash reserves must be documented.
   • Please refer to “Maximum Loan Amounts, Minimum FICO, and Reserve Requirements” section for any additional restrictions due to loan size.

SELLER CONCESSIONS

Up to 4% of the purchase price.

FHA and VA are owner occupied and have to be mortgage 1-4. Conventional can be both owner occupied or investment with up to 10 mortgages.

Interest Rate Reduction Refinance Loan for Veterans.

The VA Interest Rate Reduction Refinance Loan (IRRRL) lowers your interest rate by refinancing your existing VA loan. By reducing your interest rate, your monthly mortgage payment should decrease. You can also refinance an adjustable rate mortgage (ARM) into a fixed rate mortgage.

IRRRL Info

• No appraisal or credit underwriting package is required when applying for an IRRRL.
• An IRRRL may be done with "no money out of pocket" by including all costs in the new loan or by making the new loan at an interest rate high enough to enable the lender to pay the costs.
• When refinancing from an existing VA ARM loan to a fixed rate loan, the interest rate may increase.
• No CASH OUT with IRRRL
• 6 month mortgage history required.
• No credit underwriting is required as long as....... Existing loan must not be past due more than 30 days, or the payment doesn't increase by more than 20% if reducing term.
• Credit pulled with a required score of 600.
• May not extend term of the refinance more than 10 years from original term.

Virginia Beach, Norfolk, Riverside, San Bernardino, San Diego, Carlsbad, Las Vegas, Dallas, Fort Worth, Arlington, Jacksonville, Richmond, Memphis, Tucson, Albuquerque, Washington DC, Tampa, Baltimore, Houston, Atlanta, Ventura, Omaha, Bakersfield, Dayton, Columbia are all area's with a high population of veterans.