For the past 4 years, investors and home buyers benefited from FHA waiving the 90 day flip rule as the market was flooded with foreclosures. Prior to the waiver, FHA financing could not be used to purchase a home from a seller who had not owned it for at least 90 days. While bank owned properties (REO) were not subject to the 90 day flip rule, investors who purchased foreclosures to fix and flip were not able to sell to FHA buyers until they had been on title for 91 days or longer. FHA buyers sat on the side lines watching Conventional and VA buyers having full access to the real estate market.
FHA’s 90 day flip rule waiver which began in February 2010 ended January 1, 2015. FHA didn’t give a reason for ending the rule. My guess … with inventory of foreclosures declining and home prices increasing, flips are less attractive for investors.
Absolutely! No question that VA financing is better than any other loan program to purchase or refinance a home in today’s market. It’s a bold statement but in my opinion it’s true. Here’s why:
- NO down payment required for loan balances up to the county loan limit
- NO mortgage insurance required
- Lower interest rate compared to other loan programs
- Easier qualifying factors compared to other loan programs
- Limits on closing costs veteran is allowed to pay
Still not convinced? A side by side comparison of VA financing to other loan programs like Conventional or FHA will make you a believer.
TIP: Most mortgage lenders offer VA loans however, not all loan officers are experts in VA financing. If a loan officer doesn’t ask if you are a veteran, be sure to tell them. Then ask for a comparison of VA financing to other loan programs you qualify for. If you don’t get what you need, move on and find a VA home loan expert.
Did you know veterans can use their home loan benefits more than once! Did you know a veteran can use a VA loan to refinance an existing Conventional loan!
Did you know the VA funding fee is waived if veteran has a 10% or more disability!
TIP: If you used VA financing previously, you will need the property address and date mortgage was paid off (sale of property) to get your VA home loan benefits restored before you can use them again. An experienced VA loan officer can help you with this.
Stan was referred to me by a mutual friend. He had a conventional mortgage on his home and wanted to see if he could refinance to lower the interest rate. I asked Stan if he was a veteran. He said yes.
That began a conversation about the benefits of VA financing versus a Conventional loan. Stan separated from the military 48 years ago and never took advantage of his VA home loan benefits. He had no idea what he was missing since VA financing never came up in his previous real estate transactions. Stan was pleasantly surprised to learn he could use his benefits after all these years. He got a lower interest rate compared to a conventional loan and his cash to close was $365 after applying a lender credit to closing costs. The refinance reduced his interest cost $234 a month.
TIP: An experienced VA loan officer will help you complete and submit a Certificate of Eligibility (COE) to validate your home loan benefits. It’s the 1st step of qualifying for a VA loan.
Ben wanted to lower the interest rate on his mortgage so he applied for a Conventional refinance with his credit union. The credit union sent out their appraiser. Since it was a conventional refinance Ben needed the appraised value to show he had at least 20 percent equity to avoid monthly mortgage insurance. Value came in $2000 lower than expected. Ben was told he would have to bring that money to escrow on top of several thousand more to pay for closing costs. He said NO thanks and walked away.
Ben’s neighbor was a realtor who suggested he contact me to see if I could help. When I learned he was a veteran I asked why he didn’t consider a VA loan. Turns out the credit union doesn’t do VA financing so the loan officer didn’t suggest this option. Ben didn’t think VA home loans were any good but he soon learned nothing could be further from the truth. After being discharged from the military 30+ years ago, Ben was another veteran who had never used his home loan benefits. With an appraisal from the credit union showing he had 19.6 percent equity and learning he was eligible for 100% financing we moved forward with a VA refinance. We couldn’t use the credit union’s appraisal because a VA certified appraiser is required to perform the inspection.
Ben was pleasantly surprised when the VA appraisal came back with a significantly higher value than the previous appraisal. In fact, he decided to pull cash out to pay off a new car recently purchased. In addition, he saved $119 a month on his mortgage payment and got a much lower interest rate compared to a conventional loan.
“We are so thankful that Barbara was our VA specialist. She is very knowledgeable, professional, and patient. She kept in touch with us on a regular basis, providing information and updates on the process. She essentially “led us by the hand” through the myriad of VA paperwork, and by doing so simplified the entire process for us. She helped us find the best possible rate by following the market daily. She briefed us on options about how to handle the VA funding fee. We decided to pay nothing down, and we were still able to lower our monthly payment. Our experience with Barbara was extremely positive, and we recommend her highly to any veteran looking to refinance or purchase a home. We would not hesitate to call upon her in the future.”
Ben & Pam Collins
Hopefully I have inspired you to take advantage of your VA home loan benefits to purchase your next home or refinance the one you have.
To Your Success,
A quick history lesson. In 2008 FHA’s Annual Mortgage Insurance Premium (MIP) factor was .55 percent. In October of 2010 it increased to .90 percent and jumped to 1.15 percent in April 2011. As of April 2012, MIP is 1.25 percent for base loan amounts less than $625,500. This applies to single family properties with 30 year fixed rate loans.
In April 2012, FHA also announced they would DECREASE the Up Front Mortgage Insurance Premium (UFMIP) and Annual MIP on Streamline refinances for existing FHA mortgages that were “endorsed” prior to June 1, 2009. Endorsed means … the loan is insured by FHA. Here’s an example. Let’s say you purchased a home using FHA financing in April 2009. After the loan funded and escrow closed, the lender sent your loan package to FHA for review and to be insured. This process can take weeks or even a couple months. If your existing loan is within a couple months of the May 31, 2009 cutoff, a loan officer has the tools to verify if your loan qualifies.
Now for the really good part. The Annual MIP decreases to .55 and the UFMIP decreases to .01 percent regardless of the loan amount. This new policy takes affect with FHA case numbers assigned on June 11, 2012. WOW … finally a policy that will help existing FHA homeowners take advantage of lower interest rates even if the homeowner is underwater.
If your mortgage was endorsed by FHA after May 31, 2009, the latest UFMIP of 1.75 percent and Annual MIP of 1.25 percent will apply to the Streamline refinance. This may not be a deal breaker. Ask a loan officer to run your numbers and see if a refinance will save you money. With interest rates this low it may work.
If your property is located in California, I can help you with an FHA Streamline refinance.All the Best! Barbara
Homeowners with an existing FHA mortgage have an opportunity few other homeowners do. Refinance to a lower interest rate even if you owe more than the value of your home. It’s called an FHA Streamline refinance and there is NO appraisal required. FHA Streamline refinance is designed to lower the monthly payment on an existing FHA insured mortgage.
Top 10 Questions and Answers:
Why is it called a Streamline Refinance?
Fewer hoops for borrower to jump through. No income documentation required. Debt-to-income ratio is not required. Appraisal not required. These are all feature of a “non-credit” qualifying FHA Streamline refinance.
Can I get an FHA Streamline Refinance if my present mortgage is not FHA?
NO. Only homeowners with an existing FHA mortgage are eligible to apply for an FHA Streamline refinance.
Do I have to use the same lender who is servicing my loan now?
NO. Borrower can shop around for the best terms and fees for the new FHA loan.
Do I have to be current on my loan?
YES. A credit report is pulled to verify no mortgage lates in the past 12 months and that borrower has a minimum credit score per lender guidelines.
How much do closing costs run?
They vary from one lender to another. However it’s possible for a borrower to get a NO CLOSING COST loan. We do it all the time. No loan costs and save money on your monthly mortgage payment … that’s a no brainer!
Interest rates have dropped since I purchase my home recently. Can I refinance to a lower rate?
YES. FHA has two Streamline refinance options. A homeowner must have made a minimum of six monthly payments on the existing mortgage before applying for a “NO APPRAISAL” Streamline refinance. If you have had your mortgage for less than six months, you can apply for an FHA Streamline refinance but an appraisal is required and the maximum loan-to-value (LTV) would be based on the new appraised value.
Does a refinance have any impact on the FHA mortgage insurance premium I am paying now?
Probably. FHA’s Up Front Mortgage Insurance Premium (UFMIP) and Annual Mortgage Insurance Premium (MIP) have gone UP and DOWN in recent years. As of April 2012 both premiums increased. A refinance would be subject to the latest FHA mortgage insurance premiums with an exception. If the FHA mortgage you are refinancing was insured by FHA prior to May 31, 2009 you may qualify for a reduction to UFMIP and MIP. See details in my blog “FHA Announces Lower MIP on certain Streamline refinances.”
Can I lower my monthly payment even if the FHA mortgage insurance premium is higher?
YES. With interest rates currently below 4.0 percent it’s possible. It will depend on the difference between your current interest rate and MIP factor and the new rate and MIP factor. A loan officer can run those numbers to see what the savings is before moving forward with a refinance.
I heard that FHA requires me to pay mortgage insurance for a minimum of five years. What happens if I refinance?
The clock starts over.
Can I add or delete a borrower on the new loan?
Yes. A borrower can be added to the new loan without credit qualifying as long as all existing borrowers remain on the loan. A borrower can be removed from a loan but the remaining borrower(s) must credit qualify.
All those in favor of paying NO monthly
MI … raise your hand!
THINK … lower loan costs
THINK … lender paid mortgage insurance (LPMI)
THINK … seller contributions can pay for borrower’s LPMI
THINK … no MI means borrower qualifies with a lower debt ratio
FHA is a great loan program for home buyers with less than perfect credit and need a smaller down payment. However, borrowers with a 740 or higher qualifying FICO score and at least 5 percent down payment, should consider a conventional mortgage with lender paid mortgage insurance (LPMI).
LPMI means the borrower makes a lump sum MI payment at closing and never has monthly MI. Best of all … the LPMI cost can be paid for with seller contributions. The LPMI cost and guidelines will vary by lender. Our bank allows loan amounts up to $417,000 on owner-occupied purchases. Check out the example below that compares a Conventional loan with LPMI to FHA with MI paid monthly.
The savings is HUGE! Especially when you consider that FHA requires the borrower to pay mortgage insurance for a minimum of 5 years. After that it can be removed with an appraisal showing loan-to-value is 80 percent or when the loan reaches 78 percent LTV based on scheduled amortization. That generally occurs between years 6 & 7.
In the example above, a borrower would have to qualify with a $277 higher monthly payment. Without MI you could qualify for a higher purchase price and still end up with a lower monthly payment.
Find a loan officer who offers Conventional financing with LPMI and see if the program will work for you.
All The Best!
UPDATE: December 10, 2012
FHA announced today they have extended the 90 flip waiver through December 31, 2014.
UPDATE: December 27, 2011
Good news as FHA extends waiver of anti-flipping regulations through December of 2012. The new extension will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales.
December 20, 2011 post
We knew it was coming but hoped FHA would announce an extension of the 90 day flip waiver into 2012. As of today they haven’t so here’s what you and your buyers need to know to avoid an underwriting nightmare.
HUD announced they will accept fully executed purchase contracts dated through December 31, 2011 that involve a flip property.
Expiration of the waiver impacts investors who buy, rehab and flip. They will have to hold properties a bit longer and not go into contract until day 91 if they choose to accept an offer from a buyer using FHA financing. REOs are not affected by FHA’s waiver so title does not need to be seasoned.
We have been though this before. It was three days before the waiver was set to expire on January 31, 2011 when HUD announced the waiver would be extended through December 2011. History may repeat itself but for now we have to go with what we know.
Advice for Agents
If you are listing a flip property, avoid offers from FHA buyers until seller has been on title for 91 days.
If you are representing an FHA buyer, check title records to make sure the seller has been on title for 91 days or longer.
I’ll keep you posted in the event FHA announces an extension.
FHA’s Annual Mortgage Insurance Premium (MIP) is increasing for a second time since October 2010. HUD says its not because their capital reserves are hurting … it’s to stock the pot for the future. The announcement goes on to say, “it is anticipated that this increase will have minimal impact on borrowers but will significantly strengthen the capital position of the MMIF”.
It was October 2010 that FHA’s MIP went from .55% to .90% on a standard 30 year mortgage. The latest increase is effective with case numbers assigned on or after April 18, 2011.
- MIP increases to 1.15% for LTV’s GREATER than 95% on 30 year loans
- MIP increases to 1.10% for LTV’s EQUAL to or LESS than 95% on 30 year loans
- MIP increases to .50% for LTV’s GREATER than 90% on 15 years loans
- MIP increases to .25% for LTV’s EQUAL to or LESS than 90% on 15 year loans
Take a look at what the new policy means on a standard FHA 30 year mortgage with 3.5 percent down and the Up Front Mortgage Insurance Premium financed into the loan:
FHA case numbers are assigned when a borrower has a purchase contract accepted and their loan package is ready for submission to a lender for underwriting.
Additional note: the Up Front Mortgage Insurance Premium (UFMIP) remains un-changed at 1 percent of the base loan amount.