FHA Announces Long-Awaited Changes to Eligibility Requirements.

According to HousingWire.com, The Federal Housing Administration has finally issued a long-awaited update to its condominium rules, announcing Wednesday that it will now allow individual unit approval and is taking other steps to loosen requirements that make these properties eligible for FHA financing.

Written by Jessica Guerin, 

Under the revised guidelines – which take effect Oct. 15, 2019 – an individual condo unit in a building of 10 units or more may be eligible for spot approval if no more than 10% of the units are FHA-insured. For units in buildings with fewer than 10 units, no more than two units can have FHA insurance.

The FHA is also extending the recertification deadline for approved condo projects from two to three years, and it will insure more mixed-use projects, or those with more commercial space, to be eligible, stating that approved projects can now have up to 35% of their square footage dedicated to non-residential use.

The agency also loosened restrictions on owner-occupancy rules, stating that eligible condo projects can now be just 50% owner-occupied. It also said it will insure up to 50% of units in any given project. The FHA said it expects the updated guidelines to qualify an estimated 20,000 to 60,000 more condo units per year for financing. Currently, of the more than 150,000 condo projects across the country, only 6.5% are approved for FHA financing.

This is something the FHA is aiming to change with the updated guidelines, Department of Housing and Urban Development Secretary Ben Carson said on a call with reporters Wednesday.

“FHA is publishing a new rule in the Federal Register that we believe will offer significantly more options for individuals and families to buy a home, specifically the kind of home more and more people are looking for in order to achieve homeownership, and of course that is a condominium,” Carson said, adding that the new rules “will open many doors to buyers who have been waiting on the sidelines, waiting to become homeowners, waiting to share in the American Dream.”

FHA Commissioner Brian Montgomery said the agency has been working alongside stakeholders for three years to update its condo policies.

“It had become clear for many years that we needed to update our condo project approval regulations so that, while not exposing the agency to more risk, they are more flexible and less prescriptive and more reflective of the current market than the previous condominium project approval provisions,” Montgomery said on the press call.

The National Association of Realtors was among the of the first trade associations to applaud the agency for finally making the long-awaited move.

NAR said the changes, which it has championed for more than a decade, should help alleviate affordability issues for many prospective homebuyers.

“We are thrilled that Secretary Carson has taken this much-needed step to put the American Dream within reach for thousands of additional families,” said NAR President John Smaby.

“It goes without saying that condominiums are often the most affordable option for first-time homebuyers, small families and those in urban areas,” Smaby continued. “This ruling, which culminates years of collaboration between HUD and NAR, will help reverse recent declines in condo sales and ensure the FHA is fulfilling its primary mission to the American people.”

We greatly appreciate your time and hope to hear from you again soon.
Phone: 616-292-6703
Email: bob@prioritymortgagecorp.com
www.bobheinmortgage.com
– Bob Hein, Mortgage Lender
NMLS 162989

Source:Guerin, Jessica. “FHA to Make Financing Easier for Condo Owners.” HousingWire.com, HousingWire, 14 Aug. 2019, www.housingwire.com/articles/49851-fha-to-make-financing-easier-for-condo-owners.

Should you and could you Bypass your Appraisal?

That’s right, you read the subject line correctly!
It is possible in some cases to finance a home without an appraisal.  Here are some of the pros and cons in doing so.

Although it has been known by mortgage lenders, Realtors, and fellow professionals in the industry, the average home buyer is starting to learn that on some occasions, mortgage financing can be completed without the lender requiring an appraisal. After the housing crisis occurred a little more than a decade ago, most would think it is prudent for lenders and buyers to ensure a completed appraisal for the financing of real estate. In most cases, this is true, but there are some occasions where a buyer may feel secure with the value of their purchase, and a lender feels secure enough with their collateral without needing an appraisal. Surprisingly, there are times when forgoing an appraisal may even be beneficial to a buyer.

Before you might consider an appraisal waiver, here are some things you should know:
  • When can appraisal’s be waived?
  • What determines whether an appraisal can be waived?
  • What are the pro’s of waiving an appraisal? 
  • What are the con’s of waiving an appraisal?
(Remember, appraisals are different than home inspections.)
 
When can an an appraisal be waived?
 
As of now, FHA, VA & USDA-RD loans only allow appraisal waivers for some Streamlined Refinance programs, but not for purchase loans.  At this point in time, only Conventional purchase loans backed by Fannie Mae & Freddie Mac may on occasion allow for an appraisal waiver. In fact, Freddie Mac estimates that eventually 15% of new loans will be closed without an appraisal (1). 

What determines whether an appraisal can be waived?

The computer of course….The mortgage lender will enter in all of the data into their automated underwriting system (AUS) regarding the amount of the buyer’s down payment, credit, property address, etc. The AUS response from Fannie Mae or Freddie Mac determines whether an appraisal waiver may be permitted. Surprisingly, the approval of the appraisal waiver really doesn’t have much, if anything, to do with the credit quality of the borrower. Instead, in the issuing of an appraisal waiver, Fannie Mae and Freddie Mac are relying on their proprietary analytics based on their inventory data, and their online databases. “If [Fannie and Freddie] have a good basic inventory of information about the house, its value, and what it sold for, you’re more apt to get a property inspection waiver,” Don Frommeyer, a mortgage originator at Marine Bank in Indianapolis.

 What elements should a credible appraisal include?

  • A clear, accurate description of the subject property.
  • The homes location, amenities, and features.
  • Sales that are the most recent and most comparable.
  • Comments that explain important issues in the appraisal.
  • An opinion of value supported by the analysis of the comparable sales.
  • Interior and exterior photos of the subject property.
  • Exterior photos of the comparable sales used and maps indicating the location of the subject property in relation to the comparable sales. 
Pros
  • An appraisal waiver can shorten the financing process by eliminating the wait time for an appraisal to come in.
  • Reduced financing costs by eliminating the cost of the appraisal which can cost between $450-$550.
  • Agreeing to an appraisal waiver might make a buyer’s offer look more attractive to a seller which can sometimes make the difference in getting their offer accepted when competing against multiple offers.

Cons

  • In my experience, as a mortgage lender, most home buyers prefer to pay for an appraisal. They like to see the photos, the comparisons, the girds, the maps. They want something tangible showing their very important purchase was a good investment.
  • Although many buyers prefer the option of being granted an appraisal waiver, not all are convinced that no-appraisal loans are a wise decision, and could result in over paying for the property.
“Fannie and Freddie’s computer programs cannot keep cannot smell 20 cats living at the property,” says Ryan Lundquist, an appraiser based in Sacramento, California “They won’t be able to identify problems that could potentially lower the value of the home.” (1).  I guess he does make a good point there. 
Conclusion
Fannie Mae and Freddie Mac have created this option in response to market drivers, allowing lenders to offer their borrowers a choice for efficiency and cost savings by foregoing an appraisal on some refinance as well as purchase transactions. Whether you are considering an appraisal or an appraisal waiver with a new home purchase, I will be right there by your side, along with your Realtor, advising you towards the best options possible
 

Mortgage Insurance: PMI & Other Types – What do they Cost? Can they be Eliminated? If so, How & When?

Dear Friend,

     First of all, please know that as long as I continue to remain in this fun and exciting business, I will always be here to answer your questions and provide you with whatever information or assistance you need. It is always a joy to hear from a forever client!
I often receive questions asking for a refresher on how mortgage insurance works. I thought I might send this email to summarize the different types of mortgage insurance: including how much mortgage insurance costs on an up-front and/or monthly basis, whether or not it can be eliminated, and if so – how and when can it be eliminated. Perhaps you will find this information helpful?  Perhaps you have a friend or a family member who will?

Continue reading “Mortgage Insurance: PMI & Other Types – What do they Cost? Can they be Eliminated? If so, How & When?”