Sunday, April 26, 2009

New Condo Insurance Rules

There are new rules regarding insurance coverage for attached condominium projects. For all loan applications dated on or after March 1, 2009, lenders are now required to verify that hazard insurance covers fixtures, equipment, and other personal property inside individual units.

If the master insurance policy provides this type of coverage, then the borrower does not need to purchase additional insurance. The master insurance policy is the one that is included in the HOA dues. Most master insurance policies for condos DO NOT include this type of coverage, so the borrower needs to purchase additional insurance before the loan can close.

This type of insurance is known as "walls-in" coverage, commonly referred to as an HO-6 policy. The HO-6 policy must provide coverage for no less than 20% of the condominium unit's appraised value.

What this means for real estate agents and mortgage brokers is that there is now an additional cost to the buyer if the master policy does not provide the "walls-in" coverage.

The cost of the coverage is NOT escrowed, like hazard insurance for a single family residence normally is. However, a full year's payment must be made at closing.

Make sure you tell your buyers that they need this new coverage if the master policy doesn't provide it.

Wednesday, April 22, 2009

Can I Use My 401(K) for the Down Payment?

A number of people recently asked us if they could borrow money from their 401(K) or mutual fund account and use that to pay for their down payment. The answer is yes, and here are the underwriting guidelines:

If the 401(K) is being listed as an asset on the loan application, the total amount of the 401(K) must be reduced by the amount that was borrowed. However, the 401(K) loan payments do NOT have to be counted as liabilities against the borrower. This is a great way to secure the funds for a down payment or closing costs without increasing a borrower's debt-to-income ratio.

If the buyer borrows money against a non-liquid asset (real estate, cars, etc.) then the payments do have to be counted as liabilities.

Friday, April 17, 2009

What Are the Processing and Underwriting Fees?

Ever wonder what the processing fee and the underwriting fee are for on a Good Faith Estimate and final settlement statement?

The processing fee pays for the person who does all the paperwork involved in getting a loan into underwriting, taking care of any conditions, and making sure the loan closes. The processor orders the appraisal, the insurance certificate, the flood cert, any verifications that are needed, etc. If the loan officer hires a processor to do this work for him, then the processing fee goes to the processor. If he does the work himself, then he keeps the processing fee for himself. The typical fee for processing is between $350 and $450.

The underwriting fee goes to the lender and pays for the person who determines whether the borrower and the property fall within the loan program guidelines (credit, income, assets, etc.). The underwriter verifies everything that the processor has sent to the lender. The underwriting fee is different for every lender, but typically, the fee is about $625.

Tuesday, April 14, 2009

Property Tax Credit - Can it be Used to Pay for the Down Payment?

We are often asked if the property tax credit (the pro-rated share of the property taxes that is taken out of the seller's account and put into the buyer's account) can be used to pay a part of the buyer's down payment requirement.

The answer is no. However, the property tax credit can be used to pay some of the buyer's closing costs.

As an example, assume someone is buying a house for $100,000 and the down payment is 3.5% of the purchase price, or $3,500. The property tax credit cannot be used to pay any of this amount. It doesn't matter how large the tax credit is - the buyer still has to contribute $3,500 towards the transaction. Depending on the type of loan, the $3,500 can come from a relative or a down payment assistance program, but it can never come from the property tax credit.

Just a reminder - this has NOTHING to do with the $8,000 first-time home buyer credit.

$8,000 Tax Credit - a Reminder on How it Works

We get calls every day from people who are confused about the $8,000 tax credit for first-time home buyers. Here's what you need to know:

- If you (or your spouse, if you are married) have not owned your main home in the past three years, you are eligible for the tax credit. A "main home" is defined as the house you live in most of the time. This means you could have owned investment properties, or even a second home, as long as you did not own your "main home".

- If you have already filed your 2008 taxes, you can get the tax credit this year by filing an amended return. An amended return form is very easy to complete - it is not a full tax return.

- You need to purchase the house between January 1, 2009 and November 30, 2009 to get the credit.

- You do NOT have to pay the credit back.

- This is a tax credit, not a tax deduction, so you get all the money in your fist.

- If the house you're buying is less than $80,000, then you only get 10% of the sales price as a credit - not the entire $8,000. A $70,000 house would give you $7,000, a $60,000 house would give you $6,000, etc.

- If you make more than $75,000 and you're single, or more than $150,000 as a couple, the credit starts to get phased out.

- You need to keep the house as your main home for 3 years to keep the credit.

Check out our web site for access to the IRS form to claim the credit.

CHFA Loans - 99.395% Financing

Need 100% financing with an FHA loan WITHOUT getting a gift or a loan from a relative? Check out CHFA loans. The Colorado Housing and Finance Authority (CHFA) can't quite get you to 100%, but they can get you to 99.395%, which is pretty close.

Only a small percentage of mortgage brokers and lenders are approved to sell CHFA loans, so you might not know how good they are. Here's how they work:

-- There are two loans. The first mortgage is a regular FHA loan. It requires a 3.5% down payment.
-- The second mortgage is for 3% of the first loan amount. The total of the two loans is 99.395% of the purchase price.
-- The interest rate for both mortgages is the same and they are both 30-year fixed rate loans.
-- CHFA requires the borrower to contribute $1,000 towards the purchase.
-- There is an online class that all borrowers must take (it is free).
-- There is no property price limit, but the maximum loan amount for the first mortgage is the same as for FHA loans. They FHA limits went up recently. Check our web site for the details.
-- There is NO first-time homebuyer requirement.
-- The seller can pay up to 6% of the purchase price towards the buyer’s closing costs – more than enough to cover everything.
-- There are income limitations, but they are much higher than for any other down payment assistance program. Check our web site for the income limits.

We have a Quick Reference Guide for CHFA loans on our web site. Follow the link at the bottom of our home page. Here's the link to get to our home page: