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The Mortgage Issue

by Chicago Agent

With so many questions swirling around the industry today in regards to the ever-changing mortgage landscape, we decided to hand the keyboard over to Chicago Agent readers. In our cover story, 10 different agents posed a question to their favorite mortgage professional, and the answers can be found below. From FHA rule changes to jumbo loans, here are a number of questions that our readers wanted answered.

Q: RANDY STOB, RE/MAX Achievers, Lombard, 630.678.0300 Ext. 235
My prospective buyer owned a home for 12 years, but sold it last year and he has been renting ever since. If he purchases a home, will he be eligible for the $6,500 homebuyer tax credit?

A: PAUL LUEKEN, President, 1st Advantage Mortgage, paul.lueken@1amllc.com
Yes, he is eligible because he lived in a home for more than five consecutive years during the last eight years. So even though he sold his home last year, he qualifies because he was an owner/occupier of the home for at least five years in the past eight.

The tax credit incentive is still the same for first-time homebuyers; they can receive an $8,000 credit as long as they have not owned a home in the three years prior to the day of purchase. However, please remember these guidelines your clients must meet in order to take advantage of this incentive:

• Qualified borrowers must sign a contract by April 30, 2010 and close before July 1, 2010 in order to receive the tax credit.
• Any single-family homes (including condos, co-ops and townhouses) that will be used as a primary residence are eligible properties.
• There are also income guidelines that must be followed before you can claim the credit, which have been loosened considerably since the extension and expansion of the initial program. Single buyers can now earn up to $125,000 and still receive the full tax credit, while a married couple can earn $225,000 and receive the credit as well.
• The tax credit is also determined by the price of the home and will only be awarded on homes purchased for $800,000 or less.

Also, please remind your buyers that a tax credit is not the same as a tax deduction. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes — so if he owes $8,000 in income taxes and receives this credit, he wouldn’t owe anything to the IRS.

Including repeat buyers provides a window of opportunity for even more eligible shoppers, due to the fact that more people can qualify under the new rules and guidelines. Hopefully this will continue to stimulate the housing market and prospective buyers will take advantage of the credit while they are still able to do so.

Q: MOLLY BROWE, RE/MAX Showcase, Lake Forest, 847.420.3308, mollybrowe@comcast.net
I specialize in the higher priced home value market. I have been hearing that loan amounts above $417,000 are very difficult to get approved and that the interest rates are rather high – in the 7 percent range? Is this true?

A: CONNIE BRANDT, Loan Officer, Fifth Third Mortgage, Northbrook, 847.291.2736, Constance.Brandt@53.com
Loan amounts above $417,000 are considered “not conforming” or “jumbo loans.” While it is true that the criteria for qualifying for this type of loan amount has gotten more difficult in the last 12 – 18 months, these loans are still available at Fifth Third Bank and at desirable interest rates.

Interest rates for the 15- and 30-year fixed jumbo products at Fifth Third Bank have come down substantially in the last 12 months from their highs of almost 8 percent to now between 5 percent and 5.75 percent.

Fifth Third Bank has relationship pricing for our higher net worth clients as well. While credit eligibility is more difficult, Fifth Third Bank will review every jumbo loan application and aims to make a reasonable credit decision, which ultimately benefits a borrower.

Q: LANDON HARPER,
@properties, Bucktown, 312.617.6070,
landon@atproperties.com
Can a seller pay closing costs for the buyer in a purchase transaction?

A: NEENA VLAMIS, President, A and N Mortgage Services, Inc., 773.305.5626 ex. 104, neenav@aandnmortgage.com
Yes! A seller can pay a specified percentage of closing costs depending on the property type, the loan-to-value (LTV) ratio and the type of loan.

The closing costs sellers may pay include: fees for the loan origination, discount points, credit report, appraisal, title insurance, survey, loan underwriting, tax service, document preparation, deed recording, home inspection and loan assumption.
Conventional – The maximum contribution for conventional loans is:

• 90 LTV: 3 percent of the lesser of the sales price or appraised value, if the property is to be occupied as a principal residence or second home;
• 76-90 LTV: 6 percent of the lesser of the sales price or appraised value, if the property is to be occupied as a principal residence or second home;
• 76 LTV: 9 percent of the lesser of the sales price or appraised value, if the property is to be occupied as a principal residence or second home.
FHA – On an FHA loan, a seller can currently contribute up to 6 percent of the total closing costs and prepaid items. This is subject to change and match conventional guidelines during the first quarter of 2010.

In both conventional and FHA loans, the buyer must contribute a minimum percentage of the transaction costs. On an FHA loan, the buyer must contribute a minimum of 3.5 percent (the down payment) and on a conventional loan, a minimum of 5 percent.
VA – There is one more scenario: VA. In this case, a seller is allowed to pay all closing costs, plus up to 4 percent of the sales price, to reduce other costs paid by the buyer. The 4 percent limit includes the VA funding fee, prepaid and escrow costs, discount points and payment of any debt to help the borrower qualify for the mortgage.

The buyer can, of course, never receive a seller credit for anything more than the total of all eligible closing costs.

Q: CHRISTINE CARR, Residential Consultant, Dream Town, 312.423.9263, ccarr@dreamtown.com
Many buyers ask me if it’s possible to use an FHA loan to finance a short sale or foreclosure? Also what loans are available for home improvements?

A: CHRISTINA ZASH COLOMBO, Vice President of Residential Lending, Blueleaf Lending, 773.255.1316, zashcolombo@Blueleaflending.com
The Federal Housing Administration program does allow for purchase of foreclosed and short sale properties. FHA loans are a great tool for the consumer because they not only have low down payment requirements, but they also have more flexible qualifying guidelines. FHA loans are not limited to single-family homes but can also be used to purchase FHA approved condos and two- to four-unit owner-occupied properties.

The areas of concern for FHA, or Fannie Mae for that matter, is whether the property is in a saleable condition. More times than not in a foreclosure or short sale, the property condition does not meet HUD guidelines, i.e. missing appliances, countertops and general damage. To help with this issue, HUD has a 203(k) streamline program, which can be used to purchase the home and finance certain construction costs up to $35,000. The scope of work that is allowed is specific in nature and its guidelines must be adhered to strictly. This 203(k) streamline program fills a unique and important need for homebuyers. When buying a house that needs repair or modernization, homebuyers usually have to follow a complicated and costly process. The 203(k) streamline saves borrowers both time and money. Properties that are eligible for this program are single-family dwellings, condominiums, townhouses, mixed use (storefront) and one- to four-unit buildings.

Examples of some of the improvements allowed include, but are not limited to, repair/replacement of roofs, gutters and downspouts; repair/replacement/upgrade of existing HVAC systems; repair/replacement/upgrade of plumbing and electrical systems; repair/replacement of flooring; minor remodeling, such as kitchens, which does not involve structural repairs.

For the loans that do not fit into this box, such as loans that exceed the HUD loan limits or homes that need more than $35,000 in construction lending, Blueleaf Lending, a subsidiary of Midwest Community Bank, offers a construction/rehab program. This program can be used in variety of scenarios. It can be used to purchase and rehab short sale and foreclosed properties as either primary residences or investment property. We also allow for new construction of single-family primary residences, as well as rehab to existing owner-occupied properties.

The mortgage industry has changed dramatically over the past two years and will continue to do so. It is critical that the borrower, agent and lender work together as a team to secure a smooth transaction.

Q: JEFF DYRA, Owner/Broker, itownrealty, 312.328.9520, jdyra@itownrealty.com
With the new lending landscape (including HUD and GFE changes), are more buyers locking into 45-day locks or are 30-day closings still realistic without asking for a rate lock extension?

A: DAN GJELDUM, Relationship Manager, MetLife Home Loans, 312.543.9692, Dgjeldum@metlife.com
The new GFE requirements are not necessarily going to warrant 45-day closings instead of the traditional 30-day, but it will simply require that everyone in the process be “on top of their game.”

New GFE laws mandate that lenders provide a GFE within three business days of the client’s loan application and the GFE must be almost 100 percent accurate from a fee perspective, or the lender is required to pay the difference.

One of the parts of the GFE that is important is the Transfer Stamp section. If lenders don’t accurately disclose this line item in particular, they will have to pay the difference in order for the buyer to close the transaction. Here’s a interesting (or scary) situation: Imagine a buyer is shopping online for their mortgage and decides on an Internet lender in another state who forgets to disclose Chicago Transfer Stamps. On a $300,000 purchase, this would be a $2,250 mistake! As much as a professional mortgage banker would not do this — a lender may just decide that they aren’t going to close the loan, leaving everyone out in the wind.

The new GFE laws, in my opinion, have simply mandated that Realtors need to refer professional, reliable and trustworthy mortgage bankers more than ever. A 30-day transaction is absolutely doable, even 21 days — but all depends on the person with whom the buyers decide to do business on the mortgage side.

Q: ANDRE NGUYEN,
@properties River North, 312.491.0200
Over the past few months, I have heard many people mention that the Federal Housing Administration (FHA) has made significant changes to its guidelines. I have also heard that many of the recent changes are focused on FHA’s condominium approval process. A large portion of my business has historically been helping condo buyers here in the city of Chicago. How will FHA’s recent changes to their condo guidelines affect my clients moving forward?

A: FRED MATVIAS, PNC Mortgage, a Division of PNC Bank, NA, 312.384.4698, Fredrick.Matvias@pncmortgage.com
You are correct, FHA has made some recent changes to their guidelines. One of the major changes that FHA has made is in regard to the condominium project approval process. FHA will now allow lenders to determine a condominium project’s eligibility, review its documentation and certify compliance with the U.S. Departments of Housing and Urban Development’s (HUD’s) regulations. The guideline changes mean the elimination of the longstanding “spot approval,” effective Feb. 1, 2010.

I am aware that the elimination of the spot approval process has recently received some negative attention. There are claims that this change will add a significant amount of time to the condo project approval process. While the elimination of the spot check might add some additional time, once the project has been approved each individual unit should no longer have to go through an approval process. Ultimately, this change to the guidelines should streamline the purchase process for your buyers.

The second major change involved is the Right of First Refusal. Going forward, a homeowners association’s Right of First Refusal will no longer be grounds for declining the approval of a condominium project so long as it does not violate discriminatory conduct rules under Fair Housing regulations, in other words the association cannot discriminate against race, color, sex, religion, handicap, familial status or national origin. This change should mean that more condominium complexes will make it onto the FHA’s Approved Condo List, which in turn allows you to market FHA’s mortgage product to your clients.

Finally, FHA has lowered the required ratio of owner-occupied or second residences in new condominium project construction. FHA has reduced it so that only 30 percent of the units must be owner-occupied or second homes.

The changes are meant to be an improvement to the FHA product and will streamline the FHA’s condo approval process, which will be a benefit for all parties involved. FHA offers buyers a loan program that does not have any income limits, allows the seller to contribute up to 6 percent of the loan amount, has greater flexibility in the source of gift funds and requires down payments as low as 3.5 percent. Overall, FHA has less stringent guidelines than Fannie Mae or Freddie Mac, therefore making it easier to qualify borrowers in general.

Q: GREG BROOKS, Baird & Warner Lincoln Park, 312.437.2000,
Greg.brooks@bairdwarner.com
How is the new Good Faith Estimate going to impact the industry?

A: DAVE RADKE, Private Banking Officer & Residential Mortgage Specialist, The PrivateBank Mortgage Company, 312.329.6440 ext. 428,
DRadke@pvtb.com
This idea of having a more consumer-friendly Good Faith Estimate has been discussed for over a decade. Ultimately, the version that came out of Washington is a three-page document that places the most emphasis on giving the consumer the ability to compare different loan offers. In fact, it has a section titled “Using the Shopping Chart” that allows the consumer to compare up to four different loan quotes.

This new GFE just went into effect January 1 of this year, so the lending industry is still trying to figure out how and where certain fees and items go. From what I have seen so far, this new GFE leaves little room for error. The lenders will be responsible for certain items that are under disclosed. For instance, we now must place the Owners Title Policy cost on this GFE, whereas before we did not. When preparing this document, we need to know what the complete title charges will be at closing. This is difficult to do, especially if it’s a title company you have not worked with or one that may add a charge at the time of closing. Certain items allow for a 10 percent tolerance, while others have to be dead on. For instance, city and state transfer taxes have zero tolerance, if your transfer taxes are $10.5 per $1,000, but you put $7.5 per $1,000 the lender has to pay the entire difference to the buyer.

I had a loan close last week that I brokered instead of having Private Bank Mortgage fund. The GFE was also sent out by the end lender. The transfer tax on my GFE was $8,925, while the one the end investor sent to the customer was $925; an obvious clerical error. The lender cured the mistake by giving an $8,000 credit to the borrower. This is a clear example that originators must be accurate when disclosing initial closing costs to their customers; otherwise it will cost them financially.

I am a big advocate of the buyer having a clear and concise idea of what their costs will be at closing. I appreciate the fact that this is a step in the right direction to penalize the originators who falsely inflate and over charge their customers. This new GFE will be interpreted and reinterpreted, and slowly but surely the industry will adapt.

Q: CHRIS PAGANO, Coldwell Banker Residential Lincoln Park, 312.475.3209, chrispagano@NUMBER1EXPERT.com, 1888nicepad.com
I have a buyer who purchased a condominium in a new construction building that is currently 55 percent sold. Their unit will be one of the first ones to close this March. Can they still obtain financing in this market? How much do they need to put down? What does the developer need to have in place before final approval to close?

A: PERRY FARELLA, Wintrust Mortgage, 773.303.0038 Office, pfarella@wintrustmortgage.com
There are options to finance and close a condo in a new building currently 55 percent under contract. One solution is to do a Fannie Mae conventional loan approval process on the condo project. I offer developers a free Fannie Mae approval package. With this process buyers can close using conventional loans with a 20 percent down payment, even with a nominal percentage of units under contract to owner occupiers.

An attractive option is FHA insured loans. When FHA approved, the condo can be purchased with only a 3.5 percent down payment. I offer developers a free FHA condo project approval package to get this done quickly. The advantage is that this year 50 percent of the loans in any new condo project can be FHA insured and go to closing, providing 30 percent of the units are under contract (pre-sales requirement). Currently, FHA will allow minimum owner occupancy of 50 percent (the others can be investor owned and leased out). In specific circumstances, FHA insured loans may be up to 100 percent in a given condo building this year.

There are numerous other advantages to an FHA approval, which allows more buyers to qualify to purchase units. Concurrent with an FHA approval, I always submit a VA approval package. Veterans can finance a condo with a 100 percent mortgage with a VA condo approval in place.

When a new condo project reaches 70 percent under contract to owner occupiers, then closings can occur with a 5 percent down payment using private mortgage insurance. This is a special program I have with a private mortgage insurance group to offer 95 percent condo mortgages.

Not only is there a minimal down payment, but the seller can pay 3 percent of the sales price to pay buyers’ closing costs and eliminate any PMI payments for the buyer.

Many times, developers offer to pay the first year or two of assessments or just drop prices to induce sales. A smarter approach that will result in more approved buyers and more closed sales is to pre-pay the private mortgage insurance at closing and offer to pay closing costs. This frees the buyer from the monthly burden of the PMI payment and allows more buyers to qualify for the mortgage needed to buy a unit. Banks and lenders still have to count the monthly condo assessment as a cost even if the first two years were paid by the developer. Paying assessments is of no help in qualifying and approving buyers needing mortgage financing.

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