On October 1, 2008, new FHA Refinance Loan Guidelines will go into effect as part of The Housing and Economic Recovery Act of 2008. This new FHA Mortgage program is designed to help thousands of homeowners who are at risk of foreclosure in their current conventional or sub-prime home loans.
The details of The “HOPE for Homeowners Act of 2008″ are as follows:
1. Eligible Borrowers
Only owner-occupants who are unable to afford their mortgage payments are eligible for the program. No investors or investor properties will qualify. Homeowners must certify, under penalty of law, that they have not intentionally defaulted on their loan to qualify for the program and must have a mortgage debt-to-income ratio greater than 31% as of March 1, 2008. Lenders must document and verify borrowers’ income with the IRS.
2. Home Equity & Appreciation Sharing
In order to avoid a windfall to the borrower created by the new 90% loan-to-value FHA-insured mortgage, the borrower must share the newly-created equity and future appreciation equally with FHA. This obligation will continue until the borrower sells the home or refinances the FHA-insured mortgage. Moreover, the homeowner’s access to the newly created equity will be phased-in over a 5 year period.
The borrower agrees to repay the following share of any home equity appreciation with the FHA when the home is sold or refinanced again;
A. 100% of any equity earned is paid to the government FHA if the home sells or the borrower refinances within 1 year.
B. 90% of any equity earned is paid to the FHA if the home sells or the borrower refinances within 2 years.
C. 80% of any positive equity earned is paid to the FHA if the home sells or the borrower refinances within 3 years.
D. 70% of any positive equity earned is paid to the FHA if the home sells or the borrower refinances within 4 years.
E. 60% of any positive equity earned is paid to the FHA if the home sells or the borrower refinances within 5 years.
F. 50% of any positive equity earned is paid to the FHA if the home sells or the borrower refinances after 5 years.
Note: The FHA requires a 3% Exit Fee of the Mortgage Principal Balance when the borrower sells or refinances the home again.
3. Other Requirements
Existing Subordinate Liens
Before participating in this program, all subordinate liens (such as second loans, home equity loans, etc.) must be extinguished. This will have to be done through negotiation with the first lien holder.
Mortgage Insurance and Other Fees
The Up Front FHA Mortgage Insurance Premium that is required on all FHA Refinance Loans will change as part The Housing and Economic Recovery Act of 2008. The Monthly MI Rates have also been updated. The following FHA MI rates will begin on October 1, 2008 and will be effective for 12 months;
FHA Up Front MIP – Required on all FHA Loans (Can be financed into loan amount).
1.75% – Normal FHA 203(b) Refinance 1.5% – FHA Streamlined Refinance 3.0% – FHASecure (Refinance for high risk borrowers who are already delinquent on current mortgage)
Monthly MI – Multiply the loan amount by the figure below and then divide by 12. The result is your Monthly Mortgage Insurance.
30 Year Note 0.55% – Refinance greater than 90% of the home’s LTV. 0.50% – Refinance less than or equal to 90% of the home’s LTV.
15 Year Note 0.25% – Refinance greater than 90% of the home’s LTV. Monthly MI is not required on an 15 Year FHA Refinance Loan with an LTV of 90% or less.
The FHA Refinance Loan Process
Each new loan will be originated and underwritten on a case-by-case basis. To get approved, your income statements, bank accounts, credit scores and work history will be examined. A new appraisal must be performed on your home to determine its current value.
If it doesn’t have positive equity, then you must contact your current lender and negotiate with them to reduce (write down) your current mortgage to 90% of its current appraised value. If your current lender agrees to the write down, then you will be able to proceed with the FHA refinance.
By: Spencer Llewellyn
Posts Tagged ‘Economic Recovery Act’
The Housing Rescue Bill and the FHA Refinance Loan
April 27th, 2010New Loan Limits Set For FHA Mortgages and FHA Refinance Loans
November 28th, 2009
On Monday HUD announced its new, permanent maximum loan limits for FHA Mortgages and FHA Refinance Loans that will become effective on Janurary 1st, 2009. These new maximum loan limits have been set as part of The Housing and Economic Recovery Act of 2008 and will be permanent limits.
Under the Housing and Economic Recovery Act of 2008 (HERA), which passed in July 2008, the Federal Housing Finance Agency (FHFA) was established and directed to set conforming loan limits each year. The rules governing how the loan limits are established differ from the rules set forth in the Economic Stimulus Act of 2008 (ESA), which applies to loans originated in 2008. For example, under ESA, loan limits for high-cost areas were set at 125 percent of local house price medians and the maximum high-cost limit was 175 percent of the national conforming limit ($729,750 in the continental U.S.).
Starting January 1st, the national loan limit for one-unit homes in the lower 48 states shall be pegged to a house price index chosen by the FHFA. The national loan limit for 2009 will remain at $417,000. In future years, the mortgage limit for any given area shall be set at 115 percent of the median house price in that area, as determined by HUD, except that the FHA mortgage limit in any given area cannot exceed 150 percent of the Freddie Mac national loan limit, nor be lower than 65 percent of the Freddie Mac national loan limit.
This essentially creates the “Floor” and the “Ceiling” for the maximum FHA loan amount for a given area with the lowest maximum FHA loan amount being $271,050 in any area and the highest FHA loan amount being 625,500. Alaska, Hawaii, Guam and the USVI may be adjusted to 150% of these limits to account for higher costs.
The new FHA Mortgage limits for 2009 are detailed below:
In areas where 115 percent of the median house price is less than 65 percent of the Freddie Mac limit, the FHA limits are set at the 65 percent amount, i.e., the “Floor,” as follows:
One-Unit $271,050
Two-Unit $347,000
Three-Unit $419,400
Four-Unit $521,250
Any area where the limits exceed the floor is known as a high cost area. In areas where 115 percent of the median house price exceeds the 150 percent figure, the mortgage limits are set at the 150 percent amount, i.e., the “Ceiling,” as follows:
One-Unit $625,500
Two-Unit $800,775
Three-Unit $967,950
Four-Unit $1,202,925
For all other areas, i.e., those where 115 percent of the median home price for the area is in between the floor and the ceiling, the limit shall be at 115 percent of the median home price.
These new FHA mortgage limits could mean that the time might be right for you to consider an FHA refinance loan or an FHA mortgage for your new home purchase. If you would like more information on FHA mortgage loans or an FHA refinance loan, please visit fha-101.com.
By: Spencer Llewellyn