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Ohio FHA Streamline – HPML Unintended Consequence?

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Ohio FHA Home LoansBeginning today (June 3, 2013), FHA Case Numbers assigned will be subject to longer periods of FHA’s Mortgage Insurance Premium (MIP), better known as monthly mortgage insurance. The main reason for this change is due to FHA’s drastic increase in market share. In 2006 only 4% of purchase mortgage were insured by FHA. That figure jumped to 20% by 2010. The 2 main causes of this is the tightening of Conforming Mortgage products offered by Fannie Mae and Freddie Mac, and the limited availability of 2nd mortgages.

A little talked about amendment to the Truth In Lending Act established a new category called Higher Priced Mortgage Loans (HPMLs). It covers applications received on or after October 1, 2009. Long story short, HPMLs are loans secured by the borrower’s principal dwelling that are priced at an Annual Percentage Rate (APR) exceeding a new index published by the Federal Reserve Board named the Average Prime Offer Rate (AOPR).

So what does this have to do with Ohio FHA Streamline Refinance mortgages?

A mortgage that is deemed a High Priced Mortgage Loan requires that lenders verify the consumer’s ability to repay the mortgage as follows:

  • Verify income to cover repayment ability through W-2, tax returns, pay-stubs, financial institution records or third-party verification
  • Verify the borrower(s) current obligations through credit reports and other documents.

The recent change to when FHA mortgage insurance falls off affects FHA Streamline Refinances because the length of time that mortgage insurance is paid is factored into the calculation for the APR on a mortgage. The higher APR, due to the increased time that mortgage insurance must be paid, may cause the FHA mortgage to fall into the classification of a Higher Priced Mortgage Loan (HPML).

If your FHA Streamline Refinance falls into this category, then you will need to document income (aka ability to repay) and meet debt to income ratio requirements. This will not be the case with every Ohio FHA Streamline, but it very well may be the case with some.

So why doesn’t this affect all Ohio FHA Mortgages?

Well, it does. All other FHA mortgages, both Ohio FHA refinance and Ohio FHA purchase mortgages, a borrower has to document income (aka ability to repay). So it will be business as usual.

And remember, if you have an existing FHA mortgage that was securitized by HUD prior to May 31, 2009 you may be eligible for lower mortgage insurance requirements.

Find out if you can take advantage of an Ohio FHA Streamline Today

Refinance Now to Avoid Ohio FHA Changes – June 3rd Deadline

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Ohio FHA ChangesKicking around the idea of refinancing? Maybe debating on purchasing a home? Maybe an FHA Streamline Refinance? It’s time to get off the proverbial fence. I hate to beat a dead horse, but Ohio residents now have less than 30 days before FHA changes when Monthly Insurance Premiums (MIP), what you and I call monthly mortgage insurance, can be cancelled.

Why is Ohio FHA making these changes? Simply put, FHA’s pot of money that they use to fund homeowner programs has a deficit of $16.3 billion for 2013.

So how will what does this change mean to us Ohioans? Bottom-line, a FHA mortgage will cost you more come June. Let’s look at a $150,000 purchase with 3.5% down payment:

Currently:
Interest Rate: 3.25%
APR: 4.462%
Interest Paid Over Life of the Loan: $106,414.97

After June 3rd:
Interest Rate: 3.25%
APR: 5.053%
Interest Paid Over LIfe of the Loan: $125,405.20

Almost $19,000 more expensive after June 3rd.

The Mortgage Bankers Association interest rate forecast for later this year shows rates rising to 3.9% in the 3rd quarter and 4.10% in the 4th quarter of 2013.

Complete my simple, free, Ohio FHA Interest Rate Quote form (no social security number required) to get a personalized interest rate quote in a matter of minutes. Or you can contact me anytime with questions.

Ohio FHA – Cancellation of Mortgage Insurance

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Ohio FHA Mortgage InsuranceOhio residents have less than 2 months before FHA drastically changes the policy on when FHA mortgage insurance premiums (MIP) can be cancelled.  In February I covered the changes in Changes to FHA Mortgage Insurance Cancellation. The changes are effective with FHA Case Numbers assigned on or after June 3, 2013. You can read HUD Mortgagee Letter 2013-04 for the technical explanation.

Don’t wait until the last-minute.  Generally lenders get back logged the week before a major FHA change, so it could take longer to assign an FHA Case Number.  And don’t forget, you probably want to shop around for the best deal.  All adding valuable time on to your mortgage search, and thus, when your FHA Case Number will get assigned.

I have been advising clients seeking a Ohio FHA mortgage, whether an FHA purchase mortgage, FHA refinance or FHA Streamline, that they need to plan on having a full application completed no later than May 23rd to insure that we can get their FHA Case Number assigned before the change.

To recap the change that is taking place.

Ohio FHA Mortgage Insurance (CURRENTLY)

  • Must pay for a minimum of 5 years
  • After 5 years, the FHA Mortgage Insurance is cancelled once your principal loan balance reaches 78% of the home’s value as determined by the last appraisal or purchase price

Ohio FHA Mortgage Insurance (new FHA Case Numbers assigned on or after JUNE 3, 2013)

  • FHA loan taken out is 90% or less financing, you will pay mortgage insurance for the first 11 years or until the end of the mortgage term (whichever is shorter)
  • FHA loan taken out is above 90% financing (which the majority are), you will pay mortgage insurance for the entire term of the mortgage or for the first 30 years (whichever is shorter)

This will add considerable costs to an FHA mortgage.  If you would like to review your options you can CONTACT ME or complete the simple and free Ohio FHA Interest Rate Quote form. And, unlike many mortgage consultants, I am available evenings and weekends, so give me a call.

FHA Increasing Annual Mortgage Insurance, Again

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Ohio FHA ChangesHUD Mortgagee Letter 2013-04, released January 31, 2013 details HUD’s new increase for FHA mortgage insurance.

Effective with FHA Case Numbers assigned on or after April 1, 2013 HUD is raising FHA’s annual Mortgage Insurance Premiums (MIP), again.

Below is the chart showcasing the current MIP and the New MIP in April.

TERM > 15 YEARS
Base Loan Amt.LTVPrevious MIPNew MIP
≤ $625,500≤ 95.00%120 bps130 bps
≤ $625,500> 95.00%125 bps135 bps
TERM ≤ 15 YEARS
Base Loan Amt.LTVPrevious MIPNew MIP
≤ $625,50078.01% - 90.00%35 bps45 bps
≤ $625,500> 90.00%60 bps70 bps
ANY≤ 78.00%0 bps45 bps

These changes apply to all FHA mortgages except for FHA Streamline Refinances that were endorsed by HUD prior to May 31, 2009.   You can read more about that in my previous article published last year Ohio FHA Streamline Refinance Update

Ohio residents that want to act before FHA’s fees increase, fill out the Ohio FHA Interest Rate Quote form and we can discuss your options.

 

Ohio FHA Mortgage Income Requirements

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Ohio FHA Income RequirementAre you in the market for an FHA mortgage? Are you looking to purchase your first home, or maybe looking at refinancing into an FHA mortgage? One question I am asked quite by my clients seeking an FHA

mortgage is ‘What are the income requirements?’.

One thing to always remember about FHA, and other loan programs, is that the insuring entity (in this case HUD) sets the minimum standards. Lenders can impose stricter guidelines.

Income is used to calculate your debt to income ratios. The two debt to income ratios that are calculated are:

    1. Housing Ratio – which is your gross (before taxes) monthly income compared to the proposed mortgage payment, including property taxes, homeowners insurance, and mortgage insurance.
    2. Total Debt Ratio – is your gross (before taxes) monthly income compared to all of the debt listed on your credit report plus the proposed mortgage payment, including property taxes, homeowners insurance, and mortgage insurance.

A Housing Ratio exceeding 31% may be acceptable if significant compensating factors are documented. While a Total Debt Ratio exceeding 43% may be acceptable if significant compensating factors are documented. However, an approval through the FHA TOTAL Scorecard (FHA’s version of Automated Underwriting System (AUS)) does not require documented compensating factors, even if ratios exceed the FHA guidelines.

In my experience FHA’s TOTAL Scorecard may approve mortgages up to a Total Debt Ratio of 56.99% (although I would never advise a client to apply for a mortgage with ratios that high unless there were other significant factors that made sense).

Lets look at some of the main sources of income and their documentation requirements for an FHA home loan in Ohio:

Ohio FHA Mortgage General Income Requirements

HUD requires that qualifying income be verified, stable and have a reasonable expectation that it will continue for at least 3 years.

This is determined by reviewing the borrower’s past employment record, qualifications for the position, previous training and education, and the employer’s confirmation of continued employment.

General documentation requirements are:

  • Most recent paystub, documenting at least 30 days of year to date income
  • Previous 2 years W-2s
  • Previous 2 years signed, dated Federal income tax returns including all applicable schedules

Ohio FHA Overtime and Bonus Income Requirements

A full verification of employment (VOE), completed by the employer will be required to document a 2 year history of the overtime and/or bonus income. The lender will then take a 2 year average of the income. The employer, also must state whether the overtime and/or bonus income is likely to continue. If it is not likely to continue, the income can not be used. Also, if either type of income shows a continual decline over the 2 year period, the lender may choose not to use the income.

Ohio FHA Part Time Income Requirements

Documentation that the borrower has worked the part-time job, uninterrupted, for the past 2 years.

Ohio FHA Commission Income Requirements

Commission income must be averaged over the previous 2 years

Commission income showing a decrease from one year to the next requires significant compensating factors. Also, unreimbursed business expenses (Schedule A of Federal Tax Returns) must be subtracted from a borrowers gross income.

Ohio FHA Retirement Income Requirements

Must be verified by the previous 2 years Federal Tax Returns

If any retirement income will cease within the first 3 years of the new FHA mortgage, the income may only be considered a compensating factor.

Ohio FHA Social Security Income Requirements

Must be verificed by the Social Security Administration or from the previous 2 years Federal Tax returns. The lender must obtain the current awards letter.A Mortgage Social Security Income Requirements

If any benefits expire with the first 3 years of the new FHA loan, the income may only be considered a compensating factor.

Ohio FHA Self Employed Income Requirements

A borrower with a 25% of greater ownership interest in a business is considered Self Employed for FHA home loan underwriting purposes. Self Employment income is considered stable if the borrower has been self-employed for 2 or more years, self employment between 1 and 2 years may be considered if the borrower is able to document at least 2 years of previous successful employment in the same line of work or related occupation.

Self Employed borrowers must provide:

  • Signed, dated individual tax returns, with all applicable schedules for the most recent 2 years
  • For a corporation, “S” corporation, or partnership, signed copies of Federal business income tax returns for the last 2 years, with all applicable schedules
  • Year-to-Date profit and loss (P&L) statement and balance sheet, and
  • Business credit report for corporations and “S” corporations.

If FHA’s TOTAL Scorecard approves the loan, the borrower is not required to provide business tax returns if ALL of the following conditions are met:

  • Individual Federal Tax returns show increasing self-employed income over the past 2 years
  • Funds to close are not coming from business accounts, and
  • The proposed FHA mortgage is not a cash out refinance.

If FHA’s TOTAL Scorecard approves the loan a business credit report for a corporation or “S” corporation is not required.

These are the general FHA guidelines for income. However, each borrower’s employment and income situation may be unique. Ohio residents that would like to discuss their situation can contact T.C. Strait at 513-777-8383 or complete the Free, No Obligation Rate Quote Request
to be contacted immediately.

Ohio FHA Mortgage Credit Score Requirements

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Ohio FHA Home Loans

2017 Update: See updated info here: 2017 Ohio FHA Credit Requirements 

MAY 2013 UPDATE: I have received quite a few emails and phone calls recently regarding FHA loans and credit scores of less than 640.  While I still have access to one lender whose guidelines allow for scores as low as 580 for maximum financing (3.5% down on a purchase or 2.25% equity for a refinance), it has been getting more and more difficult to get these loans approved. A few things that may be required are rental history (cancelled rent checks for 12 months), debt ratios less than 43%, no negative credit after a major derogatory event (bankruptcy, foreclosure, auto loan repossession), and in some cases collection accounts will need to be paid.  Also, the lender will want to see at least 3 open, active, good credit accounts that have been active for 12+ months. In some cases they will allow alternative credit accounts (12 months pay history on things such as utilities, auto insurance, etc.)

FHA mortgages have rose in popularity over the last few years. Some attribute the increased demand to the void that the subprime market left. The increased demand for FHA mortgages in Ohio may also be due to the lower credit score requirements compared to its Conforming (or Conventional) counterpart.

Let’s look at the Credit Score requirements for a few different FHA mortgage programs in Ohio. To check what options you have available for an FHA loan in Ohio head over to the FHA Rate Quote Request page and fill out the simple form (no social security number required). Make sure you keep in mind that FHA sets the minimum standard, and individual lenders are free to impose more strict guidelines, which most do in regards to credit scores.

HUD has set the following minimum requirements for FHA mortgages:

Credit Score of 580 and above – eligible for maximum financing (96.5% for purchases and 97.75% for refinances)
Credit Score of 500 to 579 – limited to 90% financing
Credit Score Below 500 – not eligible for FHA insured mortgage financing
Borrowers with non-traditional or insufficient credit – may be eligible for maximum financing if they can document 12 months of satisfactory credit history including no history of late payments on rental payments, no more than one 30 day late on payments to other creditors, and no collections or judgments filed in the past 12 months

So that is the minimum standard that HUD has set for Ohio FHA mortgages, both purchases and refinances. Now, lets look at what lenders in the real world have set for FHA credit score requirements.

Ohio FHA Mortgage Credit Score Requirements

Most main stream lenders have imposed minimum credit score requirements for FHA Mortgages in Ohio at 640, with a few going slightly lower with a 620 minimum score.

Some smaller lenders are offering FHA Mortgages down to a 560 credit score. However, a credit score of 560 to 579 will cap a borrower at 90% financing. Also, most lenders that are offering Ohio FHA home loans for credit scores below 640/620 will impose some additional requirements including, but not limited to, documenting 12 months mortgage/rent payments via cancelled rent checks, setting a maximum acceptable payment shock (your existing rent/mortgage payment compared to the new housing payment), setting a minimum amount of assets needed after closing (commonly referred to as reserves), etc.

There are exceptions to the rules, and new lenders are entering the market here and there, so use this as a guide to help you get started when looking into an FHA loan. If you are concerned about your score and your ability to qualify for an Ohio FHA mortgage, give T.C. Strait a call at 513-777-8383 and we can discuss your options and review your credit report.

Ohio FHA Streamline Refinance Update

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FHA Streamline Refinances have seen a MAJOR change this month (June 2012) that will allow homeowners to save even more money.  The changes all surround the FHA required mortgage insurance, both the Up Front Mortgage Insurance Premium (UFMIP) and the monthly Mortgage Insurance Premium (MIP) will be lowered for Streamline Refinances.

Ohio FHA Streamline Refinance Changes

effective with FHA Case Numbers assigned on or after June 11, 2012 and for current FHA loans that were endorsed on or before May 31, 2009

Up Front Mortgage Insurance Premium (UFMIP) will be reduced to 0.01% (currently 1.75% for new FHA mortgages)

Monthly Mortgage Insurance Premiums (MIP) will be reduced to 0.55% (currently 1.20-1.25% for new FHA mortgages)

In order to check when your current FHA mortgage was endorsed, you can call HUD at 800-697-6967, 8:30 a.m. to 8:30 p.m. Eastern Standard Time, Monday through Friday.

Ohio FHA Streamline Pros and Cons

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The FHA Streamline Refinance is a great option for homeowners who currently have an FHA mortgage. FHA originations picked up where subprime mortgage left off after 2007. Home buyers looking to put less money down and homeowners who had less than perfect credit probably got an FHA mortgage. Ohio, as well as the rest of the country saw FHA mortgage originations double from 2007 to 2008.

The FHA Streamline Refinance comes in a few different flavors, below are the Pros and Cons of the most common version, the Non Credit Qualifying Streamline (also known as the FHA Streamline Refinance without appraisal):

Ohio FHA Streamline PROS

  • No APPRAISAL. Obviously the current housing market makes this the biggest PRO. 22% of Ohio homeowners are currently underwater. This provides those with an FHA mortgage the ability to take advantage of historically low interest rates.
  • No income documentation. Don’t confuse this with the State Income (aka “Liar” loans) that were prevalent with subprime mortgages. Lenders will verify that you are working, but do not require documenting your monthly income. FHA already insures your mortgage, so the Streamline Refinance will put you in a better financial position, which makes it easier to pay your mortgage.
  • Lower your interest rate. Simply put, lower interest rate = lower principal and interest payment.
  • Adjustable rate to a Fixed Rate.  Refinance your ARM to a fixed rate.
  • 15 Year terms. FHA loans with a 15 year term have even lower monthly Mortgage Insurance Premium (MIP) requirements.

Ohio FHA Streamline CONS

  • Restrictions to lowering the term of your mortgage. FHA imposes a Net Tangible Benefit that you must meet to qualify for an FHA Streamline Refinance. Your monthly payment must be reduced by 5%. Lowering your term, you must also meet this qualification.
  • FHA mortgage insurance starts over. Most FHA mortgages require monthly mortgage insurance (all of them except the 15 year fixed if you are under 78% financing). FHA requires that mortgage insurance to be paid for a minimum of 60 months, and that 60 months starts over any time you take out a new FHA mortgage.

Every situation is different, so I would encourage you to complete the FHA Streamline RATE QUOTE form so that we can discuss your options.

Ohio FHA Streamline Refund

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Are you taking advantage of the FHA Streamline Refinance changes in June?  If so, then you may be eligible for a partial refund of your original Up Front Mortgage Insurance Premium.  Homeowners that have had their current FHA mortgage for less than 3 years will receive a prorated refund of their original Up Front Mortgage Insurance Premium (UFMIP) at closing.  You will see the refund as a credit on your Settlement Statement (HUD-1) at closing.

 FHA STREAMLINE MIP REFUND CHART

 

Ohio FHA Refund Chart

Ohio FHA Interest Rates

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The news has been reporting record low mortgage rates for the past couple of weeks. I’m sure you’ve seen the reports, right? The question remains, how does that affect you?Ohio Refinance Rates

If you are in the market for an FHA mortgage, whether it is an FHA Streamline Refinance, a normal FHA refinance or an FHA Purchase a few factors will come into play when determining the interest rate you receive.

A few of the factors that lenders take into consideration are:

  • Credit Score – lenders will look at your middle credit score
  • Debt Ratios – monthly debt compared to your gross monthly income. The absolute max for an FHA loan is 56.99%, however some lenders have lower caps.
  • Loan Amount – some lenders impose adjustments (negative and positive) based on your loan amount

So let’s take a look at a couple of examples based on Ohio Mortgage rates as of June 1, 2012.

Ohio FHA Refinance

Mary in Cincinnati, OH are looking to refinance their primary residence into a new FHA mortgage. Their details are:

Middle Credit Score: 741
Amount Owed: $150,000
Property Value: $175,000
Location: Cincinnati, OH

Based on the above information Mary may opt to refinance at:

FHA 30 Year Fixed
Interest Rate: 3.5%
Estimated Principal & Interest & Mortgage Insurance payment: $835.35
Estimated Closing Costs: $950 + appraisal
Estimated APR: 4.10%

Now what if Mary had a 665 middle credit score?

FHA 30 Year Fixed
Interest Rate: 3.5%
Estimated Principal & Interest & Mortgage Insurance payment: $835.35
Estimated Closing Costs: $2300 + appraisal
Estimated APR: 4.178%

Notice the $1350 increase in the closing costs? That is the result of the credit score difference of 76 points. Mary would have other options to keep her closing costs lower, but they would involve a higher interest rate.

Homeowners that currently have an FHA mortgage that was endorsed by HUD before May 31, 2009 (translates to a closing no later than May 10, 2009) should begin thinking about taking advantage of the FHA Streamline Refinance changes that go into effect in less than 2 weeks.  The examples above do not take into account the lower FHA mortgage insurance requirements for Streamline Refinances starting June 11, 2012.

Homeowners need to keep this in mind when checking interest rates online or reading about them in the newspaper. Generally the mortgage interest rates that are reported are based on certain criteria (750 credit score, $200,000 loan amount, etc, etc.) and may not fit their situation.

Every individuals situation is unique, and that is where a good Loan Officer can be worth their weight in gold. They can help you understand all of your options.

You can contact me directly or request a rate quote if you would like to review your options.