FHA 3/1 ARM: With FHA becoming more and more important in our market, considering the loan limits in metro-Atlanta have increased to $346,250, I would like to highlight the FHA 3/1 ARM this week as a viable alternative to the 30 year fixed option. The 3/1 ARM has a start rate that is almost 1% below the fixed rate product, currently at 5.125%. On a $200,000 loan, the difference in the monthly P&I would be $1218 vs. $1308 on a 6.0% 30 year fixed. The 3/1 ARM has a 1% per year cap after the three year fixed period and a lifetime ceiling of 5% and, of course, no prepayment penalty.
There is no minimum credit score required under this program with Opteum. Some lenders now have minimum required credit scores for FHA products.
FHA Nehemiah lives on, according to Leslie Kane at Nehemiah. The federal court ruling last week allows us to continue to offer this program that virtually allows for 100% financing. If you have read my articles over the past several weeks, you know that conventional 100% financing has basically gone away. Second mortgage lenders do not want to take the risk of doing the 80/20s any more, and PMI companies’ losses have been too high on the single loan program. Conventional lending now requires 3-5% down with credit scores over 680.
680 Standard: Speaking of 680 credit scores, as a reminder, there is an interest rate penalty on conventional loans if the borrower has a middle score under 680. For example, a score below 620, if Desktop Underwriting approves it, would merit a rate of 6.875% vs. 6.0% for the 680 and above borrower. That same borrower would probably be better off going FHA. However, we do charge an interest rate penalty to FHA borrowers with credit scores under 580
A Minus Credit: A Minus credit is a level of credit that is determined by Fannie Mae or Freddie Mac automated underwriting to be sub-standard credit. A heavy interest rate penalty is applied to these borrowers that raises the rate to the 7.5% level and requires a minimum of 5% down. This program will become less and less attractive for 95% loans, because most of these borrowers can qualify for FHA loans with the same amount down. The main reason someone would go to this type of loan would be if they need to put 10-20% down to get approved.
FHA 203K Renovation Program: If you want to purchase a home and build in the money in the loan to fix it up after closing, this is the way to go. A lot of foreclosures are not in good enough condition to qualify as “live-in condition” and thus the 203K program would be the only way to go other than paying cash.
Declining Markets: As a final note, I want to warn you again about the possibilities of a house being located in what is considered a “declining market”. There are three areas where this can pop up and thus cause the LTV to be reduced by 5% (if the loan is at the maximum LTV allowed under the loan program): 1. In the Desktop Underwriting or LP findings, 2. The appraisal or 3. On the List of the PMI company that insures the loan. So far, FHA is not affected by the declining market issue. Only conventional loan programs are currently affected.
If you can read between the lines above, I hope you will notice the increasing importance of FHA in our day to day lending activity. Here at Opteum we are equipped to handle FHA with an in-house delegated underwriter, local processor and closer right in my office. Please let me know how I can help you.
678-742-6631 (office)1-866-226-2066 (toll free)770-301-0527 (cell)678-585-8345 (e-fax)
222 Chastain Meadows Court, Suite 300Kennesaw, GA 30144
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* The information above was shared with permission from Sam Thompson, it is believed to be accurate but not warranted.