Home Loan – CHF – Community Heights Funding Inc

7 Step Process To Get A FHA 203K Loan Through – With Example

Lets us start off with an example on an ideal property and go through the steps involved for a FHA 203K Loan to go through.

Look at the following images for a Florida home that requires repairs before you move in.

This home is a perfect example of a “Handy man special”

This is going to be one that needs extensive repairs. The main thing jumping out from the photos is that it needs the new roof. I’m making an assumption, but I’m guessing that this will be sold “as is” based on the price.

Are you up for the challenge?

We can get this done, but I think that in order to do so, we will need to use the FHA 203k renovation loan. They will allow up to 30k in repairs above the purchase price that will be completed after closing. There are a few hoops that we would have to jump through if we go down that path, but there are a couple of main points:

7 Step Process For FHA 203K Loan

First we would need to get the home appraised
Anything that the appraisal states is in need of repair prior to closing will be required to be included in the scope of work for repairs
If there is any room left in the budget after that, then you would be able to include other repairs/updates to fill out the rest of the budget
We then need to find a contractor that will do the work
I will need to work with the contractor to get them credit approved for the loan as well
The contractor will then make a detailed quote for each part of the job
We will then send those plans back to the appraiser and have to order a second report
- This report will now assess the future value of the home, based on the scope of work being done

Now, if we do go that route, your down payment would be based on the total amount of purchase price plus the repair amount.

It looks like the taxes on this one are roughly $23.50 a month. If you were to pay the full asking price of $110,000 and you used the entire $30,000 in repairs, your down payment would be $4988, and assuming that your homeowner’s insurance comes in around $125 a month, you could expect an ongoing monthly payment in the range of $872.84, which would include your taxes and homeowner’s insurance.

Hey – if this home appraises for over 200K post repairs, isn’t that a steal!!!

If you need any assistance with a home loan, fill in the form below and lets get started you on your path to your first home.

5 Important Points for First Time HomeBuyers

FHA, Finance, General, Home Loan, USDA

Before I even talk about the most important points to consider for first time home buyers, I want you to understand “Is it that time of your life when you can plan your first home“. Trust me this is going to the costliest asset that you have ever purchased and you have to babysit it for many years to come.

Wait! What?

Yes, you heard that right. You were on the other side of the court and now you will be a homeowner. Means, you will have to fix or get fixed every little thing that breaks or needs attention. Based on your financial condition and fund flow you will have to continuously keep upgrading your home from time-to-time. By doing so you add value to your property and hence build equity at a faster rate.

Are you up for the challenge?

Guess so, as you are still reading this. So lets start your journey to your first home.

5 Point Checklist For First Time Home Buyers

The idea here is not to scare you, but prepare you for this purchase with a much more practical approach.

Are your current debt under control?
This is by far the most important thing to understand. You do not want to buy your first home just because your friend or a relative purchased a home. Sort out smaller accounts, before you enter this long term commitment. If you can foresee an expense in near future like for kids or for car etc. then plan that prior to entering this phase of being a homeowner in a hush-hush.
How much of a home can you afford?
This is practically the first step in the direction of buying your first home. Get in touch with a lender, he will look into your current credit, income and debt status and will pre-approve you for a certain amount. This pre-approval is your purse to start the shopping. Do NOT plan to spend all of it. Ideally you should look for homes no more than 60-70% of your pre-approved amount. Like if you are approved for 200K, then do not plan to spend more than 120K – 140K on the home. That way you will always stay ahead of your debts and also build equity in your home pretty quickly.
Shopping for the homes
Ask your lender for an agents referral and they will introduce you to a local agent. Yes, you will need an agent as they are in the market and have better insight on rates and also they take care of all the paper work, title clearance and what not on your behalf. Here you are the boss, do not fall for a house half-heartedly, keep looking till you find the one which you can say “This Is My Dream Home“
If your agent runs out of options, probably it is time to look for another agent. Also keep option open for nearby locations, you never know as you may strike a better deal.
What to look for in a house?
Location, location, location!
Correct, you can change flooring, roofing, doors, windows etc at any later stage, but you cannot move the house around to a different place. So make sure the property you settle for has ideal approach to highways, is near to schools, hospitals, markets etc. You better know your situation in this regard.
One more thing, do not fall for size. A 3BD house in a good location is far better than 4Bd in a far off location. Moreover, good location property helps you build equity at a faster rate in irrespective of market conditions.
Making An Offer
This one is tricky, if it is a hot sellers market then you need to act quickly. Personally I do not advice on making instant decisions if you are a first time buyer. Listen to your agent, if they say it is ok to put in a offer for the asking price then go ahead. Be assured you will most probably not get any seller concessions or any kind of cosmetic requests accepted in the sellers market.
On the flip side, the scenario is ideal for first-time homebuyers as they can get concessions, closing assistance and/or a request or two to fix up something within the property like flooring, or wash room or windows etc.

Those pretty much cover the most important points for first-time homebuyers. What follows next is getting the home appraisal, contracts, inspections, and the actual loan process which take their due time till you get a call from the lender for the actual closing date.

If you need any assistance with a home loan, fill in the form below and lets get started you on your path to your first home.

Downpayment Toward Equity Act of 2021 – Is it for First Time HomeBuyers?

FHA, Finance, Home Loan, USDA

Before I even start on the topic, I would like to clear one point. Some websites are mis-representing the fact that this Down payment act of 2021 is for first time homebuyers.

That is not correct!

The draft by House Financial Services Committee, clearly states that this down payment assistance program is for first-generation home buyers. Now going by the book, that means that all First–time homebuyers whose parents or guardians. have never owned a home are considered first–generation homebuyers. On the same note anyone who has not owned a home is last 3 years is considered as a first-time homebuyer. Coming back to the topic.

What Is The Downpayment Toward Equity Act of 2021?

House Financial Services Committee has released a draft for the states to be used for down payment assistance to first-generation home buyers. Under this program homebuyers may receive up to $20,000 in assistance, or $25,000 in assistance if the home buyer qualifies as a “socially and economically disadvantaged individual.” Federal administration of this program will come under the jurisdiction of the Department of Housing and Urban Development (HUD) and state housing finance agency (HFA) will administer the funds on a state level for all participating states.

Lets checkout the points of the draft:

How much funding has been set aside?
Currently there is not set funding for this assistance program. Congress is authorized to appropriate the necessary funding for next 10 years.
How the funds can be used?
Funds may only be used to assist eligible home buyers purchase homes, either through down payment assistance, closing cost assistance, or payments to reduce the interest rate on a mortgage.
Who is an eligible home buyer under the program?
As explained above, down payment assistance under this act can be provided to first-time home buyers who qualify as “first-generation” home buyers.
Income requirements to qualify for the program
Income for home buyers in low-cost areas should be at or below 120% of the area-median-income (AMI) and those buying in the high-cost area, the homebuyers income must be at or below 180% of the area AMI.
Which mortgage programs qualify for the Act?
This assistance program can be used to purchase any home bought with a mortgage that
1. is eligible for purchase by Fannie Mae or Freddie Mac or
2. is insured by either FHA or USDA or
3. meets the definition of a qualified mortgage
Do you have to refund this amount?
Well, yes if you plan not to live in the home for more than a year then you will have to pay the full amount back. If you continue to live in the home, then this assistance amount will waive off 20% every year, means after 5 years you will not have to pay anything back. One more thing if you sell the home in loss due to some unforeseen reasons, then the penalty will be waived off to that extent.

Still not clear? Lets get in touch and we will explain you all about this down payment assistance program.

For FHA, does the buyer need to do a separate septic inspection by a septic company? Or will just a regular inspection suffice?

FHA, General

This question is whether we would need a separate septic inspection apart from regular appraisal for FHA, came up quite a few times lately so I thought I will include it on the blog for future reference.

It all depends on the appraisal. The appraiser must comment on the septic and note whether it meets the distance guidelines for FHA and state whether it is free from observable failure. If the report includes both of those phrases, then we won’t need to get a septic inspection at all. If either are missing, though, we will be required to get one from an actual septic company.

I hate that this one is up in the air, but the problem stems from USPAP guidelines. Up until 4 years ago, it was clearly spelled out in the appraisal guidelines that it was the responsibility of the appraiser to comment on both of these items. But, in the new handbook, they changed the wording and now it is only explicit that they must comment on whether there are any observable signs of failure.

It does not happen often, but since that change in their guidelines, I periodically run into an appraiser who will refuse to comment on the distance of the leech field from the property boundary or the water supply and when we press, they have said it is no longer their responsibility.

Having said that, the vast majority of the time, this comes through without issue, but I do want you to be prepared for the worst.

Documenting Self-Employed Income

Finance, Home Loan, USDA

In our last couple of posts, we have been talking about the rules for documenting different types of income. In the first post, we learned that we are always going to have to provide proof of the following:

That you have a history of receiving the income
That you are currently receiving the income
That you will continue to receive the income

In our first week, we talked about how to pull this off for someone who is paid a salary. Last week, we talked about how to jump through these hoops if you are on a fixed income.

This week, we will talk about how to document these three facts if you are self-employed.

The first thing we have to do is prove your history of receiving this income. Most often, the loan program will require that we provide your prior two years’ worth of tax returns to either show your Schedule C income or to show your Schedule K returns (depending on which type of business you own). Sometimes, however, this is not a true representation of how much money you actually earned. Commonly, your tax returns will have expenses or costs that did not actually occur in the real world, but did matter for taxing purposes (things, for example, like increase in value of equity, or things like depreciating assets). Because of this, there are a few different loan programs that will allow us to document this differently by provided your prior 12 months’ worth of bank statements so that we can show the pattern of incoming money to your personal account from your business.
On almost all loans, you will need to provide your last two months’ worth of bank statements. There are different reasons for this in each of the loan types, but in 95% of all loan, you will need to provide these. This makes it easy for us on the second data point, because the way that we prove that you are currently receiving this income is commonly just by providing those same two months’ worth of bank statements.
The last data point is definitely the most tricky. The likelihood of your continuing to receive income is going to be directly tied to the likelihood of the ongoing success of your business. However, it is not within the scope of the underwriter to make a judgement call on the viability of continued business. As such, the guidelines are written in a way that allows the underwriter to make a simple calculation and have a black or white answer. First, we are going to need to provide the underwriter with a YTD profit and loss statement. This may sound overwhelming if you have a small business, but it really is not. All you need to do is write up a ledger of the total amount of expenses and total amount of revenue for each month of the year that you are applying for a new home loan in. Finally, the underwriter will have everything that they need. Instead of looking at how much you are making right now, and then trying to determine if this is reasonable to continue, the underwriter will instead take the three data points that we have provided and calculate an average.

They will take the amount earned on your tax returns along with the amount earned so far in this year and average this amount of monthly income over the time period of the income provided. This is not a true representation of how much you are earning, but it is the amount that they will use as your monthly income to qualify for the loan. I hope we’ve helped sort out what you will need to prove when it comes to a new mortgage, but if we’ve left anything out, just reach out to us and we will be happy to take a look at your specific circumstances and help point you in the right direction!

Understanding HVCC And How It Affects You – Part Two

Home Loan

In our last post, we talked about a common real estate scam wherein Realtors, Loan Officers and Appraisers would collude together to convince a home buyer that the house they were purchasing was worth more than it actually is. In today’s post, we’re going to talk about the changes that were made in 2009 to put an end to this scheme.

There were two major changes that came about in 2009 regarding appraisals and the appraisal process. One is known as AIC, or Appraiser Independence Certification, and the other is known as HVCC, referencing the Home Valuation Code of Conduct. Both of these serve the same major ideal:

The Appraiser on a mortgage transaction needs to be completely independent. This seemingly simple sentence does have an impact on you in the home buying process.

The way that this idea manifests is through prohibiting communication. The intention is to maintain “appraiser independence” throughout the entire valuation process. We talked about a common scheme in the last post, but even without a scheme involved, the argument being made was that there is an implied pressure on the appraisers to bring in higher values. The argument was that so long as a Loan Officer has the ability to choose who he orders appraisals from, then individual appraisers would have a constant implied pressure to bring in good values, because if they didn’t, then Loan Officers would naturally migrate to different appraisers who did bring in higher values.

So, the idea of AIC was manifested in the rules of the HVCC. Beginning in 2009, all direct communication with the appraisal from the Loan Officer became prohibited behavior, carrying steep fines and the potential of license censure, and all communication other than the scheduling of property inspections with the appraiser from the Realtor also became prohibited behavior! They went on to say that neither the Loan Officer, the Realtor, or the buyer are allowed to choose who the appraiser actually is!

So, how do you order an appraisal if no one is allowed to choose who to order it from and then no one is allowed to talk to them afterwards?

Well, overnight, a new industry emerged, known as AMCs, or appraisal management companies. In our next post, we will talk about how these work and how this will affect you in buying your next home!