2009 FHA Loan Program Coldwell Banker Northern California
Folsom Office

Effective January 1, 2009, limits for FHA backed loans were revised.

If there’s one thing that can be said about 2008, it is that it was a year of ups and downs. Whether in the stock market or real estate market, every month seemed to hold a surprise … for better or worse. 2009 will be no different.

In March 2008, as part of the Economic Stimulus Act of 2008, the Department of Housing and Urban Development (HUD) temporarily increased its limits on Federal Housing Administration (FHA) loans. Most counties in the Sacramento area, including El Dorado, Placer and Sacramento, were considered high cost areas and the limit for a home’s mortgage was raised to $580,000. The goal of the increase was to encourage more lenders and borrowers to use FHA Loans in the tight credit market, creating economic stability in communities across the country and giving nearly 240,000 additional homeowners and home buyers a safer, more affordable mortgage alternative.

Starting January 1, 2009, the expiration date of the Stimulus Act, FHA loan limits decreased across the country. Loan limits for El Dorado, Placer, Sacramento and Yolo Counties will adust to $474,950. The lower limits are set at 115% of the median home prices in each market. But despite the planned decreases, limits are still well above the $362,790 level that was in effect prior to the Stimulus Act and usually enough to buy a respectable house, condominium townhouse in most markets.
 
As of January 1, 2009, the following revisions were made to FHA loan requirements:

1) The minimum down payment on a conforming FHA loan has increased from 3.0% to 3.5%. This may include gift funds from family or employers or friends. The seller can contribute 6.0% of the purchase price to be applied to closing costs, but not to down payment. If any of the seller credit is left after covering closing costs, it will be used to reduce the loan amount.

2) The maximum mortgage amount is calculated by applying 96.5% to the lesser of either:
a) the contract price for the property minus any required adjustments or
b) the appraisal of value from a certified FHA appraiser.

3) Up-Front Mortgage Insurance (UFMIP) is now 1.75% multiplied by the loan amount on all loans, and it can be added to/placed in the financed loan amount. However, the monthly payment and mortgage insurance (see #4) are based on the 96.5% loan amount.

4) The monthly mortgage (MI) insurance calculation has increased from 0.50% to 0.55%. The 0.55% is multiplied by the loan amount and divided by 12 to calculate the amount of monthly mortgage insurance.

The FHA insures loans made by traditional lenders, lowering the default risk the lenders face for buyers who are not able to put down 10 or 20% when purchasing their home. FHA  requires a 3.5% downpayment. It is also the only government agency that operates entirely from self-generated income … costing taxpayers and the government nothing. Since its inception, FHA and HUD have insured more than 34 million mortgages and helped millions of people break into the real estate market. Last year, FHA backed about $60 billion of residential mortgages, but that number is expected to increase to $224 billion by the end of 2009.

It should be also noted that the Office of Federal Housing Enterprise Oversight (OFHEO) has approved Fannie Mae and Freddie Mac to maintain their conforming loan limit of $417,000 in 2009. This will be the fourth year in a row that the companies will be allowed to purchase mortgages at or below that rate on a national level. Anything above that amount would be considered a jumbo loan, which typically carries a higher interest rate and down payment requirement for buyers.

In higher cost areas, including El Dorado, Placer, Sacramento and Yolo Counties, the conforming loan limits have also been set as the same rate as the FHA limits listed above. For a complete list of conforming loan limits, visit http://www.efanniemae.com/.

FHA Loan Appraisal Guidelines

Many buyers today are considering the purchase of their primary residence using an FHA backed loan. Before any buyer hastily asks their agent to prepare an offer knowing that funding will be sourced through an FHA lender, there are important guidelines established by HUD (Housing and Urban Development) that must be complied with. FHA loans are appraised by specially qualified and approved FHA appraisers. This factor is critically important because the lender’s underwriting guidelines often require that repairs or conditions noted by the appraiser be corrected BEFORE the close of escrow. 

This has a direct impact on properties being purchased which may be bank owned or offered subject to a short sale because banks (as the seller) include statements in their purchase contract addendums that prevent buyer access to the property for repairs prior to close of escrow. Furthermore, owners of properties subject to short sale are usually not in a position to negotiate for repair expenses … they simply do not have the cash resources to pay for repairs. Either of these situations leaves the buyer in a state of limbo, thus requiring further negotiations, which, if not granted, may result in a failed escrow. There are programs offered by some FHA lenders (but not all lenders) called FHA 203K loans, which take into consideration the need for repairs and even provide financing of those repairs.

Of course, it’s always best to understand the specific guidelines for minimum FHA requirements even before an offer is extended. If your agent is not fully versed on these guidelines, you might question the agent’s ability to be observant to property conditions that may affect value or desirability, one of the paramount duties (by law) that an agent has.

Published below is an article provided by Amy Parker, an approved and fully licensed FHA appraiser in response to an agent’s question.

January 16, 2009

Q. “I just showed a client a less than perfect home and they are an FHA buyer, what will the FHA guidelines require to be fixed?”

A. Over the last year many Realtors have asked me this important question.  In many cases, this is a specific question regarding a specific problem and the Realtor wants general answers. The answer is not always simple and I am more then happy to provide consultation on the phone.  But this month the question has been more prevalent so a BLOG discussion is definitely warranted.

Realtors need to understand that the FHA loan program is dependent on the HUD guidelines that are published for buyers, lenders, and appraisers.  A link to these guidelines is found FHA Repair Information from HUD.doc and there is also a direct link to the HUD website under the FHA Source at appraiseittoday.com website. Please note that these are guidelines and their interpretation is left to underwriters and lenders.  I share with you some fairly black and white items from the underwriting world today.

HUD is concerned with safety, security, and livability of the property being insured under the FHA loan program.  For the most part, they want the items to be fixed that make the home below average.  Homes that are considered below average for the neighborhood will have the appraisal written “subject to repair”. 

The appraiser will be asked to describe items that are non-cosmetic that make the home below average and in some cases they will have to provide a cost to cure the repair item.   In most cases the appraiser will be asked to reinspect the home prior to the close of escrow to confirm the repairs have been made.

What are some obvious things that could make a home below average?

  • No heater
  • No flooring
  • No hot water
  • Large holes in walls  

Other items that I’m frequently asked about:

  • Old roofs that are not certifiable for 2 years will typically require repair or replacement.
  • Section 1 pest work will need to be fixed and certified as completed. New wood will need to be painted with primer at a minimum and not left exposed.
  • Homes built prior to 1978 with peeling paint on any structure on the site will have to have this issue repaired and repainted.
  • Additions or modifications made without building permits (this is a case by case scenario requiring consultation)
  • Pools need to be safe and operational.  That means the pool needs to be filled with water and have operational pool equipment.  Clean water is preferred.
  • Appliances -  HUD prefers that homes have them.  Built in appliances that have been removed must always be replaced.

The following information is a partial list of items subject to inspection by the appraiser.

Interior                                                             Exterior

Ceiling discoloration                                              Cracks in foundation

Uneven flooring                                                   Attic shows roof water/staining

Floors spongy                                                      Attic shows holes in roof/sunlight

Flooring missing                                                   Loose/missing roof shakes/shingles

Holes in walls                                                      Decay or black matter noted in fascia

Water staining on walls                                         Siding missing or loose/signs of decay

Water damage to sheetrock in baths                       Standing water in crawl space

Stairs without hand rails                                        Crawl space with moisture

Appliances missing/not in place                               Evidence of pests/infestation

Smoke detectors missing/non-working                      Water stains in ceiling sheetrock

HVAC non-operational/regulator missing                   Roof pitch not in compliance

Exposed electrical wiring                                       Attic space not accessible

Electric switchplates/plugplates missing                   Distance between well & septic

Improper wiring in electrical box                              Window panes broken/missing

Electrical switches not operating                            Safety bars on windows w/o releases

Toilets inoperable                                                 All bedroom windows must open

Plumbing – all faucets work/no leaks                        Basement – adequate access

Hot water heater strapped to code                         Pools must be filled with water

Hot water heater venting                                      Pool equipment works

Hot water heater elevated 18”                               Peeling/chipped paint

Peeling interior paint (pre-1978)                             Fence leaning/down/safety hazard

                                                                        Water standing around home

Utilities                                                                            Termite activity

                                                                        Unpainted/exposed surfaces

Good water pressure                                            Windows boarded up

Electricity on and operational                                

Natural gas on and operational                               Off Site

Road                                                                 Sink holes, slush pits, flood zone

                                                                        Abandoned well

Access by all-weather road                                   Within electrical tower fall distance

Private road w/ maintenance agreement                   Proximity to airport

Shared driveway                                                  Proximity to landfill, industrial signs

                                                                  

For additional information, please review HUD website information located at:  http://www.hud.gov/offices/hsg/sfh/ref/hsgrcont.cfm

HUD/FHA Home Buyers Guide
www.hud.gov/offices/hsg/sfh/buying/homebuyingguide.pdf

For additional information, contact Bud Barnes, Realtor Broker Associate, Coldwell Banker Folsom CA or visit www.CallBud.com.