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Posts Tagged ‘FHA’

Down Payment Assistance for FHA sees Increased Fee

According to The Nehemiah Program, effective June 9, 2008, the fee for processing the down payment assistance program through Nehemiah will be increasing. Here is an excerpt from their press release:

Nehemiah has built its reputation through our relentless commitment to providing affordable homeownership solutions to the public. Unfortunately, current economic conditions have had a dramatic impact on our costs of operation. Additionally, we incurred significant costs associated with our recent regulatory victory and the expenses related to educating the public and governmental officials regarding the facts about downpayment assistance. While we strive to hold costs down and have held the line for a long time, it is now necessary for us to temporarily increase our processing fee.

Currently, the new list price of this fee is $599, up $100 from before.  However, as a preferred client, Residential Mortgage Center is able to get this fee at a discount, better enabling our clients to accomplish their goals! (including Charlotte first time home buyers!)

Down payment assistance for FHA mortgage loans is a key part of helping Americans realize the dream of home ownership, especially first time home buyers. Despite the recent demise of the subprime mortgage market, buying a home without a major down payment is still possible. Some critics say this is a bad idea, citing that this is what caused the mortgage and real estate crisis we are currently in. But I disagree as the real issues stem from a combination of investors speculating that values would just continue to increase at record pace with no end in sight and the offering of mortgage loans to individuals that should not have qualified in the first place. The amount of money down had no impact on a home buyer’s ability to make their mortgage payments.

With the continued use of Down Payment Assistance programs, many first time home buyers in Charlotte can actually take advantage of a soft market and stop renting. Getting the country’s real estate market back on track should be a priority and banning DPA programs would bring that recovery to a stand still.

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Acceptable types of Alternative Credit for FHA Mortgages

According to the HUD Mortgagee Letter 2008-11, HUD has created two groups of references that can be used as alternative credit for FHA mortgage loans. These are used when the borrower’s credit file does not have enough information to create a credit score, or when the credit file produces a score with very limited credit. HUD stressed that these are not to be considered as an alternative to “poor credit.”

Basic Guidelines for FHA Alternative Credit

There must be at least 3 references that can show a solid bill payment history. All of these should cover the payment history of the most recent 12 months. At least one of these should be from the “Preferred” Group with the focus of references being mainly in the “Preferred” group. Once all options have been exhuasted with the “Preferred” group, then references from the “Secondary” group can be considered.

The “Preferred Group”

rental housing payments (subject to independent verification if the borrower is a renter), utility company reference (if not included in the rental housing payment), including gas, electricity, water, land-line home telephone service, cable TV. If the borrower is renting from a family member, request independent documents to prove regularity of payments, such as cancelled checks.

The “Secondary Group”

insurance coverage, i.e., medical, auto, life, renter’s insurance (not payroll deducted); payment to child care providers – made to a business providing such services; school tuition; retail stores – department, furniture, appliance stores, specialty stores; rent to own – i.e., furniture, appliances; payment of that part of medical bills not covered by insurance; Internet/cell phone services; a documented 12 month history of saving by regular deposits (at least quarterly/non-payroll deducted/no NSF checks reflected), resulting in an increasing balance to the account; automobile leases, or a personal loan from an individual with repayment terms in writing and supported by cancelled checks to document the payments.

These alternative credit references must be verifiable. HUD’s preference is that they are verified by a credit reporting agency and that they create a “nontraditional mortgage credit report.” This report would be used by the lender just like a standard credit report would be used.

If a nontraditional mortgage credit report is not possible, HUD further requires that each reference be independantly verified and should be backed up by cancelled checks covering the last 12 months’ payment history.

In my next posting I will address what can be done if no references can be found, or if there no “Preferred” group references available.

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