Georgia FHA Home Loans - (& Opinion)

Since December 11, 2006 I have had the pleasure of hosting the North Georgia Real Estate group on Active Rain. I confess, it has been months since I really paid gave it the attention it deserves. So let me highlight a few of the recent contributors who have featured posts in that group and tell you all you need to do to start tagging your posts is (a) be in north Georgia (from Columbus through Macon to Savannah and northward) and (b) join the group. Then when you post a new article, listing or other activity on Active Rain you can post also to this group. Why? More visibility, greater long tail results.

Featured Currently

My personal friend Mr. Thom Abbott has a thought provoker and a challenge "Excuse Me? Why Do You Ask If You Don't Answer?" Thom deals with the frustration we all have of "tire kickers" who fill out a form on our site, ask often for detailed information, and who do not respond. It's not a pity party, it's a challenge to shoppers to have the decency to say, "Thank you. I'm not interested in that right now."

Another personal acquaintance Mr. Charlie Ragonesi lets us know vacation home buyers are starting to look back to the north Georgia mountains for their get-away homes with his quick and pointed article "Mountain Community update". From the lending side all indicators are Charlie will be getting even more business because underwriting guidelines have loosed back to some resemblance of reality and common sense for well qualified second home and real estate investment buyers.

Someone I have not yet had the privilege to get to know Mr. Ron Barnes reports on a change in home building and ownership away from small mansions to more accommodating, and affordable, reasonably sized homes with his well reported "McMansions Not Cool Anymore". Ron is from Jasper, Georgia and my family and I will be headed through this weekend on the way to apple country. Say hi to Ron if you haven't met him.

And finally but most certainly not least Mr. Bill and Mrs. Cyndi Daves have posted a great buyer opportunity with their listing "Blairsville Georgia Foreclosure - Price Reduced - 142 Peanut Lane - $119,900". Many areas of the Daves territory are USDA eligible for a guaranteed home loans with no down payment. This is an amazingly well performing loan program and can be used for the majority of buyers on homes of this type.

As a prospective home buyer or real estate agent it will pay you to be aware of the different credit scores and why language may matter. Over the years people have learned the term "FICO" and often use it interchangeably for "credit score". The two are not exclusively interchangeable.

There have been many times over the years I have heard a prospective borrower say something to the effect of, "I have a 750 FICO" or "my FICO is 681". The next couple of lines are the important ones and the rest is either setup or explanation.

In the mortgage industry the standard method of examining credit is called the "tri-merge". When a loan officer "pulls" an applicant's credit history they generally are requesting a report from three independent credit reporting bureaus. Typically these are Equifax, TransUnion and Experian. FICO is a risk model adapted by CRB's but sold under different names and each score is, nearly 100% of the time, different. What matters in the mortgage industry is that the applicant has all three scores and that the middle of the three, regardless of which bureau, meets the minimum requirement for the particular mortgage product being sought.

FICO is the Fair Isaac Company and they have, indeed, developed what is the de-facto standard for credit risk modelling. The reason that term is meaningless at the time of examing the applicants' credit is what is contained in the paragraph above. Whether the middle score is Experian's PLUS, TransUnion's EMPIRICA or Equifax's BEACON is irrelevant. Which ever score is the middle is the one used in determining credit risk based on score for the mortgage underwriting process.

Many argue that credit scoring models are cold and impersonal and often result in people with worthy credit being eliminated from qualifying simply because of a computer based decision. There may be some validity to this argument but I have not, in my years of examining credit, seen a valid example of this. Scores are based on payment history, available unused (or used) credit, length of time accounts have been open, the type of credit and a few other factors. We are not priviledged to see the actual algorithms used to determine credit score based on these factors. 

For more information see the article at "What is a credit score?"

Image: photostock / FreeDigitalPhotos.net

You know the drill. Whether you are an agent or a loan officer you have had the client who calls your number and leaves a voice message asking for help. Or perhaps they emailed you and asked some questions. Maybe you're in a meeting or maybe, just maybe, they send the email at 11:22PM. When you finally get the message, the next morning, you make it the first order of business to contact them and they say, "Oh, I already found somebody to help me."

Really buyers? You just jump on the first call center who has 24 hour phone operator/order taker to give you attention? Let's discuss this a little. You are in the process of purchasing a home. The place you're going to live in. It will be shelter and an investment for you and possible your family. You will be obligated to repay a loan of somewhere within 20% of the sales price and likely that will be over the course of the next 30 years.

Shopping For A Service Professional

I suppose if you're buying crack you would want to work with the very first person you could find. It wouldn't really matter if you could trust them because you're addicted and you really don't care what kind of poison they put in it to make it cheap enough. You just want it and think you need it now. Houses are not crack. The people providing the services to help you find and purchase the home are not, or should not be, just any old hack off the street.

Real estate agents come in about as many flavors as do homes. Some of them are full time employed, well trained and certified professionals who live, eat and breath real estate. Others got their license just to sell a couple of homes "here and there" and really don't need the income to survive. Some are well organized and highly technical with the result of being able to listen to your desires and match you with the properties best suited to your needs. Others would prefer you find the home on your own and just let them earn the commission.

Likewise there are truly well seasoned, experienced, certified and licensed loan officers. They spend all day, every day in a mortgage office as your representative to the underwriters and know the in's and out's of virtually every loan program available. They have passed an FBI background check, met at least the minimum amount of education about mortgage law and passed at least 2 tests proving they know how to protect your interests. Others "work at the bank" or are quite literally nothing more than "order takers" who have been trained to sound like they know what they are doing. Most of these are from larger organizations who have huge online presences. You generally see them advertising ridiculously low rates in the top search results on your favorite search engine.

Proper Planning and Preparation Prevents Poor Performance

Here is how I imagine this scenario plays out. Husband and wife get a late notice from their landlord or one of them gets a new job with a little better pay. They stop at the gas station and pick up a real estate book - one of the free ones at the checkout. On the way home the wife finds a few houses she is interested in and even though it's 9:35 PM she calls the numbers of the agents who have sponsored that page. 

When they get home, 11 minutes later, they still have not had any callbacks so they call their friend who just bought a foreclosure and get the name of their agent and send her an email. Meanwhile they get a call from one of the first agents who suggests they call and get pre-qualified and gives them the name of a loan officer. They phone the loan officer, now it's 10:15 PM and leave a message and decide to go to Borrowing Tree and fill out an application online. This application is sold to the 3 or 5 highest bidders who immediately all start sending application information because most of these are call centers.

The next morning all the other loan offices and real estate agents start returning calls ...

How it Should be Handled

Buyers, this is not an overnight transaction. You need to slow down, take a breath and learn how to interview your service professionals because it certainly can make a difference. Know that every phone call or email you send is going to require work, time invested in you, by the person you are contacting. 

Ask questions: are you licensed? Are you full time? How long have you been active? Do you have some previous clients I can call or email? Then Google them. Search their name, their telephone number, their email address, and their company name. When people are treated well they may talk about it online. When people are treated badly they often create entire websites dedicated to how a person treated them.

Set a reasonable time line for working with professionals who are going to invest a tremendous amount of time in you. The order taker doesn't really care if you qualify or not. They just take your application, click enter and follow the instructions on the screen. If you don't fit the box they need to drop you and move on to the next one. They make "act" as though they care because they have been trained to do so. They are, after all, high volume sales people. 

Stay local. Work with someone who either has an office you can drive to or will take the time to come to you - even if you never need to see them face to face isn't it nice to know you can if necessary?

Stay professional. If you treat a professional with dignity and respect they will reciprocate. It's up to the professional to set the tone but you, as a buyer, can alter the tone by the way you engage them.

Stick with it. The professional is going to invest some serious resources into you. They will be personally vested with time, energy and support resources to get you into a home. 

Above all else what goes around comes around. Establish a strong, working relationship with the professionals who are going to be working for you and remember it is a relationship and for a couple to a few weeks you are going to be a big part of one another's lives. In the real estate and finance business there is no pay until the deal is done so the idea that anyone would purposely delay the deal is somewhat ludicrous. Yes, you may get a dud but that's why all the previous information is so important.

I'm in Georgia. There may be people as good as my team but there is none any better.

Image: Ambro / FreeDigitalPhotos.net

Top Ten Reasons to deal with a local loan officer:

10. They will probably be at the closing table where you can look them in their eyes.

9. When they come to the closing table you can expect a nice little gift.

8. The fifth time they ask you for the same documentation you can "suggest" they drive over and pick it up.

7. You can actually go to their office and see their licensing hanging on the wall. Unless they are unlicensed in your state!

6. Chances are they actually understand the neighborhood trends where you live or are buying. Think this isn't important?

5. I'll meet you at [insert restaurant here] and go over the documents just works better.

4. They are in the same time zone so a phone call is always convenient!

3. It's more likely you'll speak the same dialect - no interpreter needed.

2. Statistically speaking you're more likely to know some of the same people.

1. It's harder for them to hide when the possibility you eat at the same places exists.

Look, I'm not saying there aren't people who can't do long distance loans and do them well. I am saying two things: Dealing with a local loan officer who you look in the eyes means a lot when the "hits the fan" factor comes into play. I am also saying if you're happy with being a faceless number from start to finish then having to go through that whole "I can't get anybody to help me" when you need it - fine. Call MEGA-BANK and see if you can save $3 a month. If you want a relationship with someone you can trust, look around home.

There is a false sense of security when people deal with big national lenders or internet based lenders because the operators can do a very good job of pretending to be seasoned loan officers and to really care about you personally. It's not hard when you have a multi-million dollar database system that keeps your name and all your pertinent information right in front of the phone clerk to call you by name and ask about your spouse and dependents. Of course they call you by your name - that's the first trick the snake oil salesmen use, too! First trick of a used car salesman? Get their name and repeat it back to them. (By the way, used car salesman aren't as bad as salesmen of certain other services!)

It happens almost every day. When you work in the regional office of a major lender you hear a lot of stories. When your wife handles a large portion of the files you hear even more. I have certainly had my share of these, too, even when the buyers are instructed, warned and threatened ... it happens.

1. Do not quit your job. This is the event that inspired today's post because it has happened on two of my wife's files in the last 90 days. The loan officer on this one is a seasoned veteran so they'll probably figure out how to get the guy a job. Once you apply - freeze. When you close you can thaw.
2. Do not charge anything on any credit. It happens. First time buyers are the worst. They hear the words "your mortgage application is approved" and immediately they start applying for credit cards (often to buy furniture for their new home) or buy a new vehicle.
3. Do not spend the money you have on hand. This one happens more often than number one but not as often as number two. When you fill out an application and say you have $31,500 in your savings account and $12,000 in your checking those numbers are verified and your closing costs/down payment has to come from that. If you bring a check from some account you never told your loan officer about that will halt the closing until those funds can be verified.
4. Do not make any large deposits you cannot provide a paper trail on. Usually deposits over $500 have to be sourced meaning you will have to provide a verifiable paper trail of where that money comes from. The purpose of this is to show an interested party is not giving you the funds to make it happen. You can get a gift from a relative or "significant other" provided those funds are traced as well. In that case you need a specific letter you can get the form from your loan officer.

Rest assured there are other ways to blow it but these seem to be the most common and should also be the most obvious. When you know these in advance you can time your changes to make sure they don't interrupt or kill your chances at getting that new home!

Image: Andy Newson / FreeDigitalPhotos.net

Effective for FHA loans for which the case number is assigned on or after October 4, 2010 the Upfront Mortgage Insurance will decrease from 2.25 to 1.00 (100 basis points) on all FHA insured loans except Home Equity Conversion (HECM - "reverse mortgage"). Chances are you have heard this or some version of it but until yesterday, September 1, 2010, it was not in writing in the official form from HUD.

When are FHA case numbers assigned?

Case numbers must be assigned prior to ordering third party services such as the appraisal. Appraisals are not ordered until there is a fully executed sales agreement in the lender's possession. The lender orders the FHA case number and assigns it to the loan application where it becomes permanent record. 

Monthly Mortgage Insurance also changing.

With UFMIP going down MMIP is heading up. Much more dangerous to the industry because it impacts monthly payment and thus debt-to-income ration (DTI). Currently on loans of over 95% the MIP is .55% annually and from 95% and lower it is .50% annually. Effective October 4, 2010 those numbers will be .85% and .90% which results in an increased monthly payment.

Contrary to some reports there has been no notification of change in the amount of closing contributions by the seller which can be contributed to cover closing costs which is 6% and has not (yet) changed. The buyer must contribute 3.5% of their own money but it can be a gift.

This information applies to 203b and 203k loans.

Examples - top row is now, second row is after 10/4 and the $43.39 is the monthly payment increase:

Questions? Don't hesitate, ever, to contact me.

COMMENTS ARE GOLDEN - this is about you so sound off ...

Having the ability to use a down payment gift from a friend or family member is wonderful. In today's real estate and employment economy it is almost crucial in a small percentage of cases. During a time when many are selling below payoff and needing to bring the deficiency to the closing table they may be greatly decreasing their available cash to close. When this happens having a gift from an employer, family member or friend can mean the difference between getting that home and not getting the home.

Many will argue if a buyer does not have the down payment they do not deserve the home. Continue your argument and feel free to comment here but only if you include actual facts and data to evidence your contrarian view. Not having down payment does not automatically translate into future default - especially in today's economic climate.

Who can give a down payment gift?

Any direct relative such as a sibling, parent or child can give a gift without any further explanation as can an employer. Distant relatives and friends can only give gifts if they have a vested interest in the buyer making this purchase. The goal is to make sure no party with an interest in the sale of the property (builder, seller, agent) are providing the gift to the buyer.

The borrower must list the name, address, telephone number, relationship to the homebuyer, and the dollar amount of the gift on the loan application or in a gift letter for each cash gift received.  If sufficient funds required for closing are not already verified in the borrower’s accounts, document the transfer of the gift funds to the homebuyer in accordance with instructions described in Handbook HUD 4155.1 REV-5

Often the most challenging aspect of the gift is having the donor understand they will be required to provide evidence of their ability to give which may include showing some private information to the underwriter. It is often a battle, especially with older generations who have been well steeped in protecting private data. However the HUD rules are as follow:

Documentation Requirements.  The lender must document the gift funds by obtaining a gift letter, signed by the donor and borrower, that specifies the dollar amount of the gift, states that no repayment is required, shows the donor’s name, address, telephone number and states the nature of the donor’s relationship to the borrower.  In addition, the lender must document the transfer of funds from the donor to the borrower, as follows: 

1. If the gift funds are in the homebuyer's bank account, the lender must document the transfer of the funds from the donor to the homebuyer by obtaining a copy of the canceled check or other withdrawal document showing that the withdrawal is from the donor's account.  The homebuyer's deposit slip and bank statement that shows the deposit is also required.  

2. If the gift funds are to be provided at closing: 

a. If the transfer of the gift funds is by certified check made on the donor's account, the lender must obtain a bank statement showing the withdrawal from the donor's account, as well as a copy of the certified check. 

b. If the donor purchased a cashier's check, money order, official check, or any other type of bank check as a means of transferring the gift funds, the donor must provide a withdrawal document or canceled check for the amount of the gift, showing that the funds came from the donor's personal account.  If the donor borrowed the gift funds and cannot provide documentation from the bank or other savings account, the donor must provide written evidence that those funds were borrowed from an acceptable source, i.e., not from a party to the transaction, including the lender.  "Cash on hand" is not an acceptable source of the donor's gift funds. 

Regardless of when the gift funds are made available to the homebuyer, the lender must be able to determine that the gift funds ultimately were not provided from an unacceptable source and were indeed the donor's own funds.  When the transfer occurs at closing, the lender remains responsible for obtaining verification that the closing agent received funds from the donor for the amount of the purported gift and that those funds came from an acceptable source. 

NOTE:  FHA does not “approve” down payment assistance programs in the form of gifts administered by charitable organizations (i.e., nonprofits).  Mortgage lenders are responsible for assuring that the gift to the homebuyer from the charitable organization meets the appropriate FHA requirements and the transfer of funds is properly documented.  In addition, FHA does not allow nonprofit entities to provide gifts to homebuyers for the purpose of paying off installment loans, credit cards, collections, judgments, and similar debts.

Down payment assistance from the State of Georgia

Yes, you read it correctly. We can get you up to $7,500 to be used for down payment and closing costs on homes with sales prices over $150,000 in Georgia. Under that and you can get up to $5,000. Unlike other down payment programs the buyer does not need to be a first time home buyer. If you search the Georgia Dream lenders on Georgia DCA you will see my team members make up 6 of the top loan officers and 3 of the top 4. We understand Georgia Dream!

As a reward for higher credit scores and to encourage savings, eligible borrowers will:

1) Have a total annual household income that does not exceed the Georgia Dream First Mortgage Loan Financing Limits below

2) May retain cash assets up to the greater of $20,000 or 20% of the purchase price

3) Contribute a minimum of $1,000 of borrower funds to the purchase transaction.

$5,000 if sales price is $150,000 or less

$7,500 if sales price is greater than $150,000

If the home is located in one of the following Georgia counties:

Barrow, Bartow, Butts, Carroll, Cherokee, Clayton, Cobb, Coweta, Dawson, Dekalb, Douglas, Fayette, Forsyth, Fulton, Gwinnett, Haralson, Heard, Henry, Jasper, Lamar, Meriwether, Newton, Paulding, Pickens, Pike, Rockdale, Spalding or Walton Counties

Your total household income based on the number of persons living in the home can be no more than:

One to Two persons $71,000

Three or more persons $82,000

Buyers must have middle credit scores of 660 or higher. Buyers must contribute $1000 of their own funds.

As always don't think just because these few numbers are published here these are all the answers. The very best thing to do is click the "Call Me" button below and the computer will call me and connect me with the phone number you enter. Only a short interview will usually determine if this is the best home mortgage loan for you.

Loan rates are not determined by the lender but are set by Georgia DCA.

The home buyer sees an ad on the internet for guaranteed 5 day closings, no minimum score and stated income from a "lender". Oh the hilarity! Unfortunately it can also end with a home buyer, home seller, a couple of real estate agents and their brokers, and a few other people doing a lot of work for nothing. Many outrageous claims are made by lead generation companies who sell the information to dozens or more loan officers who will call, email, fax, or email.

If it sounds too good to be true and every true mortgage professional is telling you there is something wrong with what one particular company or person is offering you can pretty much bank on it: it's smoke and mirrors designed to hook the buyer in and hope they'll get so far in they feel compelled to continue. They will, too, threatened by that ominous closing date on the purchase agreement and they will ride a bad loan all the way to the closing table then be strapped with it for years.

In defference to some wild claims about FHA I have read lately here are five facts every buyer and agent needs to know:

1. FHA does mention credit scores but lenders have overlays and almost every lender requires a minimum middle credit score (not necessarily the FICO score) requirement is 620. Some lenders even require a 660. There are no major lenders actively closing loans with credit scores lower than 620 and only a very few broker type lenders closing down to a 580.

2. FHA does not make loans they insure loans. The loan is actually made by lenders and often sold to Fannie Mae or another major pool investor. The only time FHA actually sees the loan is after it is closed and the files are sent to them for their insurance records. Most bigger lenders are called Direct Endorsement (DE) lenders and they make the actual decision. 

3. FHA does not make loans to people with bad credit. FHA was never intended for bad credit borrowers. While it is true they do have less stringent guidelines than some conventional conforming loans it is not true they accept people who have neglected their payments and have been careless with their credit over the years.

4. FHA does finance rehab, upgrades and other construction costs to existing homes. In fact the FHA 203k streamline is a much underused FHA loan product. Many lenders do not offer this loan and the majority of loan officers do not know how to structure the FHA 203k streamline which offers up to $35,000 in costs.

5. FHA does offer a special loan with only $100 down payment required on HUD owned foreclosure homes. This is also something often overlooked and not offered by many lenders. Ask your local FHA home loan specialist about the HUD $100 down FHA home purchase loan - which is only valid for primary home owners, not investors.

There are a hundred other FHA facts and there is a growing list of "Myth's Busted" at Mortgage Myth Busters where you also can ask a question. Or, as you may have noticed, on the original publication page for this posting at Active Rain there are three ways to immediately contact the author.

They call their selves "mortgage specialists" or "mortgage professionals". They are definitely everywhere inside the real estate industry and you see their ads all over real estate centric websites, at real estate events and even in your email. They admittedly buy articles to publish which were written by others and since they have the rights to them they publish them as their own. 

Then something strange happens - you see them on news feeds and being interviewed on news channels. Oh, they may indeed have been in the mortgage industry and may even have done very well for their own careers. In fact it may not even be such a bad thing. But are they really providing accurate and trustworthy information?

It's expensive to put on a well produced video and maintain a website with fresh content multiple times per day - I know, I've done it myself. In the end I decided I would much rather run my mortgage company with deeper knowledge about the process, the products and the service I can provide to my clients even if it is one of my team members, well trained and prepared, who actually work with them.

So my question is would you rather work with an FHA mortgage professional who has personally held an FHA endorsement or someone who just buys articles about them to get you to call? Would you rather work with someone with wild claims and page long disclaimers or someone who shoots straight even if you secretly wish the other guys could really do what they say?

Listen to your brain. If the advertiser/blogger/YouTuber is making claims that get you excited but clash with everything else you are seeing you better stop, take a breath, and think three times. Even though there have been many changes in the mortgage industry there are still people who have found ways to get you excited about nothing just to keep you from dealing with someone who is more trustworthy.

Moreover we really expected the Federal Trade Commission to crack down on mortgage brokers, lenders and banks who publish false advertising. Much to the dismay of many it seems you can say pretty much anything you want to as long as you publish enough disclaimers. Read it twice, think about it three times and make sure you are getting accurate advice from someone with a long reputation of trust in the mortgage industry. 

As The Who said, "We won't get fooled again." The nasty truth is there are people out there jumping at outrageous claims only to be told they don't fit in that particular scenario and instead of doing what I would do and leaving dust in the trail heading to someone I can trust they are rewarding the marketing specialist by allowing them to continue earning thousands of dollars even though they couldn't really offer what they claimed unless you, the borrower, did all the work.

I will finish by saying I haven't seen any advertisement I can't meet except a very rare few. There are hundreds of mortgage professionals like me with years of experience all across this nation. Generally you won't find them to have the biggest ads, the most outrageous claims, lowest rates, lowest closing costs, or fastest closing times. You will find, however, when they give you a number and a date you can depend on it.

(The last time I wrote something like this I got a few phone calls and several emails from "competitors" who thought I was attacking them. Laugh. I was. I may not have known their name but I know their game.)