All over California, people are hearing about the FHA jumbo loan program – and if you are in the market for a home that is above conforming loan limits, you are probably exploring your options when it comes to jumbo loans.

And once they find out that they can close their FHA jumbo loan in ten days… well, sometimes it just makes more sense to go with the FHA jumbo loan program.

Depending on where you live in the country, currently FHA will allow you to finance up to $729,000 with just 3.5% down – and the low downpayment is just part of it.  The FHA jumbo loan also carries a lower-than-other-jumbo loans interest rate.

Low interest rates and low down payments for a jumbo loan?

Yes.

The reason for this special jumbo loan program is that it was part of the legislation passed by congress recently and chances are that it won’t be around forever. It was a special program that was created by HUD and it could go away at any time.

So if you are considering other jumbo loan options, ask your loan officer what your FHA jumbo loan options are – you might be surprised to see how easy it can be to get an FHA jumbo loan.

That house that was well over a million dollars in 2006? Now it might be just $550,000 and perfect for FHA jumbo mortgage financing.

California FHA Jumbo Loan Highlights:

• Up to $729,000 financed. (based on the county loan limits published by HUD)
• 660 FICO score required.
• 3.5% down payment.
• 30 year fixed rates around 5%

If you work with an FHA lender who knows what they are doing… they can close your FHA jumbo loan in 10 days (or less) so if you are on a tight timeframe, be sure to work with a lender who can close your FHA jumbo loan in 10 days.

And if the FHA jumbo program goes away before you can get qualified and close your FHA jumbo loan?

Don’t say we didn’t warn you.

Officially, FHA doesn’t have a minimum credit score requirement.

But just because FHA doesn’t have a minimum credit score requirement, doesn’t mean that you can get an FHA loan with a bad credit score — because the key is that many (or all) lenders now require a minimum credit score before they will issue an FHA insured loan to you.

And in general – the lenders are generally moving to a 640 mid credit score (you have 3) before they will loan you money (assuming you meet the other criteria). True, some are still at 62o, but the trend has been for more and more lenders to move toward the 640 minimum threshold lately.

And for the last couple of years, as guidelines have been tightening – the minimum credit score requirement for most lenders has went from no credit score requirement to 580 to 620 and now 640.

Will it continue to rise?

I doubt it — but maybe. 3 years ago, anyone with a 680 or higher credit score was considered an “A paper borrower” and maybe it will go that high — but I just don’t see it happening.

But I have been wrong – which means if you have a 642 credit score right now and are considering refinancing or buying a house with an FHA insured loan – it might be wise to act now rather than wait.

Because it is possible that your 642 credit score won’t be good enough in the near future.

Sometimes choosing between the two FHA 203k loan options can be confusing and we are often asked “why would someone want an FHA 203k Streamline loan vs. a FHA 203k “regular” loan? And the simple answer that we usually give is: if the cost of repairs is anywhere close to the $35,000 allowed by FHA for the FHA 203k streamline program, go with the streamline.

If it is much, much more than that – you will need to pick the “regular” FHA 203k loan program.

But the answer is really slightly more in-depth than that — and here are just a few other reasons people choose the FHA 203k streamline loan program:

• Architectural exhibits are not required with the FHA 203k streamline
• The lender is responsible for making sure the cost to repair is reasonable
• General contractors and/or consultants are not required
• Some lenders don’t require that you get at least $5,000 in repairs (some do)

If it is clear that you are going to need more than $35,000 to rehab a house, then you will want to go with the “regular” FHA 203k program, but it is much more time intensive and the requirements are more stringent. From what we have seen, in most cases, the $35,000 for repairs is more than enough – which makes choosing the FHA 203k streamline an easy choice.

In the last few months, only a select few lenders have not required a minimum of a 620 credit score on all California FHA streamline refinances. Yesterday, the last major lender who used to not require a minimum credit score has announced that they now require a 620 credit score for all California FHA streamline refinance loans. Taylor, Bean and Whittaker announced that they would now be requiring at least a 620 minimum credit score on all California FHA streamline mortgage refinance loans.

New Minimum Credit Score Announcement Details

FHA Streamlines (credit and non-credit qualifying) and VA IRRRL’s with Credit Scores below 620 must be LOCKED prior to July 13, 2009 AND must CLOSE (Note Date) no later than September 15, 2009, and must be delivered to TBW within 10 days after closing Loans in this category locked on and after July 13, 2009 will require a minimum FICO of 620. Clients will be required to obtain a 3 Repository credit report and utilize the standard method of determining qualifying FICO.

Any Conventional, FHA (including Streamline Refinance), or VA (including IRRRL) loan that exceeds $417,000 with a Credit Scores below 660 must be LOCKED prior to July 13, 2009 AND must CLOSE (Note Date) no later than September 15, 2009, and must be delivered to TBW within 10 days after closing Loans in this category locked on and after July 13, 2009 will require a minimum FICO of 660. Clients will be required to obtain a 3 Repository credit report and utilize the standard method of determining qualifying FICO.

In addition, any previously announced minimum Credit Score requirements that TB&W has put into place, that did not have a specified Closing date, will be required to be LOCKED prior to July 13, 2009 AND must CLOSE (Note Date) no later than September 15, 2009, and must be delivered within 10 days after closing. Therefore, any loan, regardless of whether it may be locked, registered or approved, that has a qualifying credit score below 620 (with the exception of those loans that have specified higher FICO requirements) must CLOSE (Note Date) no later than September 15, 2009.

TB&W will continue to allow non-traditional credit for those borrowers with no useable credit for the loan programs that allow the use of such credit in accordance with published guidelines. TB&W is fully aware that these limitations may result in the inability for a particular loan to meet these specified deadlines. TB&W will work as diligently as possible to accommodate all loans in the pipeline. We will be unable to grant any extensions or exceptions to these requirements.

California FHA Streamline Refinance: What Does This Mean?

Although the FHA guidelines do not officially require a minimum credit score, virtually all lenders (and all of the major lenders) in the US are now requiring a minimum of a 620 credit score. TB&W was the last major US lender who was not requiring that you had at least a 620 minimum credit score. It is possible that there are still smaller lenders who can offer the California FHA refinance streamline loan with no minimum credit score requirement, but it might be difficult to find them.

But wait – Is that all there is to the California FHA streamline program? Not anymore. many lenders are making it harder for people to participate in the FHA streamline refinance program because they are now requiring a minimum credit score of 620. Many lenders are requiring this, but not all lenders are requiring that you have a minimum credit score.

The truth is, FHA doesn’t have a minimum credit score requirement — it is the lenders who actually are lending you the money that do.  About a year ago, lenders started requiring a minimum of a 580 credit score and as early as January of this year, some lenders started requiring a 620 credit score. Now a 620 minimum credit score has become the norm for lenders to require.

Do all FHA lenders require that you have a minimum credit score in order to get approved for a California FHA streamline? No, but many of them are.  You can still get approved for a FHA streamline refinance no matter how bad your credit score is as long as you have made your payments on time for the last 12 months.

According to the Official Mortgagee Letter (2009-15):

“Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the homebuyer.  In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive.  (Example:  $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)”

HUD then addresses how they are going to track the costs that people are paying and indicates what will happen if they find organizations violating the rules that have been established:

In order to track the tax credit monetization activities, FHA will require FHA-approved mortgagees to input into FHA Connection the following data:

• Name and EIN of the party who purchased the tax credit,
• The amount of the anticipated credit, and
• The amount the homebuyer paid for the monetization services.

The lender must also collect and maintain in the FHA case file the documentation that validates all of the tax credit monetization data submitted via FHA Connection.

FHA will monitor the purchase of tax credit transactions closely.  Charging of excessive fees or costs in the purchase of the tax credit or increasing other fees or charges in the transaction without FHA approval may result in referral to the Mortgagee Review Board, and particularly with respect to entities that are not FHA-approved mortgagees, referral to the Federal Trade Commission, or referral to the appropriate State Attorney General office, as may be applicable.

HUD has done an excellent job of laying out the rules of exactly how you can take advantage of the new home buyer tax credit and how much it should cost to do so.

Whether or not you can “monetize” the 8000 tax credit in the form of a bridge loan has not been made official. But apparently people are making plans and even announcing that they are doing it.

For example, the Memphis Area Home Builders Association have announced that they are ready to go and are now giving out bridge loans for the 8000 tax credit so that people can “monetize” their money now and essentially move into a home with no money down.

From the article:

Officials at the state’s second-largest homebuilders trade association say the program – the first of its kind in the nation – could jumpstart the county’s sagging new home sales by giving potential homebuyers access to money at closing instead of making them wait for their amended tax returns, which can take weeks or months to receive.

MAHBA’s program has been approved by the U.S. Department of Housing and Urban Development for buyers who qualify for Federal Housing Administration loans up to the $271,050 limit, said association president Stephen Hodgkins and executive director Don Glays.

Hodgkins and Glays said MAHBA has allocated $800,000 to its nonprofit arm, MAHBA Foundation Inc., so it will be able to handle 100 of these new loans at any one time. Once a loan is repaid with a buyer’s tax credit, the account is replenished for another applicant.

“This means Memphis Area Home Builders Association (members) can sell homes by loaning people their down payment so they can get in basically for no money down,” said Hodgkins, owner of Oaktree Homes LLC. “But that (loan) is to be repaid by the assignment of their tax credit.”

And more about the person who thought up this program:

The MAHBA program was the brainchild of Glays, who was dismayed to see the seller-assisted down payment program disappear last year. The new rules said buyers couldn’t borrow their down payments and secure them with the property they were purchasing.

But Glays began researching HUD rules and found out that an “anticipated tax credit” was exempt. “Under HUD rules, any anticipated cash coming in can be used as part of the qualifications for underwriting a mortgage,” he said.

This program doesn’t secure the down payment with the property, but rather with the assignment of the tax credit. Glays said if you know you’ve got money coming in from any source, “you can get a mortgage on the premise that you’re going to get that money and it’s going to be liquid for you to use.”

We have yet to hear of anything in California that makes the 8000 tax credit in the form of a bridge loan official.

But we will be sure to keep you posted as we know more. Things change every day and this can easily change.

But I thought everyone would be interested to know what may be lurking in the near future.

Can you use the 8000 tax credit as a down payment for your home?

Not yet.

But that may change soon.

Yesterday, Secretary of Housing and Urban Development Shaun Donovan gave a prepared speech at the National Association of Realtors Real Estate Summit. He said something that was probably beyond interesting when he mentioned that FHA was currently working on a proposal that may involve people being able to use the 8000 tax credit as a down payment.

An excerpt from that speech regarding FHA’s position on the 8000 tax credit being used as a down payment:

And we are taking action to further help the housing market recover. I’m excited to announce here at NAR that FHA’s policy on the “monetization” of the first-time homebuyer tax credit will soon be published. I know that you’ve been waiting anxiously to hear FHA’s position on the matter. We, like you, believe that this new tax credit is not only a tremendous opportunity for first-time homebuyers, but also an enormous benefit for communities struggling to deal with an oversupply of housing. According to estimates by the National Association of Home Builders, this new tax credit will stimulate 160,000 home sales across the nation – 101,000 of which will be first time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first time buyer purchased their home.

We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a downpayment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to “monetize” the tax credit through short-term bridge loans. We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit. FHA will be publishing the details shortly.

Enabling first time homebuyers to use the 8000 tax credit as a down payment would be a big win for the market – it would allow many more people to move into a home who currently may not have enough for a down payment.

We will be sure to keep you posted on developments in this situation as the happen.

(h/t Mark Madsen at MyFHAMortgageBlog for sharing the video about the 8000 tax credit being used as a down payment and the guys at ThinkBigWorkSmall)

Why?

Because the interest rate that you will end up getting with your FHA streamline refinance is the one that is “locked in” when your loan officer actually locks your FHA streamline refinance with the investor.

You can check the California mortgage rates to get a good idea of what to expect to be initially quoted – here we have posted an average of what people are being quoted across the nation in real time. Remember, these are the averages of the quotes and you will want to speak with a loan officer about your particular file. Once you speak with your loan officer, be sure to be in constant contact with your loan officer once you start the paperwork for your California FHA streamline refinance until your loan is actually locked in with the investor.

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One last thing, nothing is final until you have signed the final paperwork for your California FHA streamline refinance – you can change lenders at any time. If you have questions during the FHA streamline refinance process, and your loan officer isn’t answering them – it might be a good idea to switch lenders!

When you participate in the FHA streamline program, you may defer a months payment if you choose to.

Doesn’t the word skip mean the same thing as defer?

Almost, but not quite.

Skipping a payment would mean that you simply don’t pay it. Deferring a payment means that you will pay it – but you will pay it later.

When you participate in the FHA streamline program, you can defer a month’s payment. That much is true. And with the economy the way it is, many people who are doing an FHA streamline are choosing to defer a payment. Do they have to? Are they required to according to FHA guidelines? Absolutely not. You are not required to defer a payment. But in all the years that I have been doing FHA streamlines, I have yet to meet someone who didn’t want to defer one month’s mortgage payment if they had the option to.

So there you have it. Skipping a payment when you participate in the FHA streamline program isn’t an option — although deferring a payment is.

A technical point, yes.

But a very important one.