FHA 203(k) vs FNMA Homestyle – Info You Should Know

contractorThe FHA 203(k) Standard Rehab Loan, the FHA Streamline 203(k) and the FNMA Homestyle Renovation Mortgage are single-close mortgage that enables borrowers to purchase a home that needs repairs, or refinance the mortgage on their existing home and include the necessary funds for renovation in the loan balance. The loan amount is based on the “as-completed” value of the home not the present value
Here’is an overview of what you should know about each program.

FHA 203(k) Standard
•  All FHA(203k) loans require a FHA Approved Consultant who acts as a “construction manager” to oversee and inspect the rehabilitation project from start to finish. Consultant works with the borrower’s contractor to write-up a cost estimate and work plan  for the project
•  Used for the purchase or refinance of properties needing major structural repairs. Any repair is acceptable; however – health and safety items and building code violations must be addressed first.
•  Minimum $5,000 requirement for repair cost. The loan amount including purchase price and rehab cost cannot exceed the FHA maximum loan amount for the county.
•  Cost of rehab includes: energy package and lead paint abatement costs, consultant fees, architectural and engineering fees, contingency reserves, inspections and up to 6 months PITI if homeowner can’t live in property during the rehab.
•  Maximum repair amount is 110% of the after-improved value
•  Maximum LTV 96.5%
•  Eligible Properties include:
◊  1-4 unit owner-occupied properties
◊  Owner-occupied FHA approved condos in a 1-4 unit structure are eligible when   the funds are being used only to renovate the interior space of the subject unit.
◊  Mixed-use owner-occupied properties are eligible when the rehab funds are used only on the residential sections and access areas leading to it
•  Project must begin within 30 days of loan closing and must be completed within 6 months. Rehab projects lasting more than 6 months are not eligible.

FHA (203k) Streamline
Used for the purchase or refinance of properties needing minor repairs or upgrading
No Minimum Repair cost. Maximum repair cost of up to $35,000 for non-structural repairs only
•  Eligible Properties include:
◊  1-4 unit owner-occupied properties
◊  Owner-occupied FHA approved condos in a 1-4 unit structure are eligible when   the funds are being used only to renovate the interior space of the subject unit.
◊  Mixed-use owner-occupied properties are eligible when the rehab funds are used only on the residential sections and access areas leading to it
A 203(k) Consultant is not required in most cases
Maximum LTV is 96.5%.
Contractor must be licensed and bonded. Borrower is allowed to choose their own contractor as long as they meet FHA guidelines. Contractor provides written work plan and cost estimates.

FNMA Homestyle
•  FNMA Homestyle is the only rehab loan product that allows for a relationship between the borrower and the contractor.
•  FNMA Homestyle is an ideal product for borrowers who have loan amounts which exceed FHA county limits or have an LTV of less than 80%.
•  Any type of structural and non-structural repair is eligible as long as it is permanently affixed to the property and adds value.
•  Eligible properties include: 1-4 unit principal residences; one-unit second homes; one unit investor properties including condos, co-ops and PUDS.
•  Renovations must be completed within a 12 month period.
•  Maximum Repair amount is 50% of after improved value.
•  Maximum LTV is 95% for one-unit principal residence; 85% for 2 unit principal residence; 75% for 3-4 unit residence and 90% for second homes.
•  All renovation work must be performed by a licensed contractor. The borrower must choose his or her own contractor to perform the needed renovation, subject to the lender’s determination that the contractor is qualified and experienced
•  Under Fannie Mae’s “Do It Yourself” repair option, which is available for one-unit properties only, the borrower may complete repairs that the lender reviews and approves in advance.

Many of the existing homes that are listed for sale in today’s markets are functionally obsolete because they are older and don’t have the amenities today’s buyers are looking for in a home.

The answer is you can get a mortgage to buy a house and fix it up at the same time using the same loan Renovation financing otherwise known as FHA 203K and FannieMae HomeStyle loans; provide solutions for this stalled market segment. The renovation financing revolution is in full bloom as home buyers are taking properties in need of attention and turning them into dream homes with help from the FHA and Fannie Mae.prequal-vs-preapproval

Call  Rick Cignoli @ 860.945.9284 to discuss the right mortgage option for your family and to take advantage of my FREE Mortgage “Jump Start” Pre-Approval service





About Rick Cignoli

“When You Work With a Professional, You Get Professional Results”

Rick Cignoli is a seasoned Mortgage Professional who brings 40 years of banking, credit union and financial planning expertise to the home buying experience. He is committed to helping his clients live comfortably and financially secure in their home with the Right Mortgage at the Best Rate.

Understanding his clients’ needs with a focus on providing honest answers to their concerns has earned Rick a reputation as a Mortgage Officer you can trust.

Rick particularly likes drawing on his teaching background to educate First Home Buyers on the complicated mortgage process. He can solve your puzzle with his expertise in:

♦  Conventional Mortgages
♦  FHA and the FHA 203K “Fixer Upper Rehab Loan
♦  USDA Guaranteed Rural Housing Development Loan
♦  Hone Possible Loans for Millennial Buyers
♦  FNMA Home Style Rehabilitation Loan
♦  Jumbo Mortgages
♦  And Much More!

Rick is a licensed Connecticut Mortgage Loan Officer and registered with the National Mortgage Licensing Service #76681.
He attended the University of Connecticut and is an alumnus of the Stonier Graduate School of Banking at the University of Delaware.

Rick’s experience and broad knowledge of the financial markets enables him to  help his clients with Courtesy, Competency and Concern with the right mortgage at the right rate.

To be sure you have all the right information to make the right financial decision for your family contact Rick at:

Rick Cignoli
Sr. Mortgage Loan Officer
NMLS# 76681
Norcom Mortgage NMLS# 71655
Direct:  860.945.9284
Cell:  203.525.0259

Equal Housing Lender

Is The 2014 Spring Home Buying Season in CT a Bust? What Do You Think?

I live in a small CT town with a population of about 23,000 persons. According to City Data.com, we have 8,300 houses in town. According to Zillow.com & Realtor.com there are home for salecurrently about 225 properties for sale in town including SF homes, condos, a few multi-families and some land lots. Every Sunday, the local paper lists recent sales in area towns. For the past 5-6 weeks no sales have been reported for our little town. Last Sunday, the paper reported that 24 properties were sold; 30% of which were sold to the bank for a $1. I did a quick check of neighboring towns with lower populations, similar demographics and higher housing density and their figures seemed to be comparable.

Then I read a blog by CTNewsJunkie that cites a report by the state Labor Department and Economic Development Department that seems to blame the housing market for the pain we jobssuffer. The report contends that “if the slowdown in housing, which began in the summer of 2013, continues, job growth will slow this year and again in 2015.  They forecast job growth in CT will “slow to fewer than 20,000 new jobs from YE 2013 to late 2015.” Now that’s new jobs statistics and doesn’t consider a contraction of the total work force due to job losses particularly in the Financial Services and Goods Producing sectors.

It has been my contention for the past few months that the Spring Home Buying Season in CT is a Bust. Homes aren’t selling and Buyers aren’t buying because:

o   Mortgage interest rates have risen.Rising Home Prices
o   Investor demand for good deals pushed home prices up
o   Home values are optimistic in relationship to inventory and demand
o   Job security has turned would be buyers and sellers into “Fence Sitters”
o   Job growth in CT has been hampered by a lack of any government initiatives to promote a business climate that would create jobs

Now I’m glad I have an extensive network of referral sources to keep me busy! But I am interested in your  take on all this. Are you a First Home Buyer, a Mover Upper, a Down Don't Sit On the FenceSizer? Or why are you a Fence Sitter? Is this the banner year you expected? Is it a Buyer’s or a Seller’s market? Is the CT housing market out of the woods yet? I am interested in your feedback and welcome your comments.

My Credit Scores Aren’t Great! I Don’t Have a Lot in Savings! Can I Still Get a Mortgage?

I don’t have a lot of savings! My credit scores aren’t great! Can I still get a mortgage? The answer is YES! Let’s talk about your situation.

Happy New HomeIf you think having financial problems will stop you from buying a home, think again! Believe it or not, it may not be as difficult as one may think to purchase a home with less than perfect credit. Here are some common financial problems – and some smart solutions that may help you purchase your new home this spring!

General TipWork With a Professional Mortgage Broker
Getting a mortgage is an expensive proposition. – and without guidance from a qualified mortgage financeprofessional you could pay substantially more than necessary. If you’ve got financial issues, going to a regular bank might not be the right solution for you. You may be a square peg that doesn’t “fit” into their square boxes of credit guidelines. Instead, you should work with a Mortgage Broker who has established direct relationships with numerous lenders who offer a a wide range of mortgage options.
Why? Well, if you work with them directly, mortgage brokers might be able to direct you to a lender who will make exceptions to the standard underwriting guidelines. For example, I’m working with lenders who  consider a borrower with a DTI higher than 43%; and a lender who will accept  applications from borrowers with a 580 credit score.

Problem #1 – High Debt-To-Income Ratio (DTI)
f you’ve looked into getting a mortgage, you may have heard the term “DTI.” Just what  is DTI and how does it impact your ability to get a loan?
DTI is your debt-to-income ratio – a percentage calculated by dividing all your current debt payments plus what the new mortgage will cost you every month by your gross monthly income. FHA MIThe new “ability to repay” rules mandated by the CFPB in January 2014 limit the borrowers to a maximum 43% DTI. The higher the DTI, the higher the risk of non-payment and the harder it is to qualify for a mortgage. If it exceeds 43%, traditional banks will probably decline the request.
Solution: You have to reduce your monthly payments.A good place to start is your car. I’m working with borrowers now who pay $600 per month in car payments. What’s done is done, but instead of financing those fancy new car a few years back, they might have considered buying a good used with substantially lower monthly payments. The cars are in good shape,have low mileage, so I suggested that they apply at their credit union for a loan to refinance their car loans for 24-36 months to lower their payments. I could argue that it’s best financial decision, and of course they could still make the former payments, but their DTI ratio would improve to a point where they could obtain a mortgage.

Problem #2 – Low Credit Score
A borrower’s credit score is the single most important snapshot of your credit risk by good-credit-vs-bad-creditreporting the payment history on all your credit accounts. Lenders perceive a low credit score as a high credit risk and this could negatively impact your odds of being approved for a loan. And if you still qualify for a loan, a low credit score could still cost you. The lower the credit score, the higher the perceived risk and the higher the interest rate to compensate for that risk.
Solution: Get copies of your credit report. Go to www.annualcreditreport.com. the Only Website Authorized By Law to Provide a Free Annual Credit Report. Then discuss your findings with your mortgage broker ask him which areas need improvement. Work with someone you feel is honest, helpful, and has your best interests in mind. In addition to reviewing your overall credit situation, be sure to continue to make all payments on time; pay your credit card balances below your 50 percent of your approved credit line. These steps alone will help show the credit agencies that you’re a better credit risk and help improve your scores. Caution: Do not clear up active collections against you without discussing the ramifications with your mortgage broker.

Problem #3 – Low Down Payment
A major factor deterring home buyers today is saving the cash for the down payment on a home, the closing costs, and still having a few dollars left over in reserves.  This is where your mortgage broker and your Realtor, working in tandem, can help.
Solution: Depending on your situation, you might be able to find a way to buy a home with a low down payment and still preserve your hard earned savings. There are a number of strategies and loan programs that help you get closer to your home ownership dreams.
• Conventional Loan: If you have a fairly good credit score, you might be able to qualify for a mortgage with a down payment as low as 5 percent. The lower the score the minimum down payment may increase to 10%.
• FHA Loan: The Federal Housing Administration (FHA) loan option might be the right choice if you have a low credit score limited cash.  With an FHA loan, the minimum down payment isfha logo 3.5% even if you credit score is in the 620 range. Some lenders will work with a borrower with credit scores down to 580 with overlays to compensate for the perceived risk of default. It doesn’t hurt to talk to your mortgage broker about both these options.
• USDA Loan: In my opinion, the USDA Guaranteed Rural Housing Development Loan program is the best deal in town for those with limited savings. It offers 100% financing for usda 3eligible properties in USDA approved communities. Closing costs can be rolled into the loan amount when the appraised value exceeds the contract sales price. There is no limit on gift funds or seller concessions
• VA Loan: The Veterans Affairs (VA) loan has similar criteria as the FHA loan. But it’s targeted to serve toward past or present military personnel. Veterans may also be able to purchase a home with no down payment through a VA loan.
• Seller Concessions: In certain negotiations, the property owner may be willing to entice eligible buyers to purchase their home by offering to contribute up to 3-6% of the contract price toward the buyers closing costs. It’s important to talk to your mortgage broker and your real estate agent about this option. It’s also important for the buyer to understand that they “can’t have their cake and eat it too.” Buyers can’t expect to offer less than the listing price and still ask for concessions. You may have to pay full price and then hope the seller will take less for the property.
•  Gift Funds: Funds for the down payment and/or closing costs can be gifted to the borrower from a close family member. It is important to discuss this possibility with your mortgagegift funds broker as different loan programs have different limitations on how much the borrower must contribute to the transaction and how much can be gifted. Sourcing the receipt of gift funds, especially wedding gifts, has been a problem for 15 years. DO NOT deposit gift funds into any account without talking to your mortgage broker.
•  State-Sponsored Down Payment Assistance: Another option for borrowers are down payment assistance programs sponsored by certain states, municipalities, and non-profit organizations. They may be offer to teachers, police and firemen who plan to live in their city and/or earn below a certain income level. These programs may be limited to first-time homebuyers. Check with a broker who specializes in these types of programs.

Get Pre-ApprovedSummary: Low credit scores and/or lack of funds may be just a bump in the road to owning your own home. Talk to your mortgage broker about what it takes to get Pre-Approved for a Mortgage and how to get over these hurdles.

 Still Have Questions or Concerns?
Call Me at 860.945.9284 to discuss the right mortgage option for your family and to take advantage of my FREE Mortgage Pre-Approval service. Then you  can call your agent to schedule a showing and be ready to make an offer.

With today’s attractive rates, and my direct relationships with trusted lenders who offer a wide range of affordable mortgage programs, you just might be able to move in with a minimal down payment and low closing costs

FHA to Stop Penalizing Homeowners Who Pay Off Their FHA Mortgage Early

penaltyCan You Believe It! The CFPB does something right!
For years now, FHA has assessed a “Pre-Payment Penalty” on homeowners who pay-off their FHA Mortgage early. They don’t call it that, but that’s what it is!

Here’s how it works: No matter what date in a month a FHA mortgage is paid off via sale or refinance, FHA charges that homeowner interest until the end of the month. Let’s say the closing takes place on the 2nd of the month. The loan is paid-in-full, yet FHA charges the borrower for “unearned interest” through the last day of that month. That’s a Pre-Payment Penalty in my book!

fha logoNot a big deal you say! A delay in closing a FHA mortgage past the 30th of the month means higher closing costs for those wanting to refinance and less proceeds from those selling their home. Why is this allowed to happen? Because FHA said so, that’s why. Just another way to increase their bottom line

Unfortunately, they don’t have to make the change right away.
FHA has until 1/14/15 to halt this usurious practice. In the meantime, it is business as usual.

I’m blown away!  The Consumer Finance Protection Bureau (CFPB ) is making FHA stop this rip off that has been going on for years

FHA Wants More Fees? Not Again!

fha logoThe FHA is asking for authority to collect an administrative fee from borrowers to help they say, “further develop its quality assurance efforts.”  This on top of reports they will have a $7.8 billion capital reserve balance at the end of Fiscal 2014 and will not require another bailout from the U.S. Treasury.

The report triggered an immediate call for FHA to reduce the Insurance Premiums it currently charges home buyers. Keep in mind, FHA increased their Annual Mortgage Insurance Premium (MIP) and their Upfront Mortgage Insurance Premium (UFMIP) in 2013 to bolster their Mortgage Insurance Fund that was depleted in the aftermath of the housing crisis. They later required the MIP to be paid for the life of the loan. These increases were on top of increases imposed back in 2011.

home-prices-riseSomething doesn’t make sense! Here we have a federal agency whose main objective is to “assist in providing housing opportunities for low and moderate-income families.” Yet if one reads between the lines, management is still having quality control issues and is too embarrassed to ask Congress for more money to correct them. Instead let’s force new home buyers pay for the sins of the past by increasing their closing costs again…making it more expensive to own a new home!

And they say the housing market is on the way back? Not with this kind of mentality!

Interest Rates Down! Housing Prices Stable! Now’s the Time to Buy!

Interest RatesMortgage Interest Rates are down this week to a new 4 month low, Conventional pricing is about 4.125% for buyers with good credit, a 20% down payment and the ability to pay all closing costs. FHA and USDA rates are around 3.750% with USDA being the market choice with its significantly lower mortgage insurance costs.

On the flip side, Housing prices are stable compared to their rapid appreciation earlier this year. The housing market continues to favor investors and other buyers paying in cash for distressed properties that appear to be appreciating in value.   

Sellers have been waiting to cash in and the good properties will go quickly. I’ve already had 2 First Home Get Pre-ApprovedBuyers this month who lost out in bidding wars for nice homes. Both had great credit and 20% down; they just couldn’t close as quickly as the competition because they weren’t Pre-Approved for a mortgage.

There’s still time to move into a new home by the holidays and take advantage of potential tax benefits this year. Now’s the Time to Buy!

FHA Too Expensive for Home Buyers. There Are Other Options.

FHA says they should have done less business in the past and (to pay for their sins) they should do less business in the future. To help that process along, they drastically increased the Up Front Mortgage Insurance Premium (UFMIP), doubled the cost of the Monthly Insurance Premium (MIP), and will require the MIP to be paid for the life of the loan.

FHA MIGuess what? Their wish is coming true!  The Government Agency created in 1934 to “assist in providing housing opportunities” for American families saw their application volume drop by 50% in June. At a time when mortgage rates were near all time lows, FHA priced them self out of the market. Great help they are!

Many features of a FHA Mortgage make it an attractive mortgage option for First Home Buyers. However, the cost of the mortgage insurance makes the monthly obligation too expensive. I’m working on two transactions now. Each has challenges that could have been addressed with a FHA loan in the past.  One will be done as a conventional mortgage with a higher rate but lower MI for a savings of $60/month; the other, luckily, as a USDA Loan with a similar rate and MI that is 1/3 the cost of FHA premiums.

I don’t think I’ll recommend a FHA Insured Mortgage to my clients unless that’s the only way to get them in a new home.

What’s The Difference Between Mortgage Pre-Qualification and Mortgage Pre-Approval.

Finding your First Home can be a stressful experience. Home for SaleFinding the right mortgage loan for your family just adds to the anxiety. That is why it is so important to understand the Mortgage Process and The Difference between Mortgage Pre-Qualification and Mortgage Pre-Approval.

You’ll hear about two ways of estimating your borrowConfuseding power: Mortgage Pre-Qualification and Mortgage Pre-Approval. These terms appear to be similar, but are quite different. Not only do they cause confusion for home buyers, there seems to be many interpretations from those in the real estate and mortgage industry as well.

The real the difference between the two terms is that a Mortgage Pre-Qualification is based on verbal information provided by the buyer. With a Mortgage Pre-Approval, the buyer supplies written documentation of all information they claim to be true. Neither is a considered to be a mortgage commitment, nor a written mortgage guarantee. However, obtaining a Mortgage Pre-Approval Letter is more preferred than obtaining a Mortgage Pre-Qualification Letter. Remember…they are not the same thing.

Getting Pre-Qualified for A Mortgage
A Mortgage Pre-Qualification is just an estimate of how big of a house you can afford and how much money a lender might be willing to loan you. The best time to get Pre-Qualified for A Mortgage is right at the beginning of your home buying process, before you even start looking at houses.

You simply talk to a Mortgage Professional, probably on the phone, and verbally provide information on your income, your assets, debt, and your potential down payment Handshake amount. The loan officer will also ask for your social security number and permission to order a credit report. After the credit check is received, he will talk to you about your mortgage options and provide you with a ballpark figure, in writing, of how much he thinks you could afford for a monthly mortgage payment and how much house you can afford.

The Mortgage Pre-Qualification Letter might say something like: Congratulations, After reviewing your credit report,  the income information and the down payment availability you have shared with us at this time; you are Pre-Qualified for a 30 year fixed rate mortgage loan in the amount of $__________ sufficient to purchase a single family residential property selling for up to $_______.

The Mortgage Pre-Qualification Letter will always include disclaimer information such as: This Mortgage Pre-Qualification is not a commitment to lend. It is contingent upon: Receipt of an acceptable appraisal of the property; Seller concessions of up to 6% of the sales price to be applied to your closing costs (if you need them); and something like Final review of your complete application package by our underwriter. In other words, we will give you a mortgage when we see that the information you told us about is correct and meets certain qualifying standards.

There should be no cost involved and there is no commitment on either side. This estimate is just helpful in helping you figure out if buying a home is a viable option, and if so, what your price range will probably be. Getting Pre-Qualified for a home loan is a good first step that will let you know if you should proceed to the Pre-Approval process.

Getting Pre-approved for a Mortgage
Mortgage Pre-Approval is the next big step. This process is Get Pre-Approvedmuch more involved. Basically, you are formally applying for the mortgage loan that will ultimately finance the purchase of your new home.
The mortgage application process involves providing documented evidence that will satisfy the underwriting criteria and guidelines for the type of mortgage loan you’ve discussed with your mortgage professional. Conventional, FHA, or USDA mortgages have different underwriting guidelines and specific qualifying criteria for verification of income, income qualifying ratios, verification of down payment, cash reserves after closing, credit scores and work history, among others.

The process is not quick and not necessarily easy. But, most REALTORS® will tell you that getting Mortgage Pre-Approval is the key to getting the home you want. Agents and Sellers will know you are serious about buying when it’s time to make an offer. And in today’s hot real estate market, a buyer may need to act fast. If the competing buyer has a Mortgage Pre-Approval in hand and you don’t, they win.
   •    Knowing exactly what type of home loan you can  obtain will allow you to shop and negotiate with confidence. For example, you could inform a seller that you have Mortgage Pre-Approval and you are prepared to close as soon as the inspectioPurchase Contractns are complete and the appraisal has been approved…less than 30 days.
Keep in mind; once the seller signs a Purchase contract, they have to take their home off the market. The ability to close quickly, because you have Mortgage Pre-Approval is one way to get a great deal.
    •    And just as important, you, the buyer, will be more relaxed in spending money to hire an Attorney for contract review, providing the earnest money deposit, hiring a home inspector to perform the home inspection, termite Home Inspectioninspection, radon inspection plus any other required inspections and paying for the mortgage application and appraisal fee.
Why? You are concentrating on the home you have purchased, and not worrying about whether they are going to get a mortgage to buy this dream home. It’s already been done!

Only a Mortgage Underwriter Can Issue a Mortgage Pre-Approval
Loan Officers can not issue a valid Mortgage Pre-Approval Letter. A valid Mortgage Approval has been underwritten by an authorized underwriter (an underwriter is the final person that says your loan is approved). If an Loan Applicationunderwriter Pre-Approves your application upfront, issues you a valid Mortgage Pre-Approval Letter, all you have to do is find the home you want, have it inspected and appraised, and  you should be able to close in less than a month.
That’s a big bargaining chip in today’s market.

Click Here for What Paperwork You Need for Mortgage Pre-Approval:Mortgage Checklist
By law, the only fee that can be collected at this time is the cost of a credit report, so be sure to ask if the Mortgage Pre-Approval service is free. Once you have Mortgage Pre-approval, it’s time to go shopping.

Once You Have Mortgage Pre-Approval:
Do Not: become overdrawn in your checking account; make any large deposits to your deposit accounts without discussing it with your mortgage professional; apply for any new credit, make any large purchases with your credit cards, use your credit cards to pay for the home inspections and/or appraisal; fail to notify your Loan Officer of any change in your employment status.
   •   The lender will pull another credit report just prior to closing, Any inquiry or any new debt could drop your credit score and “kill’ your chances for a mortgage at the terms and conditions specified in the Mortgage Pre-Approval Letter.   
   •   Overdrafts are a sign of “financial irresponsibility and large deposits will have to be explained and could delay your closing.
   •   Similarly, the lender will call your employer to verify that you are still employed. Changing jobs or a notice of pending lay-off could “kill” your  application too!

Don't Sit on The FenceThe Spring inventory of good homes on the market is shrinking and prices are going up. Interest rates are positioned to go up too!
Call Me @ 860.945.9284 to discuss the right mortgage option for your family and to take advantage of my FREE Mortgage Pre-Approval service.  I’m here to help.