FHFA just announced the new (higher) loan limits for 2018. You can see each county's new loan limit here but this is the summary for Southern California:
San Diego County $649.750
Ventura County $672.750
Orange and Los Angeles Counties $679.850
Riverside, San Bernardino, and Imperial Counties $453,100
FHFA sets loan limits for Fannie and Freddie backed conventional loans but, over the past few years, FHA and VA has followed their lead. We expect the VA and FHA loan limits to be the same as the FHFA loan limits.
What does that mean?
It means more buyers can afford more homes and that's good news for you. If FHA and VA follows (we think they will), fundings could be tricky in the next 60 days. If you have clients who are banking on that higher loan limit, you should call us at 858-777-9751 before you enter escrow so we can determine a strategy so they can get a loan for the higher amount.
If you have an FHA loan in process this month. you were "given a gift" only to have it "taken away" nine days later. It was a political stunt by past HUD Chairman Julian Castro and it's a darned shame it happened to you. Let me break it down for you:
The FHA charges borrowers money to insure their loan against default. It adds 1.75% to your loan and charges a monthly mortgage insurance premium in addition to that added 1.75%. You can avoid this by having at least a 20% down payment and getting a conventional loan (although FHA rates are lower than conventional rates)
The FHA monthly mortgage insurance premium WAS based on an annual charge of .5% of the loan amount prior to the Obama Administration taking office. During the housing crash, the FHA insurance pool (the money collected from the premiums) was depleted because of all the foreclosures. The first term Obama HUD Secretary (Shaun Donovan ) started to increase the monthly mortgage insurance premium cost, from the annual charge of .5%, to an annual charge of 1.4%. This increased the monthly cost of a new $400,000 FHA loan from $166/month to $466/month.
This was a bummer for new FHA borrowers because they were essentially paying for the failures of the past borrowers. Still, if FHA was going to be sustainable, it had to do something so they opted this approach. It worked. The FHA insurance pool grew from being depleted to sustainable. As the size of the FHA reserve pool increased, the HUD Secretary during Obama's second term (Julian Castro) started reducing the monthly mortgage premium from an annual charge of 1.4% to its current annual charge of .8%. This reduced those monthly mortgage costs (on a $400,000 loan) from $466 to $266.
A few months ago, HUD Secretary Julian Castro floated another premium cut from its current .80% annual cost to .55% annual cost. This would reduce the monthly cost (on a $400,000 loan) from $266 to $183. This move was met with vocal opposition from career HUD bureaucrats and the Republicans in Congress. The prevailing thought was to leave the annual FHA mortgage premium be for now and let the reserve fund grow more.
HUD Secretary Castro ignored the advice of career HUD bureaucrats and issued the order to cut the FHA monthly mortgage cost anyway. He issued this order on January 11, 2017 to take effect for loans FUNDED after January 27, 2017. I thought this was suspicious when he issued it because all previous HUD orders were effective for loans STARTED after the effective date. This seemed "too good to be true".
If it looks too good to be true, it usually is untrue. HUD Secretary Castro's order, breaking with normal HUD policy on effective dates, was a legitimate HUD order anyway. We (like other lenders and REALTORS) delayed closings so that borrowers would benefit from the monthly cost reduction. Here's what you need to know:
Castro's FHA order to reduce costs was never gonna happen and Castro knew it when he issued it on January 11, 2017.
Castro was playing politics with borrowers' money. His intention was to put the new HUD Secretary (Dr. Ben Carson) and the new President into the tough spot of saying "Sorry. This was never a good idea". As such, Castro timed the repeal of the January 11, 2017 FHA order to come out just an hour before the new President was inaugurated. Castro was quick to release this repeal order to the media so that it could run with the story that "The New President RAISED FHA monthly mortgage costs".
Let me give you a simple analogy:
I am the principal of a school and you are taking my job next Friday. Last month. I asked all the teachers if we could cut the dismissal time from 3PM to 2PM, The teachers said "this is a bad idea" and you (the new principal) agreed with the teachers. Last week, I ignored the teachers advice and sent an email to all of the pupils saying that the new dismissal time would be 2PM, effective the Monday after you become the new principal. My last act as principal, before I hand you the keys to the school, will be to send an email to the pupils saying "Sorry, the new principal might be a meanie so I can't keep that 2PM promise to you". Guess who won't be popular with his new pupils next Monday? You.
It's political scheming and it's garbage. The Obama Administration took a parting shot at the incoming Trump Administration and, if you have an FHA loan in process, you are the loser in this political game. In my opinion, the incoming Administration should honor the reduction for 30 days and restore the (higher) premium for loans funded after February 28, 2017. They might not have time to do that and I don't make policy so, if you have an FHA loan in process, expect to pay the original (higher) amount.
Mortgage rates are at the lowest levels since the week after the November election, VA/FHA rates are still under 3.99% and conventional rates are above 4.125%.
Right after the New Year, I suggested that rates would be lower at the end of January but higher by this summer. This gives buyers a good opportunity to move quickly. There is no guarantee that rates will move lower in February, but at the very least it leaves buyers with more options.
Check out our hot homes list. These are new-to-market listings. all over San Diego County, for single-family homes. If you want to narrow this list down to a specific area, call 858-777-9751 and we will tailor the list for you.
Non-farm payrolls reported today at 156K vs. the expected 178K; the unemployment rate ticked up to 4.7%. The mortgage bond market is DOWN a quarter point. That doesn't compute.
Today's released data also signaled an uptick in wage growth. Uh oh, that means we are seeing inflation, right?
Not so fast. As Debra points out, a lot of minimum wage laws were passed; 19 states raised the minimum wage effective Jan 1. Businesses often meet those laws prior to the effective date to be in compliance.
The wage growth is probably just a reaction to legislation rather than organic growth. It's a "false positive".
I still think we see lower mortgage rates at the end of January and higher mortgage rates at the end of the summer. If you want to know how this would affect you, call me at 858-777-9751. A real conversation, with someone who has worked in capital markets for three decades, will give you greater insight
HR 3700 passed the House of Representatives (437-0) on Monday, February 2, 2016 and was referred to committee. Three key provisions of the bill are:
1- reduce the owner-occupancy requirement, for FHA-insured condominium approvals, to 35% (from the current 50%) 2- streamline the FHA approval process by expanding the number of lenders who can issue a DELRAP-approval 3- lengthen to approved time frame from the current 2 years (no definitive time)
It is our opinion that, because it was approved unanimously, it will get out of committee quickly and be sent to the Senate for a vote. The Senate is less "conservative" than the House so a super majority of votes to approve the bill is expected. President Obama has signaled that he will sign this into law. It is our opinion that this bill will become law as soon as April 1, 2016. This means that HUD could be approving condominium complexes, with less than 50% owner-occupancy, this Spring.
What does that mean to real estate professionals in San Diego?
It means that there will most likely be a flurry of FHA condominium submissions within two weeks of the bill becoming law. We think it is a good idea to start the FHA-approval process with us now. We can gather documents, prepare the package, and be ready to submit the day President Obama signs this into law, missing the expected onslaught of submissions.
You just listed a new condominium and you're excited; you priced it right and you expect it to sell and close within 45 days. Financing is a big deal for most condo buyers; in San Diego, condos are often bought by first-time home buyers. You might be making these common mistakes which could cause the offers to come in much lower than you want, have deals fall out of escrow, or delay the closing.
3- Not ordering the HOA documents immediately. Most agents tell owners to wait until you have an accepted offer,then ask the escrow company to order the documents. This is a huge mistake because it delays the process. It's a cost to your seller but the seller has to provide those docs to any buyer; they might has well get it out of the way. Committed sellers will do this up front. You can call me at 858-777-9751, to review those documents, so you are prepared for any offer.
Too often, agents make these mistakes and are chasing their tails in escrow. We can help you to stop chasing your tail, maximize the price your seller gets, and guarantee a quick and successful closing.
We just closed an FHA loan in a San Diego condominium complex which wasn't on the FHA approved list. Once upon a time, a real estate agent might call what we did a "spot approval". Spot approvals were where the underwriter looked at the legal and financial documents, of the home owners association, along with a questionnaire, and determined whether or not the complex was eligible for an FHA loan.
There are no such things as spot approvals anymore BUT... DELRAP approvals operate (practically) the same way as a spot approval does.
FHA-eligible condominium complexes are approved, for a two year period, one of two ways:
HUD Review and Approval Process (HRAP)-- this is where the package of the HOA's legal and financial documents are sent to the HUD Home Ownership center in Santa Ana for review and approval. This can take up to 30 days and we would need 45-60 days to close the FHA loan
Direct Endorsement Lender Review and Approval Process (DELRAP)-- this is where the HOA's legal and financial documents are reviewed by an FHA "approved" underwriter. HUD "delegates" authority to underwriters, with a HUD certification, to approve the complex. This takes 3-4 days and we can close the FHA loan within 30 days.
Our condo review department does this for us and we have access to a HUD-approved underwriter to make the DELRAP decision on the condominium complex. We process the loan just like any other loan but delay the appraisal until one week after we receive the HOA documents needed. If we get the documents within the first 2-3 days, after opening escrow, we have no problems meeting the appraisal contingency deadline.
Documents needed include:
Articles of Incorporation (or Association)
Balance Sheet, dated within 30 days of submission
Income Statement, dated within 30 days of submission
Cash Flow Statement, dated within 30 days of submission
Recent reserve study (unless at least 20% of the budget is going towards reserves
If the complex WAS FHA-approved, but is now expired, we still have to submit as if it were a new submission. The two key issues which kill FHA complex approvals are:
The owner-occupancy ration is below 50% at the time escrow was opened
There is pending litigation
Please call us if you have questions or need us to help your borrower get an FHA loan for an unapproved condominium. While this isn't a "spot approval", the process is similar enough to the old spot approvals that it feels like one. Our number is 858-777-9751.
I see this happen a lot in San Diego. A real estate agent finds a new buyer who is serving in the military. That new client wants to buy a condominium with his VA-guaranteed loan benefit but the agent doesn’t know what to do. In the end, the he fires the agent—here is how it happens:
The agent starts off by showing the veteran all of the VA-approved condo complexes. The buyer finds a great property in a complex which isn’t approved by the VA. The agent reluctantly shows the property and the buyer loves it. The agent asks his lender about a “spot approval” from the VA. There is no such thing so the lender looks into getting the complex VA approved—he thinks it will take 60-90 days. The lender tries to offer the veteran a more costly FHA loan with 3.5% down payment and PMI. The veteran loses the property and fires the real estate agent. When asked why the veteran fired the real estate agent, these are the three reasons he gave:
1- The agent didn’t want to show me all of the available properties in my price range. 2- The agent and the lender tried to get me to do a more costly loan 3- The agent doesn’t understand veterans or active-duty military buyers
If you are a real estate agent, that doesn’t have to happen to you.
Many of those military buyers and veterans google “VA condo approval” and find us. We’ve financed over 1000 VA loans in the past 15 years;--close to 100 of those transactions were for condominiums which did not have a VA approval. We secure the complex approval from the VA (sometimes in less than 21 days), process the VA loan, and typically close these transactions in less than 45 days. Who are we and why can we do what few other lenders can with VA condominiums?
FHA is lowering it's monthly mortage insurance costs. From Bloomberg.com:
The annual fees the Federal Housing Administration charges to guarantee mortgages will be cut by 0.5 percentage point, to 0.85 percent of the loan balance, Julian Castro, secretary of the Department of Housing and Urban Development, said today during a conference call with reporters. Under the new premium structure, FHA estimates that 2 million borrowers will be able to save an average of $900 annually over the next three years if they purchase or refinance homes.
This is a substantial cut. FHA monthly mortgage insurance premiums used to be about 1/3 of what they are now:
The FHA has been increasing premiums since 2011 to offset losses caused by defaults on mortgages it backed after the housing bubble burst. Housing industry participants say the increases in annual fees, which are now at 1.35 percent of the loan balance, are squeezing buyers with modest incomes out of the market.
What this means is that the monthly PMI costs (FHA calls those costs MIP) will drop by 37% for new home buyers. For example, an home buyer, getting a $500,000 FHA loan in 2014 is paying about $562/month in FHA PMI. This new directive will lower that monthly FHA PMI cost to $354/month for a savings of $208 monthly--that's a couple of cell phone bills.
The mortgage bond market is currently at it's 2014 high price levels. If prices hold, mortgage bonds will close 5% higher than they closed in 2013. What this means to you is that retail mortgage rates should be about a half of percent lower than they were in December 2014.
This hasn't necessarily happened though. Mortgage lenders have been wary to pass those bond market gains onto the consumer. There is an "angst" that the party could end at any given time. Conventional mortgage rates haven't improved as much as VA home loan or FHA mortgage rates have. Still, I"m hopeful that next week will see rates more in line with the bond market gaints.
You can follow the national average mortgage rates at Bankrate.com. San Diego mortgage rates tend to be .125% LOWER than the national average. Average rates as of December 31, 2014:
30 Year fixed conventional average= 3.97% 15 Year fixed conventional average= 3.07% 30 year fixed VA/FHA average= 3.82% 30 year fixed VA/FHA jumbo avg.= 4.00% 5/1 adjustable rate conv. average= 3.13% -
How can this benefit you? If you are shopping for a home in San Diego, having a full pre-approval will permit you to lock-in a rate as soon as you receive verbal acceptance of an offer rather than waiting for a contract. If you currently own a home in Californis, it might make sense to review your mortgage with us today or Friday. We can run quick numbers to see if it makes sense to restructure your home loan. Call us at 858-777-9751. We usually answer the phone right away (or call you back within an hour or two)
If you want to receive a text report of rates, every 10-20 days or so, text the word RATE to 313131 or subscribe to the mortgage rates report via text by adding your cell phone here