Ask the Underwriter

What are my down payment options?

For Owner Occupied Primary Residences:
FHA Insured purchases require the buyer have a minimum of 3.5% of the purchase price as their down payment. For this loan type, the entire down payment may be in the form of a gift from an acceptable donor. Acceptable donors of gift funds for the borrower's down payment include a relative (borrower's spouse, child or other dependent, or any individual related by blood, marriage, adoption, or legal guardianship), domestic partner, fiancé fiancée, church, municipality, or non-profit organization. Currently FHA also allows a maximum seller contribution of 6% of the purchase price.

Conventional Conforming Fannie Mae or Freddie Mac purchases require the buyer have a minimum of 5% of the purchase price as their down payment. The buyer must also qualify for monthly mortgage insurance with less than 20% down. The minimum 5% must be the buyer's own funds. Once the first 5% of the buyer's own funds are verified, a gift can be used for the remaining down payment and closing costs. If the buyer puts 20% or more down, the entire down payment may be a gift. Conventional loans allow for seller contributions as follows:

3% seller contribution when the down payment is less than 10%
6% seller contribution when the down payment is equal to 10% but less than 25%
9% seller contribution when the down payment is equal to or greater than 25%

How long do I have to be self employed?

Typically a borrower must demonstrate a history of self employment for at least two years however there are some instances in which underwriting would accept less then a two year history depending on the overall merit of the case.

Does my wife have to be on the loan?

No. Married spouses are welcome to apply for a mortgage individually if they qualify carrying the debt on their monthly income alone.

What is actually considered a 2nd home vs. an investment property?

Second Homes Definition:
A single-family property that the borrower occupies in addition to a primary residence. When a property is classified as a second home, rental income from the subject property may not be used to qualify the borrower or for the subject property. However, income from other properties owned by the borrower may be applied.

The property should not be rented on an on-going basis. Incidental income not to be in excess of 14 days for the entire year with no significant amount shown on Schedule E for the property.

The property must be in such a location as to function reasonably as a second home and generally should be located in a resort or vacation area. It should be remote in distance or in time of travel from the borrower's primary residence.

The property must be available for the borrower's exclusive use and enjoyment and must not be subject to any rental pools or agreements that require the borrowers to either rent the property or give a management firm control over the occupancy of the property.

The property must not be subject to any timesharing arrangement.

The property must be suitable for year-round occupancy.

The borrower may not own another second home or investment property in the same area or locale.

The hazard insurance policy may not contain any coverage for loss of rent insurance.

When financing a second home, the borrower must also meet guidelines for maximum number of financed properties

Second Homes

A second home is a single family property that the borrower occupies in addition to the borrower's primary residence. Rental income may not be used to qualify the borrower. The property must be located in an area that can reasonably function as a second home and must be suitable for year-round occupancy.

Second homes not suitable for year-round occupancy are allowed subject to:

Conforming fixed-rate loans only.
Purchase and rate-and-term refinance transactions only.
Location in an area where second homes are common, but not commonly suitable for year-round occupancy.
The appraisal that indicates the inability to use the property year-round is not detrimental to subject property's marketability.

Typically, a second home* is used as a vacation home. The property must be remote from the borrower's primary residence in either distance or time of travel, and should be located in a resort or vacation area (such as mountains, oceanfront, or desert). Second homes may also be located in a major metropolitan area that the borrower visits on a regular basis. In such cases, obtain a letter of explanation from the borrower stating the reason that the second home is located in a non-resort/vacation area.

The borrower may not own another second home or investment property in the same area or locale. The hazard insurance policy may not contain any coverage for loss of rent insurance. When financing a second home, the borrower must also meet guidelines for maximum number of financed properties. The property should not be rented on an on-going basis. Incidental income not to be in excess of 14 days for the entire year with no significant amount shown on Schedule E of the property. Second homes must be available for the borrower's exclusive use and enjoyment and must not be subject to any timesharing arrangement or subject to any rental pools or agreements that require the borrower to rent the property or give a management firm control over the occupancy.

Any rental income should offset only a minor portion of the property expense and support the fact the property is primarily occupied for the borrower's personal use. Two-to-four unit properties are not eligible as second homes and, if not occupied as the borrower's principal residence, are considered investment properties.

Can I have 2 FHA loans at the same time?

Generally, FHA will not insure more than one mortgage for any borrower. Any person individually or jointly owning a home covered by a mortgage insured by FHA in which ownership is maintained may not purchase another principal residence with FHA mortgage insurance, except under the conditions below:

Relocation: If the borrower is relocating and reestablishing residency in another area not within reasonable commuting distance from the current principal residence (generally at least 50 miles away), the borrower may obtain another mortgage using FHA-insured financing and is not required to sell the existing property covered by a FHA-insured mortgage. Refer to the local FHA Homeownership Center for detailed information.
Increase in family size: The borrower may be permitted to obtain another home with a FHA-insured mortgage if the number of legal dependents increases to the point that the present house no longer meets the family's needs. The borrower must also:
- Provide satisfactory evidence of the increase in dependents and the property's failure to meet the family's needs.
- Pay down the outstanding mortgage balance on the present property to a 75% or less loan to value ratio, exclusive of any financed MIP.
Vacating a jointly owned property: If the borrower is vacating a residence that will remain occupied by a co-borrower, the borrower is permitted to obtain another FHA-insured mortgage. Acceptable situations include instances of divorce after which the vacating ex-spouse will purchase a new home or one of the co-borrowers will vacate the existing property.
Non-occupying co-borrower: A non-occupying co-borrower on an FHA-insured mortgage being purchased as a principal residence by other family members may have a joint interest in that property as well as the principal residence that is covered by an FHA mortgage.

How do you calculate future value on a 203k loan?

All appraisals for FHA loans must be completed by a HUD-approved appraiser.

As Completed/After Rehabilitation Value

The expected market value of the property based on the proposed rehabilitation and/or improvements. The appraisal report must provide an "as completed" appraised value that estimates the value of the property after completion of the rehabilitation work. The borrower's, contractor's or 203K cost consultant's work write-up/bid specification of repairs and improvements must be available for the appraiser to use in order to determine the "as completed" value.

As-Is Value

Appraisals should note the current "as is" appraised value, the value prior to the repairs and improvements. In this instance, typically the contract sales price on a purchase transaction, or the existing debt on a refinance transaction, both prior to the repairs and/or improvements is the "as is" value, when this does not exceed a reasonable estimate of value noted by the appraiser.

FHA 203K Purchase – Loan Amount up to a maximum of 96.5% loan to value is determined from the following Loan-to-Value calculations

The loan-to-value is based on the lesser of:

The sales price or "as is" appraised value plus the cost of the rehabilitation and/or improvements
110% of "as completed" appraised value

FHA 203K Refinance – Loan Amount up to a maximum of 97.5% loan to value is determined from the following Loan-to-Value calculations.