One loan that is frequently overlooked by some homebuyers is the FHA 203k Streamline Loan program. This loan is a valuable opportunity for FHA financed buyers to borrow up to $35,000 in additional funds to repair homes before and after moving in to make the home safe and comfortable.
The FHA does routinely loan money for homes that require work. Major repairs are frequently necessary to make the homes habitable and are certainly not optional improvements. By allowing purchasers to have easy access to these renovation funds, the FHA truly does streamline the process which allows mortgagees to more quickly turn their houses into homes.
The loan does come with strict stipulations, of course, and only certain repairs and additions are allowed. These improvements include repair or replacement of roofs, gutters, downspouts, existing HVAC systems, flooring, etc. In fact, most improvements that do not require plans from an architect or an engineer are allowed under the plan, which does require an inspection to prove the repairs of $15,000 or more have been finished.
Other important uses of the FHA 203k Streamline Loan include help to stabilize lead-based paint, update or repair septic systems, and waterproof basements. If not addressed, all of these problems could jeopardize the homeowner’s successful fulfillment of the original mortgage. These repairs are not optional, so if these problems arise after the owner’s purchase, they will possibly be paid for out of the monthly mortgage payment. This loan safeguards the FHA as well as the homebuyer by making certain the home does not deplete all of the owner‚Äôs funds.
These loans can also be used to prepare the home for sale, giving them an even broader appeal. In some limited circumstances, the loan can be used to refinance the home in question. In all cases of renovation, a contractor must be used because do-it-yourself efforts are not acceptable to the FHA.
Establishing a contingency reserve is not required but is another option for those receiving the loan. The homeowner can ask for this reserve to be established so that the funds are available in case they are needed for emergency repairs. This use of the loan gives owners added peace of mind and ensures their ability to meet their mortgage payments.
The FHA 203k Streamline Loan offers homebuyers greater flexibility in renovating and maintaining their government financed homes. These funds are an especially valuable tool for buyers who are establishing a long-term residence.
What Does a 203k Cover?
Before you apply for your 203k loan, you need to make sure that you have a very clear understanding of the nature of this renovation loan and for what it can be used so that you know that you are not wasting your time on a loan that wont work for you. A 203k loan covers home renovations and home repairs. This loan has been designed specifically with the intention of encouraging the financial institutions to lend money for the purchase of risky properties. This loan is also to encourage buyers to go for homes that need renovation. Buyers that do not have adequate funds to take care of the renovation work after the purchase of a home; in such cases, buyers normally get discouraged and would not want to purchase such properties. This loan encourages buyers to choose risky properties without any hesitation because the loan covers the expenses involved in repair work.
FHA has its own guidelines on what types of repair work or renovation work are covered by a 203k. Before applying for your 203k loan you should know what it covers. If you have pool repair in mind then a 203k may not be the right loan for you. There are two types of 203k loans and the scope of these two loans vary. If you are planning to go for minor repair or minor renovations that would cost you less than $35,000 then you should go for streamline 203k. If you are planning to extend your building by adding another room then you should go for standard 203k.
Options on Rehab
Here are few broad areas of home repairs and renovations that are covered under 203k loans: Deck repair, patio repair or renovation, painting, extension of structural areas such as addition of another room, bathroom remodeling , kitchen remodeling, drainage, attic renovation or basement work, other structural repairs, addition of another story, treatment of lead based paints, repair of heating system or air conditioning systems, plumbing repairs, repair of energy conservation systems, flooring repair and roofing repairs.
What’s Not Covered
Some of the areas of repair work are not covered by a 203k. Basically all those areas of repair work that would be considered ‘luxury’. For example, it will not include tennis court maintenance, sauna bath repair, hot tubs, swimming pool maintenance, etc. Landscaping is also not covered by a 203k loan. However, rather than presuming what will be allowed or what will not be allowed, it is best to check with your financial institution on what their terms and conditions are so that you get a clear picture of the scope of your 203k loan.
GSFA (Golden State Finance Authority) Platinum FHA Program is a home buyer assistance program available to anyone looking to purchase a home in California. This program offers down payment and closing cost assistance to prospective home buyers through this program. Five percent of the total purchase price amount is provided as a State grant to California home buyers who qualify for the money. This grant money is free and never needs to be repaid, so it can be considered free money. Unless young adults have parents or other family members who are willing and able give them financial aid, purchasing a home of their own may be virtually impossible.
There are several requirements that GSFA (Golden State Finance Authority) Platinum FHA Program applicants must meet to qualify for the program, but the process is not difficult for most. The standard loan guidelines are required to qualify for the program, meaning applicants must have adequate income to cover the cost of the loan. The GSFA (Golden State Finance Authority) Platinum FHA Program can only be used to purchase homes that are priced at $417,000 or below, and homeowners cannot qualify for refinancing through the program.
GSFA (Golden State Finance Authority) Platinum FHA Program Qualifying Requirements
- The property which the prospective buyer wants to purchase must be intended as their primary residence. This means the program does not provide assistance to anyone wishing to purchase investment or rental property unless they also intend to live there. The program includes single family homes.
- The prospective buyer must be a resident of the United States and have a credit score of 640 or higher. Income limits are determined by county AND type of first mortgage. While this amount might be considered more than adequate for a single person, a family with children could find it challenging to set aside funds for a down payment while meeting their everyday needs.
- Homes purchased through the GSFA (Golden State Finance Authority) Platinum FHA Program must qualify for an FHA, Fannie Mae, VA and USDA loans. In addition, the buyer must enroll in and complete a class aimed at educating new home buyers in the basics of home ownership. This class must be completed by the applicant prior to their application for the program and before their eligibility can be granted
The GSFA (Golden State Finance Authority) Platinum FHA Program provides an excellent opportunity for anyone wanting to purchase a home in California, and the program could certainly help struggling families in many other areas of the United States. Considering the success of the program, perhaps other areas will also begin offering similar help for home buyers.
If you are looking to buy a house but have found the down payment to be the biggest obstacle, then you owe it to yourself to learn about getting a Grant for Down Payment on your home. To begin with, a grant is not a loan. This is money that is given to you for the sole purpose of helping provide the money needed for a down payment. In many cases, this grant money will be all that is needed for the total amount required to get the mortgage for your house.
A great mortgage program
If you have a good credit rating, but a limited income, you may qualify for financial assistance from the Federal Housing Authority. This government agency exists to help those in lower income brackets purchase a home that would otherwise be difficult or even possible to obtain. If you qualify for this type of loan, you will be getting help in two areas. The first is that you will be able to get a loan at a good interest rate because the government is backing the loan. The second part of the assistance is with the down payment. Unlike a commercial loan, an FHA loan is backed by the government, so a mortgage only requires a 3.5 percent down payment.
A grant program from a mortgage company
Of course, this small percentage can be a sizable amount of money for many families. This is where getting a Grant for Down Payment can be the solution to a down payment problem. The Guild Mortgage Corporation has what is called the Home in 5 program. The number five refers to the typical amount needed to get an FHA loan. Along with the 3.5 percent down payment, there are closing costs that need to be paid as well. The total amount usually adds up to five percent.
Grant program from charities
Many non-profit organizations have grant programs to help lower income people with a down payment. The American Family Funds is such an example. They focus their efforts on those who are pre-qualified for an FHA loan. The AmeriDream program is another example of charitable grants programs; there are many.
Other sources of grants
Many state governments have grants to help with down payments with FHA loans as well. A Grant for Down Payment can also be obtained from a relative or a friend. Keep in mind, however, that it must be a gift. You are not required to repay the money. You will have to document this with your mortgage lender.
For the first time home buyer, the most important question to ask would be, “what kind of mortgage should I get?”. Deciding on the type of loan that would best fit your financial conditions is as important as deciding what kind of home to buy. There are many lenders out there who can offer you all sorts of deals, but which one suits you best?
Some Types of Mortgage Available to You
There are more than enough loans that you can choose from and each has its own advantages and disadvantages. Below are some of the most common types.
1. Fixed-rate mortgage
When interest rates are lower, it is to your best interest to get a fixed rate mortgage. In this type of loan the interest rate remains the same throughout its lifetime which can take up to 10, 15, 20 or 30 years depending on the contract.
2. Adjustable-rate mortgage
Also known as ARM, adjustable-rate mortgage is the kind of loan wherein your monthly payment vary depending on the condition of the economy. In most cases, your monthly payment can adjust upward over the loan’s lifespan.
3. 203k Loan
FHA 203k Renovation Loans are designed for people wanting to finance both the mortgage to purchase or refinance a fixer-upper and the funds needed to repair and remodel the property all in a single loan with one application, one closing, and one monthly payment.
4. FHA loan
FHA loan is a mortgage that is provided by lenders and insured by the Federal Government. This means that when the borrower defaults in his payment, the government reimburses the lender. One advantage of this loan is that it usually has low down payment and it has predefined spending limits which means that you can’t go beyond what you can afford.
5. VA loan
VA loan is another government sponsored mortgage which provides loans to active service men and women, eligible veterans and surviving family members. Although loan sizes are most of the time limited, it has competitive rates and little to no down payments.
When qualifying for a home loan, the Federal Housing Agency (FHA Loan) permits use of gifts to meet required down payment amounts. It is an important and sometimes overlooked source of funds. There are rules that govern use of gifts for down payment on an FHA loan. These rules clearly state the sources and types of funds permitted as gifts for down payment. The basic idea is to require good faith by buyers who must meet a down payment percentage. The rules generally prohibit buyer and seller, or others with an interest in the transaction, to work together to create the appearance of a gift for down payment. FHA rules define procedures, safeguards, and persons or institutions that may provide the gift.
Gift And Source Requirements
The sources of funds must be from approved sources and verified by specific documents. FHA rules require that the borrower have a minimum percentage of cash investment and sufficient funds to pay closing costs. Generally, the down payment must be at least 3.5% of the lesser of the sale price or the appraised value.
Who May Give A Gift
There are well-defined types and classes of donors who may give a gift, they are:
- a relative;
- an employer or labor union;
- a soon to be spouse
- a charitable organization, government, or public body, which regularly provides home ownership assistance based on low income and/or first time buyer status.
The rules require the lender to document the gift by a form Gift Letter. The basic elements of which are as follows:
- it must identify donor and borrower
- it must state the relationship between the parties
- it must state the amount of the gift
- it must declare that repayment is not, nor shall be, required.
If the gift were from a permitted source, then the gift can be in any part up to the full required down payment. There is no specific limit. Grants, qualified loans, and gifts can cover the entire amount of borrower’s down payment and closing costs.
Certain loans and all grants from government and non-government organizations are permissible as a gift for a down payment. In the event that the organization was a charitable organization, recognized by the IRS, the borrower must present proof of status. The certification must show valid IRS charitable status as of the time of the gift.
Some loans may also qualify such as loans issued by disaster relief agencies, like FEMA and comparable State agencies.
For more questions on gifted down payment contact a Comstock Mortgage Loan Originator.
The Federal Housing Administration (FHA) provides many ways for home buyers to obtain down payment assistance. One source of funding that is available to recipients of FHA loans are gifts from parents. However, there are a few rules that need to be followed when such a gift is made.
Funds Used As Down Payment Assistance Must Be Documented
If your parents are to give you money toward the purchase of a home, a paper trail must be established documenting where the money comes from. For the most part, the money is going to come from a personal savings or checking account. While the money can come from any source, your lender is going to demand to know where it comes from. A copy of a bank statement and check proving that the money went where the donor said it went must be provided as well.
A Donor Letter Must Be Submitted Along With The Gift
The donor letter certifies that the money is a gift that the recipient will not have to repay. It also certifies where the money is coming from and that the money is not being provided by anyone who has an equity stake in the home now or in the future. The gift giver also swears under penalty of law that the money is going directly into a bank or escrow account that will be used to make the down payment or pay for closing costs.
Why Is So Much Documentation Needed?
Lenders are wary of potential home buyers who have a lot of debt. Therefore, taking on another loan to pay closing costs or a down payment signals that you are not financially stable enough to handle a home loan. This makes it too easy for lenders to disguise their loan as a gift and earn interest from the deal. Another reason why there is so much documentation needed is because the program is designed for low to mid income buyers to own their own homes. It is not designed to be a program where investors can get down payment assistance on their next investment.
FHA loans allow you to obtain gifts from parents to help you finance a portion of your home purchase. Most conventional loans will also allow for large gifts to be made from family members. If your parents are not able to help with a down payment another option is the Home in 5 Down Payment Assistance Program, only available in Maricopa County, Arizona.
The Federal Housing Administration (FHA) allows borrowers will low to moderate incomes to receive gifts that can be used to make a down payment. However, there are rules that need to be followed regarding where the money comes from and who makes the gift. What should you keep in mind as you attempt to secure a FHA loan?
Who Can Provide Funds For FHA Purchase?
Family members who can document their relationship to you and your employer/union may give you as much money as they would like. In addition, non-profit agencies are allowed to make grants for your benefit. Your real estate agent, the agent for the seller and anyone other mortgage brokers are not allowed to make a gift. This is because a gift from an interested party could be considered an inducement to buy the property.
Where Can Funds For FHA Purchase Come From?
The money used for your down payment can come from almost any source that can be documented. This means that your mom can make a donation from her 401k account or her savings account. Your father could liquidate his retirement account to help you or your employer could provide a grant to cover your down payment and closing costs. To verify the source of the funds, your lender is obligated to obtain a cancelled check or a bank statement.
Equity Credit And Paying Down Consumer Debt To Increase The Odds Of Loan Approval
If a family member is selling a house to another family member, an equity credit may be made to help cover the down payment and closing costs. In lieu of paying for closing costs, portions of your consumer debt may be paid off to help you pay the closing costs on your own. The one downside is that the sale price must be lowered $1 for each $1 that goes toward your debt. Another factor to consider is that credit and other forms of debt are not eligible to be paid down for you.
Getting funds for FHA purchase is not as hard as it looks. Although there is a lot of paperwork and documentation that has to be done, you can get your money from almost any source that can be verified. This makes it easier for people looking to take advantage of this program to get into affordable housing without facing too much of a financial burden prior to closing.
If you have been effected by a foreclosure on your home, there are plenty of ways that you can re-build your credit without having it negatively affect you for too long. Rebuilding your credit can have a significant impact on getting a mortgage after foreclosure. Credit can be quite tricky and many are unsure of how to go about improving their credit score. Don’t settle for a low score, instead take these necessary steps to improve your credit after foreclosure.
High Credit Card Balances
One of the biggest setbacks that many face with their credit score is the fact that they simply have too much debt or their credit card balances are too high. If you have just foreclosed on your home, make all efforts to pay down or even pay off your credit card accounts so that you are not carrying around extremely high balances. About 30% of your credit score is established by the current balance that you have on your accounts compared to your limits on the accounts. Those who are using more than 50% of their available credit limit may have a much lower credit score than those who have paid down their balances and choose to keep them as low as possible.
Raising Your Score With Credit Cards
If you have a very low credit score due to foreclosure, one of the easiest ways to boost it up is to establish a credit card if accepted or to add yourself as an authorized user on a family members credit card. As an authorized user, you will receive your own credit card that is linked to their account. Assure your family member that you will not rack up debt on their card. Instead, use the card only for small purchases that you can afford so that you will improve your overall credit score. You may also be able to open up your own credit card account such as one that requires a yearly maintenance fee to improve your credit score after foreclosure.
Check Your Credit Report
Always be sure to check your credit after foreclosure and at various times of the year. Checking your credit report allows you to see exactly what your rating is and why it may be lower than expected. If there are collection agencies attempting to collect a debt, this can be a major reason why your credit is low. Pay off debts and collection agencies shown on your credit report to up your score.
“Boomerang buyer” is the phrase used in the real estate business to describe homeowners who lost homes during the 2007 housing crisis. The idea of boomerang describes the large numbers that have returned to or come back into housing markets as purchasers. The boomerang effect has been a major factor in increased demand for housing and has helped drive housing sales. Guild Mortgage offers flexible and easy to use programs to help these buyers succeed and avoid lengthy waiting periods. Some can qualify for mortgages as soon as one day after short sale or foreclosure.
Back In The Market
Boomerang buyers have lost homes through mortgage defaults, short sales, or other negotiated deeds of release from mortgage contracts. Many State programs and the Federal Housing Authority (FHA) define a first time buyer as one that has not owned a home in the three years preceding an application. Some State programs offer financial incentives to increase home sales and assist home buyers to purchase properties in their communities. Some offer cash assistance to first time buyers. However, these opportunities, unlike Guild Mortgage, require a lengthy three year (3 year) waiting period and other specific requirements.
Foreclosure, Short Sale, and Defaults
Boomerang buyers who have lost homes through short sales can return to the market with less difficulty if they have a qualified credit score, and if they were current on the mortgage at the time of the short sale. It is only for this group of buyers that there no waiting period. They can qualify for FHA and VA mortgage loans and assistance. However, if they were not current at the time of loss then a substantial waiting period would apply.
Those who have lost homes in foreclosure must also wait for a long period. They can qualify for FHA backed mortgages after three (3) years if they also meet requirements for minimum credit scores and employment (two years of continuous employment). A minimum down payment is an additional requirement.
Bankruptcy requires a longer waiting period to qualify for mortgage financing. Conventional mortgages require a four-year waiting period after a Chapter 7 bankruptcy, two years after a Chapter 13 discharge, and four years after a Chapter 13 dismissal. Mortgages can also be included in a bankruptcy with agreed mortgage payments. If a default occurs within that time, the waiting periods must generally be determined from the date and type of the loss. For FHA mortgages, Chapter 7 requires two years after discharge, and one year after Chapter 13 discharge.
VA programs require a two-year wait after chapter 7 discharge. They must obtain an approval by the Court in a Chapter 13 case. Where monthly payments were made for 12 months, the trustee could recommend, and the court could permit, a lender approval.
The return of many boomerang buyers to the housing market is a very positive development for the ongoing national economic recovery. Guild Mortgage offers programs that emphasize financial flexibility. Credit scores as low as 600 can qualify, and many buyers will qualify one day after short sale or foreclosure without the more difficult requirements of government and conventional lenders.
*All information is subject to change. Please consult one of our Mortgage Professional for further details.