Some lender have updated their FHA flipping guidelines to allow an FHA flip transaction after only 30 Days. Previous FHA guidelines did NOT allow flip transactions within the first 90 days and required two appraisals for flips from 91 - 180 days. That process has changed
The guidelines still require two appraisals for flip transactions from 31 days - 180 days period. The buyer can only pay for one of the appaisals. The seller in a 31- 180 FHA flip transaction must agree to pay for the second appraisal.
A FHA transaction bought directly from a bank (i.e REO Owned) does not constitute a flip transaction simply because it a foreclosure. A flip transaction is if an investor buys the property at auction or bank, etc. and is trying to re-sell, or "flip" it, for a quick profit.
Thursday, January 13, 2011
Thursday, January 6, 2011
Tighter Credit Parameters Mean Harder-to-get Loans
Fannie Mae published an underwriting guideline update on 12/11/2010 which further restricted underwriting guidelines.A couple of the issues that have surfaced are:
- Debt-to-income ratios are further reduced. Back-end ratios exceeding 45% create a huge stumbling block and ratios greater than 50% are almost certain to elicit a denial. Many banks have instituted "Overlays" which add their own guidelines and make the loan even more restrictive than Fannie Mae's guidelines.
AMEX and 30-day charge accounts are now included in the borrower's debt ratios. Historically, AMEX accounts and other 30-day charge accounts that must be paid in full at the end of each month were NOT counted into a borrower's debt to income ratios. The new update now REQUIRES these type of accounts to be included. The minimum payment will be calculated as 5% of the balance which shows on the credit report.
Historically, medical collections were not required to be paid in full. However, some the Desktop Underwritering programs require 4-year old medical collections to be paid as a condition of the loan. This caveat is a BIG ISSUE.
Short Sales vs. Foreclosure
The current guidelines for a foreclosure state that a person with a foreclosure on their credit report is NOT eligible for financing within the first four years following the foreclosure. Fannie Mae is considering INCREASING the time frame to SEVEN YEARS from the date of the foreclosure.
Short Sales however have the same convention guideline of being four years from the date of the short sale or three years in the case of a FHA loan. If there were NO late payments within the year prior to the short sale, FHA will allow financing after two years.
The bottom line is that if a seller is weighing the options between the hassle of a short sale vs. a foreclosure, SEVEN years from the date of a foreclosure is a considerably longer wait time then 3 - 4 years required for a short sale.
- Debt-to-income ratios are further reduced. Back-end ratios exceeding 45% create a huge stumbling block and ratios greater than 50% are almost certain to elicit a denial. Many banks have instituted "Overlays" which add their own guidelines and make the loan even more restrictive than Fannie Mae's guidelines.
AMEX and 30-day charge accounts are now included in the borrower's debt ratios. Historically, AMEX accounts and other 30-day charge accounts that must be paid in full at the end of each month were NOT counted into a borrower's debt to income ratios. The new update now REQUIRES these type of accounts to be included. The minimum payment will be calculated as 5% of the balance which shows on the credit report.
Historically, medical collections were not required to be paid in full. However, some the Desktop Underwritering programs require 4-year old medical collections to be paid as a condition of the loan. This caveat is a BIG ISSUE.
Short Sales vs. Foreclosure
The current guidelines for a foreclosure state that a person with a foreclosure on their credit report is NOT eligible for financing within the first four years following the foreclosure. Fannie Mae is considering INCREASING the time frame to SEVEN YEARS from the date of the foreclosure.
Short Sales however have the same convention guideline of being four years from the date of the short sale or three years in the case of a FHA loan. If there were NO late payments within the year prior to the short sale, FHA will allow financing after two years.
The bottom line is that if a seller is weighing the options between the hassle of a short sale vs. a foreclosure, SEVEN years from the date of a foreclosure is a considerably longer wait time then 3 - 4 years required for a short sale.
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