topic Re: FHA reserves in Mortgage Loans

FHA reserves

jbee — Sun, 08 Aug 2010 12:28:18 GMT

Ok, here's my dilemna.....I'm in the process of building a house, they should be finished in the next 45 days or so. I was hoping to go through the USDA guaranteed loan but I was informed last week that my city now isn't considered a rural area because of the growth and so on.

My LO said that he's already got me pre-approved for FHA but I'm really nervous now since the first loan fell through.

I don't have much savings right now but I'm applying for the down payment assistance program and will use this for the 3.5%. I do have enough for my closing costs in my checking account. Does anyone know if not having much reserves will be a problem?

Here are my stats:

credit scores are below

price: $130,000

down payment: $6000

salary: $2400/mo (according to W-2 last year, was out with my sick father), previous years were $2600/mo.

debt: car: 360/mo

student loans: deferred until 12/2011

credit cards: 35/mo.

Do you think the DTI is going to be a problem? My LO doesn't think so, but I'm nervous.

Thanks for your help.

Re: FHA reserves

Anonymous — Sun, 08 Aug 2010 12:38:54 GMT

Im wondering the same thing. I'm also wondering if they look at a 401k as reserves? Although, I'm going VA.

Re: FHA reserves

Anonymous — Tue, 10 Aug 2010 12:41:37 GMT

Hey, I'm going through the same process and with FHA you DO NOT have to show any certain amt of reserves. If you'll be occupying the residenceZ( not a rental or multiunit) then you'll b e fine. I've been on this forum awhile but never logged in to answer questions. I was just approved yesterday in final underwriting!!! I close on FRIDAY at 11pm!! YAY!

Re: FHA reserves

Anonymous — Tue, 10 Aug 2010 14:17:59 GMT

Congrats Aug!

Jbee, FHA is not *comparatively* sensitive to reserves. I don't see that being a problem.

To your other question regarding DTI, I don't see how that isn't close enough to a problem to double-check. You said your LO stated he had pre-approved you for FHA. If that term was used correctly, it went through the computer already and the approval is good if the DTI was calculated correctly.

You're close, very close in terms of qualification. I wouldn't worry about the reserves, but I would definitely double-check the DTI. For example, if the taxes or insurance are actually higher than estimated in the pre-approval, you don't have a ton of wiggle room.

Re: FHA reserves

jbee — Tue, 10 Aug 2010 15:01:16 GMT

Congrats Aug!!! Good luck with closing.

Thanks chrichter, he said that he have to run all FHA and USDA loans into the same system for the preapproval and then they will go to underwriters. He said that USDA underwriting is manual, does that mean FHA underwriting isn't manual???? I'm so confused.

Re: FHA reserves

Anonymous — Tue, 10 Aug 2010 16:26:14 GMT

I do this for a living and I'm confused I'm not really sure what the LO is talking about.

All loans are really just four things--credit, down payment, reserves, and income. So we take all of that info and get your loan approved via automated underwriting in about 20 seconds. The underwriters certainly double check our math, but that's more a confirmation than separate process.

Ask him which automated underwriting system he used. If he says "LP," "DO," "DU," "loan prospector," "desktop underwriter," or something like that...that's good. If he says that "someone else does that later" or says "huh," that's not good.

Re: FHA reserves

jbee — Tue, 10 Aug 2010 18:20:03 GMT

Thanks chricter. He did say the approval took less than a minute and when he keyed the information in it gave him an automatic approval. So are you saying that once you get the automated (desktop) approval, it's basically just a check point process next and as long as your information checks out okay, it shouldn't be a problem? Is that the same for USDA? He told me that he could put it in the system for USDA but it had to go to manual underwriting. In your opinion, is the process easier for FHA or USDA?

Thanks

Re: FHA reserves

Anonymous — Tue, 10 Aug 2010 18:52:21 GMT

You're welcome.

Underwriting doesn't vary as much between programs (FHA v. USDA) as it does between lenders. The process is radically different if you're in a retail bank branch, a mortgage bank or mortgage broker and the job titles tend to mean different things depending on what type of lender you are going through.

Here is my concern: That approval and the math I did on my envelope didn't match up. If I take your income, make some crude guesstimates on taxes/insurance, I don't see how your DTI is affordable...unless an important number was missed. More important than the approval is the affordability. If the math is wrong, the approval will get overturned.

One thing I didn't think to ask....are you talking $2400/mo gross or net? That would explain a huge variance. Are you in a state with one of the "odd" down payment assistance programs? Some are FHA-ish, might even use an FHA-approval, but loan terms are different than a 'normal' FHA loan. I guess that's two things.

Re: FHA reserves

jbee — Tue, 10 Aug 2010 21:36:49 GMT

Yes, it's roughly 2450/mo gross. The insurance is roughly 45/mo and taxes are 50/mo. I'm sitting at around 46-50% and he said that would be okay. I did tell him that I would pay off my auto loan around the second week of September (should be receiving a settlement). I know that would help a lot.

Re: FHA reserves

jbee — Tue, 10 Aug 2010 21:42:35 GMT

Also, I am receiving down payment assistance in the amount of $6000, so would that amount bring down the principal from 130,000 to 124,000?

Also, my income varies and I was off last year due to family illness, can they take the average of the last 2-3 years? Do you think it will make a difference?

2007- 33,415

2008- 34.558

2009- 29,995

Re: FHA reserves

Anonymous — Wed, 11 Aug 2010 12:26:50 GMT

Hi jbee,

That's good news...my envelope math was assuming taxes that were much higher than that figure. I guess I'd look at it as two parts, approval (bank's focus) and affordability (your focus).

Underwriting calculations tend to use a two-year average, unless the income was declining. Then they go worst-case, but you and I don't care about that. If they use the $29995 figure, yes, my (updated) envelope puts you nearer to 46% than yesterday when I was thinking more like 55%.

Affordability. 46% is a little high, but if those $33-35k numbers are the norm for you and you're paying off the car, it looks like you're closer to a 27% down the road. That should be pretty affordable. That's awesome.

To your question on the DPA, it depends what state you are in and what program you're on. If it allows for down payment + closing costs, you'll probably use 3.5% ($4550) down, the other $1450 towards costs. You'll end up with *roughly* a loan of $126,750 plus the UFMIP. Your loan will be close to $130k anyway, but paying $1k of it down only drops your payment $5/mo. When you're light on reserves, there is not really a good reason to put down $1k to save $5/mo.

My numbers are accurate today--there are some changes coming to FHA premiums, but as long as your home is on target for +/- 45 days, I don't think it should make a difference for you.

Best,

Chris

Re: FHA reserves

jbee — Wed, 11 Aug 2010 16:51:54 GMT

Chrichter, you're the bomb Thanks for all your help.

The downpayment assistance I'm using matches it 5 to 1, not to exceed $7500, for closing costs and down payment. So I'm putting $1500 down and it will count as $7500. My builders are paying my closing costs except for prepays, which I will have to pay around $800, so the remaining will reduce my principal.

Do you know the limits FHA will approve for DTI?

My house will be done around the beginning of October and I probably wont pay off my car until the first or second week of September. Do you think this is pushing it or will I be okay with time crunch?

Re: FHA reserves

Anonymous — Wed, 11 Aug 2010 17:18:35 GMT

Glad to help. Sounds like things are on the upswing for you.

FHA's limit will be higher than most lenders'. So, in that regard, the answer is "it depends." My bank will close the higher DTI loans, but we need to do some additional paperwork on those loans over a 45 DTI. Realistically, any bank should at least ask if a 49 DTI is affordable--even if approvable. I don't think anyone wants to see people get into payments that aren't sustainable. Yours doesn't sound like that type of a problem at all.

If you're going to pay off the car prior to closing on the home, it will be excluded from DTI. I'm not the one approving your loan, but it sounds like everything is good.

I'll gladly give some help, but I have conditions. Make sure you post an update when that closing is scheduled so we can all shower you with emoticons.

Re: FHA reserves

jbee — Wed, 11 Aug 2010 17:43:38 GMT

Of course I will....Last question, should we wait to get the approval until I pay off the car next month or do you think they can update the files once its paid off? How long on average does it normally take to close a FHA loan? I know every file is different, but if you have all your ducks in a row, do you think it will take a while?

Thanks again.

Re: FHA reserves

Anonymous — Wed, 11 Aug 2010 21:11:15 GMT

I can't fully answer that one. Each lender takes the business of approving loans differently. We're running 24-48 hours in underwriting for purchases, but the refis are up to 4-5 days. Basically, if it is a purchase, get is approved NOW logic. A home under construction would typically have a prelim appraisal with a condition pending a final inspection (we, like you, want to know that the builder finished the work).

In your particular situation, I'd normally take your loan application. We'd mark the car loan as paid. You'd have a prior to close condition of "show us the car note is paid" and you'd already be approved pending that final inspection.

Ducks and mortgages---eerily similar. Watch a family of ducks. It's a trainwreck until the first step forward. Then it all comes together.

Re: FHA reserves

jbee — Thu, 12 Aug 2010 13:54:06 GMT

Thanks chricter. I will keep you posted