FHA Helps College Students Buy Condos

Here in the UTC-La Jolla area of San Diego County we are experiencing a market-in-transition. Premium properties are actually starting to rise in price. I hear that the markets are a bit weaker in pockets throughout some of the perimeter areas San Diego County, but downtown, the marina district, and of course the beach remain strong markets.

Even so, I am finding 2-3 fresh "steals" every week for my clients who don't mind playing the short-sale and foreclosure game that so favors the banks to the demise of their borrowers who got caught in the subprime debacle.

Any agent/client with any questions may email Greg Parker directly: greg@gregparkerteam.com. They are the experts.

Today, I encourage buyers to consider an FHA mortgage. Here are some notes I took from a presentation made by our in-house lender:

An FHA mortgage can cover 97% of the property's appraised value.

FHA loans are not credit-driven. You can qualify even if you have a lower FICO score.

For a borrower to qualify for an FHA loan, all it takes is a clean credit history for the most recent 1 year; the income (ability) to paydebt; and the desire (willingness) to pay debt.

Almost everybody qualifies. Even those who had a bankruptcy 2 or more years ago.

FHA loans are all full-doc loans. Borrowers will need to present W2s, paystubs, tax returns. In fact, here's what you will need to give your lender:

- Most recent year to date pay stub.
- 2 most recent years W2’s or 1099’s.
- 2 most recent years Federal personal tax returns with all schedules.
- Most recent months bank statements for all assets including checking, savings, investment, retirement etc.

The value of the property is determined by an FHA Appraiser. They will confirm that the property is habitable (kitchen, bathrooms, etc.), and that the condo project/subdivision is FHA-Approved.

All FHA loans come with a 1.5% (points) "funding fee".

All FHA loans come with a 0.5% PMI (mortgage insurance) fee. (To calculate yourmonthly cost: [loan amount] x 0.5% / 12).

When banks require PMI on a Conventional loan, they will usually eliminate the PMI once you can prove thatyou have 20% or more equity in the property...and this can happens either by paying down on the loan's principle, or by appreciation of the property.

But with FHA loans there is a minimum of 5 years requirement, so if you get a 3% FHA loan, you're stuck paying the PMI for a minimum of 5 years. But if you time the market and buy one of the properties caught in the subprime mess you could make out like a bandit and never even notice the extra monthly charge!

All FHA loans are insured by the Fed'l gov't so that's why they require PMI. Your premium payment goes to pay-off the lends when the occasional borrower defaults.

FHA loans require a minimum of 3% down, however 100% of that can be a "gift".

We've had a lot of cases where someone will "gift" students the 3% downpayment. Anybody can donate the "gift". Plus, the donor may be able to deduct that "gift" from their income taxes up to a total of 50% oftheir income in any given year.

One scenario: If the purchase price is $450,000, 3% = $13,500 downpayment. If you have that sum in savings, or if somebody will "gift" that to you, you might be able to buy this property.

Speaking of students, if the borrower will have to start repaying their student loans within 1 year from the start of the mortgage loan, that student loan debt WILL affect what the borrower qualifies for. Students who have jobs (income) + can come up with 3% of the loan for the downpayment + are more than a year from having to start paying back their student loans would likely qualify for a 97% mortgage.

FHA loans also allow a seller to contribute up to 6% toward the buyer's recurring and non-recurring closing costs. A motivated seller whose property sells for $450K can contribute up to $27,000 toward the buyer's "closing costs". Be sure to call Greg Parker for clarification of these details.

Seller contribution is limited to 6%. The borrower can use 3% for the downpayment (through Neimiah) and the other 3% towards buying down the rate,1.5% funding fee and closing costs. If the seller contributes 6%, thisallows the borrower to come in with less money out of pocket and obtain thebest rate possible.

Bank-owned properties ("REO"s) are OK for FHA loans.

To avoid encouraging investor "flippers", an owner cannot sell a property that has an FHA loan until the 91st day after close of escrow. (That is not much of a discouragement. It'll probably take that long to get the place in good shape to resell for your profit!)

Since San Diego County as a whole is subject to "declining values" rules, Conventional lenders require a minimum of 10% down. Those borrowers will also have to pay PMI. But if the borrower can afford to come up with 20% down (from "gifts", seller carrybacks, etc.) the PMI can be avoided.

Since FHA loans are insured by the Fed'l gov't, we can work with only 3% down. Plus, for the 2007and 2008 tax return years, PMI is tax deductible. This may or may not be extended beyond 2008.

My point in bringing this information to your attention is to show you that it is possible even for prospective buyers who are college students, or who have shaky credit or even a bankruptcy 2+ years ago to get into the real estate investment business.

Our government has done many, many things to make up for the subprime debacle. And the market will surely rise in the future. So now is the time to buy something you can afford with these generous FHA loans. There's no reason to be left behind.

Here are two websites where you can find if the condo project you want is already FHA-Approved:

For VA Approved Condo/PUD http://condopudbuilder.vba.va.gov/2.2/frames.html

For FHA Approved Condo/PUD http://www.financinghelp.com/mortgage2/site/FHACondo.htm

You can search by city also.

However, if the condo project you want is not on these lists we might still be able to get it approved. Email Greg Parker or me if you would like me to provide you more information re: mortgages or the current real estate offerings.

Tim James
Email: drtimjames@prusd.com

Greg Parker
Email: greg@gregparkerteam.com