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Changes with Conventional Loans and the HARP Extension

February 10, 2014

This week we had Alissa Csiki on from Cambria Mortgage to talk about the new changes in conventional financing and the HARP extension. Something that is new and exciting about conventional financing is that about a month ago the 5% minimum down payment can now come fully from a gift. If someone wants to buy a home, mom or dad are now able to pay the full 5% down as a gift. This is bringing some major competition for FHA loans because there are more cost savings with the conventional route now.

Alissa also wanted to bring up the extension of HARP (Home Affordable Refinance Program) through 2014. HARP was designed to help refinance homes that were underwater. In order to be eligible for a HARP refinance, homeowners must meet the following criteria:

  • The loan must be owned or guaranteed by Fannie Mae or Freddie Mac.
  • The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009..
  • The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May 2009.
  • The current loan-to-value (LTV) ratio must be greater than 80%.
  • The borrower must be current on their mortgage payments with no late payments in the last six months and no more than one late payment in the last 12 months. Borrowers should contact their existing lender or any other mortgage lender offering HARP refinances.

Alissa mentions that you could have a credit score as low as 620 and still take advantage of the rates that come with HARP. This is an improvement from the 660 credit score that used to be the minimum.

A few questions that came up surrounding the HARP extension included:

Listener Mike from Holy Oak: Do manufactured homes qualify for HARP programs?

Alissa: Yes, they do qualify.

Listener Jeff: A lot of people have second mortgages, can you do HARP refinance on your first?

Alissa: Yes you can. You cannot combine mortgages so you would have to keep the second mortgage the way it is, but you could refinance the first and then you would have to subordinate the second.

Another hot topic was brought up when a listener asked to talk about the pros and cons of a contract for deed. First off, a contract for deed is a contract between a seller and buyer of real property in which the seller provides financing to buyer to purchase the property for an agreed-upon purchase price and the buyer repays the loan in installments. The seller retains the legal title to the property, but the purchaser obtains an interest in the title by virtue of contract.

To begin with answering what the pros and cons of a contract for deed would be, you should ask yourself a few questions. What is your goal? Why are you selling it? Is it because you want an income stream from contract payments? The reason why you should consider these questions is because a relationship is formed between a buyer and seller for a period of time with a contract for deed. You need to make sure you are comfortable with this person because you are basically going into business with them for at least a few years. The golden rule is that you get enough money down right away. The more money down you have, the more skin in the game the buyer will have.

There are provisions in your contract for deed that limit the amount of work the buyer can do on the house, so your buyer cannot just cut down the beautiful oak trees in the backyard or remodel your kitchen more than a certain amount that is agreed upon with the seller. Also, the buyer takes over the responsibility of the real estate taxes, the upkeep on the property, the insurance, so they don’t have the same rights as a tenant does. The overall lesson here is that there are definitely pros and cons to contracts for deeds, it just takes a minute to evaluate your situation and decide if the pros outweigh the cons in having a contract for deed.