Question regarding FHA

[jq26]

A little background: I am under agreement to purchase a multi-family property. The home inspection is today. Assuming no major defects arise and I don't revoke my offer, closing is scheduled for April 27th. Since my primary residence is mortgaged through my fiance (we kept me off the note due to my horrible credit at the time) and I am off the deed, this triplex purchase is being posed as owner-occupied.

My broker had given me the green light through a program he knew of intended for low-income small investors (apparently low-income in Philly is less than $73,000 AGI). I was putting 3% down and receiving 97% funding on a 30yr at 6.675% with a 1% origination fee. The only "catch" was that I have to sit through a weekend of classes. I got a call last night that the program is off-limits due to my BK7 being less than 48 months old (I am at 29 months).

So now he is running this through FHA and my rate dropped to 6.5% with 3% down, but I HAVE TO PAY 2% OF THE VALUE OF THE LOAN TO FHA. Is this true? This adds 2% to my loan balance! I can still buy down the loan rate if I want to (I may buy it down to 6.0% anyway), but I feel like this 2% upfront MI premium is being pissed away and I want to make sure that I am not lining my broker's pocket with my equity.

[amortgageman]

FHA has a one time fee for Mortgage Insurance Premiums equal to 1.5% of the mortgage. Yes, it can be financed into the loan. There is also a 0.5% MONTHLY MIP that is paid until the loan balance reaches 78% of the initial loan amount. This is standard on most FHA loans (the exceptions being a 234© Condo loan and the 203k Rehab loan, but the monthly insurance is still applicable on these). This insurance protects the lender from any default on the mortgage.

With an FHA loan, I would not suggest "posing" as though you are occupying the property, as this may land you in trouble should they investigate, and find you are not actually living there.

[ybrew]

With an FHA loan, I would not suggest "posing" as though you are occupying the property, as this may land you in trouble should they investigate, and find you are not actually living there.

I take that a step further...

You're asking for trouble.

[jq26]

I take that a step further...you're asking for trouble.

Thanks for the replies. He is claiming 2% upfront MI (which comes out to $5k that gets pushed into the loan balance) not 1.5%, and then 0.5% MI every month thereafter.

Also, I'll have to inquire further about the owner-occupied situation. He tells me he does this routinely and at the moment that the closing is complete, FHA doesn't care at all whether I move in to the place or not. In fact, all three unites are fully rented and explicit in the agreement of sale was an approval of all three leases and a transfer of three security deposits and three rent credits carried forward to the end of the month. Any underwriter should be able to see it for what it is. Now I am wondering if my broker is embellishing FHA's policy in an effort to get the deal done.

[firstsource]

I think that your broker is just making a mistake if he is telling you that the MIP is 2%. He can not profit from telling you the wrong thing, so just a mistake on his part.

HOWEVER:

He is risking serious problems by doing what a fair amount of Loan officers/brokers are still doing. That is lying or asking you to lie on the loan application. Lenders routinely check to verify that owner occupied properties are actually owner occupied. There are a number of ways that they can check up on people. Years ago when there were not many Foreclosures lenders were probably not careful, but they are now. FHA will not lend on NOO properties however.

Charles

[jq26]

I think that your broker is just making a mistake if he is telling you that the MIP is 2%. He can not profit from telling you the wrong thing, so just a mistake on his part.

HOWEVER:

He is risking serious problems by doing what a fair amount of Loan officers/brokers are still doing. That is lying or asking you to lie on the loan application. Lenders routinely check to verify that owner occupied properties are actually owner occupied. There are a number of ways that they can check up on people. Years ago when there were not many Foreclosures lenders were probably not careful, but they are now. FHA will not lend on NOO properties however.

Charles

Thanks Charles and everyone. I will address these issues with him tomorrow. This board is great.

[jq26]

I think that your broker is just making a mistake if he is telling you that the MIP is 2%. He can not profit from telling you the wrong thing, so just a mistake on his part.

You guys were absolutely right. The upfront MI is 1.5%. I must have just heard 2% or I rounded it up in my cost estimates and then forgot. I am told that conventional loans require MI of over 1.0% of loan value per annum and the FHA version is 0.52% loan value per annum, so the upfront MI premium pays for itself in 3 years.

[amortgageman]

You guys were absolutely right.

Well, not exactly, but irrelevant to your issue........FHA does require UFMIP on all loans. I misquoted in a previous post that it was not required on condos and rehab loans.

Good luck, and thank you for your valuable input on many of your posts. You know your mortgage stuff pretty well.

[firstsource]

The 1% is just an estimate on your LO's part. For instance if you had a normal conventional 100% loan for 95,000, the MI insurance requirement is 35% coverage. This translates into 76.00 per month.

Charles

[woody]

also remeber thatwith FHA you will have mortgage insurance for 5 year NO MATTER WHAT LTV. another thing is that 6.5 he is makeing about 2.8 % in the back... just so you know .... on a conventional loan your motrage insurance would be around .96 but can be dropped off when the LTV is at 78% so thats the big diffrence... if i were you i would get a lower rate. he can give you a 6% and still make money. good luck