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Mortgage rates lowest in 3 years; Fannie, Freddie lower income requirements for downpayment program

By Jeff Lazerson


What I think:  Pick your word; confusing, haphazard, inconsistent. With the nation’s affordability crisis in mind, this week President Donald Trump signed an executive order to increase the supply of affordable housing by focusing on cutting red tape.

Yet, earlier this month both Fannie Mae and Freddie Mac quietly announced cutbacks to their 3% down payment loan programs named HomeReady and Home Possible, respectively.

Starting July 20 for Fannie and July 28 for Freddie, the income cap for these low-down payment loans that offer discounted pricing and discounted mortgage insurance gets cut to 80% of area median income or AMI. Currently, the cap is 100% of AMI. And, there is currently no income cap for properties located in low-income census tracts.

In Los Angeles or Orange counties, Fannie AMI is $67,900 so 80% would be $54,240. In San Bernardino and Riverside counties, it’s $60,500 or $48,400 at 80%.

For high-cost Southern California communities, trying to buy any home that is larger than a shoebox and staying within the new HomeReady and Home Possible income limits is going to be incredibly difficult.

Trump is rightfully focused on quickly increasing the affordable housing supply. But, it’s “good luck, Charlie” for near-term buyers that are struggling to afford a home. Look no further than this weeks’ Attom Data Solutions report that says median-priced homes are not affordable for average wage earners in 74% of the U.S. housing markets (not just Southern California).

What is a good near-term option for affordable, low-down payment housing? FHA condo financing that requires just 3.5% down.

Battle-tested buyers and their Realtors will rightfully cry about how too few Southern California condo complexes are FHA approved.

Let’s put your mind at ease and give you a big dose of optimism.

HRAP (HUD Review and Approval Process) and DELRAP (Direct Endorsement Lender Review and Approval Process) are two avenues to getting FHA condo projects approved for both regular FHA (forward) purchases and refinances as well as FHA reverse purchase and refinance mortgages for seniors.

HRAP is going directly to HUD. DELRAP provides a pathway through FHA approved lenders.

If all is in order, the approval process goes very quickly according to HUD’s senior public affairs specialist Brian Sullivan. “(FHA approvals) Increase the marketability of condominiums,” said Sullivan.

A condominium project does not need to have been previously FHA approved to obtain FHA approval for the entire project. Projects may be first-time applicants or may apply for reapproval if the project was previously approved but has now expired, wrote HUD’s public affairs specialist April Brown. Once approved, the HRAP or DELRAP project approval is good for two years.

If you are not well versed in getting FHA condo project approvals directly with HUD, you might be able to avoid the cost of a consultant by approaching an FHA-approved lender to assist you in gathering the required application documentation.

The maximum FHA loan limit for Los Angeles and Orange Counties is $726,525. Riverside and San Bernardino Counties loan limits cap at $431,250. FHA also has no income caps.

Mortgage broker Jeff Lazerson can be reached at 949-334-2424 or jlazerson@mortgagegrader.com.

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Jeff Lazerson - Mortgage Columnist since 2011