The Teacher Next Door

Today an agent/friend called and asked me to put together some marketing collateral for teachers. I immediately began my research, thinking of a Department of Community Affairs program that loves teachers. Then I remembered The Teacher Next Door, a program established by HUD to offer single-family houses, condominiums, and townhouses to teachers at a 50 percent discount. If the “HUD acquired home” cost $150,000, the borrower pays only $75,000. How’s that for a bargain? It gets even sweeter.

The teacher may also apply for a FHA-insured mortgage with a down payment of only $100 and he/she may finance all closing costs. Are you loving this yet?

Well, there’s more to the story.

The goal of this program is to encourage teachers to buy homes in revitalization areas across the nation. As per the guidelines, you must be "employed full-time by a public school, private school, or federal, state, county, or municipal educational agency as a state-certified classroom teacher or administrator in grades K-12."

However, there are property type restrictions (ex. No duplexes, no triplexes). Also, the homes cannot be other real estate for sale in the area (i.e. forget the 3-bedroom dream home in the new subdivision down the street—no new construction). HUD sells all qualifying homes as-is and it does not provide any warranties.

The good news—there are tons of revitalization areas across the country listed and sold exclusively over the Internet. Every week a bid is awarded. And the bid must be the amount of the list price. The computer randomly selects each bid and it is posted each week on the web. I advise clients to enlist the services of a professional real estate agent even though they think they understand the program requirements and bidding process.

It’s important to note that a borrower will be required to sign a silent second mortgage and note for the discount amount. No interest or payments are required as long as they fulfill the three-year occupancy requirement. For this point alone, I recommend that a borrower read the fine print carefully. It turns out there are no free rides, even on a good neighbor program. Here are a few URLs that will provide more information on this program.

For Frequently Asked Questions, go to http://www.hud.gov/offices/hsg/sfh/reo/goodn/gnndfaq.cfm

To find out where these properties are located, visit: http://www.hud.gov/offices/hsg/sfh/revite/abtrevt.cfm

For a Teacher Pre-qual Questionnaire:
http://www.hmbireo.com/forms/9549-b.pdf
A great niche in a down market. Many teachers have never heard of this program and the targeted areas may be right in your backyard. And a similar program exists for firefighters.




Juanita McDowell
The FHA Originator

One Question - One Answer

Today I received a call regarding student loans. "If my student loans are in deferment until 2009, do I need to worry about them? I know my debt is already high."

No, is the answer. If you are doing a FHA loan, and your student loans are in deferment for the next 12 months (from the closing date), your lender does not need to count them in your Debt-to-Income ratio. Period.

Conventional loans are a different story.

Early Preparation is the Key

It's the end of the month, the most exhausting time of the month for a Loan Consultant. Most people choose to close at this time to avoid prepaid interest, which reduces the total amount owed at closing. Some months are better than others, meaning, we have our approvals done and our closing packages are sitting happily on an attorney's desk, ready to transform into an accurate HUD Settlement Statement. However, there are other months that stand alone, that no one can explain. Loans are approved with conditions but the borrower simply can't find...whatever. Appraisals may come in short and the seller refuses to adjust the price, even slightly. Or the seller has tax liens and we cannot prove clear title. Or student loan creditors refuse to give that all-too-important deferment letter. And the list goes on.

But here's a tip. Gather everything upfront so that conditions are few. Here's a good generic list to get you started if you are doing FHA or any fully documented loan.

Remember the number 2.

1. 2 years of W-2s (most recent 2 years)
2. 2 paystubs (if you get paid once a month, 1 is sufficient) for all jobs
3. Most recent bank statements for the last 2 months
4. If you are self-employed, tax returns for the last 2 years
5. Landlord name and # for the last 2 years (or residential history for the last 2 years)
6. Employer name and number for the last 2 years
7. Go to http://www.getdownpayment.com/ and take the homebuyer's course if your organization uses Nehemiah. If not, this is still a great online class for the first-timer. Should not take more than 20 minutes.
8. IF you have student loans, make sure they are in deferment or you know the monthly payment amount. Sometimes credit reports are not accurate.
9. IF you have paid collections or judgments, also submit any payoff letters that you have
10. IF you have experienced a divorce, provide the decree. IF you pay or receive child support, provide the documentation that supports this.


This list will get you started. Ask your lender for a "checklist" of items that apply to your situation. This upfront preparation will make a world of difference in you loan experience.

Can an Investor Obtain a FHA Loan?

Today an investor called and asked me if he would be eligible for a FHA loan. My first thought was No, as I have never originated a FHA loan for a non-occupant borrower; my rates sheets over the years have never allowed me to price out a rate for an investment FHA loan. And I suppose some companies do not allow such a thing regardless. However, the 4155, that golden light that guides us to FHA guidelines, does have specific stipulations for investment properties. Let me quote directly from the light: "With permission from the appropriate Home Ownership Center (HOC), private investors, including non-profit organizations ... may obtain FHA-insured mortgages for the following reasons:

Purchasing HUD Real Estate Owned (REO) properties. Owner occupancy is not required when the jurisdictional HOC sells the property and permits the purchaser to obtain FHA-insured financing on the investment property."

There's always more to the story and heaven knows there are plenty of HUD REOs right now on the market. If you are an investor interested in purchasing a HUD property, ask your Loan Consultant to check their program guidelines before answering "No" to this question too quickly.

Overtime and Bonus Income and FHA

Per the 4155, the FHA bible for those of us in the business, "Both overtime and bonus income may be used to qualify if the borrower has received such income for the past two years and it is likely to continue. The lender must develop an average of bonus or overtime income for the past two years and the employment verification must not state that such income is unlikely to continue."

Most people stop reading there. I have taken over many "declined" loans from other lenders because they don't read or know to read the sentence that follows: "Periods of less than 2 years may be acceptable provided the lender justifies and documents in writing the reason for using the income for qualifying purposes."

This line is golden for those who have been turned down because the principals involved in helping them get a loan did not know this. And so, another reason I love the FHA loan. The flexibility in structuring this loan is nothing short of incredible.

Who Can Get a FHA Loan?

Who Can Get a FHA loan?

I will provide 3 answers to this question:

1. Individuals with no credit or newly established credit.

Occasionally a potential borrower will call, boasting of the fact that they have no credit cards, they pay everything in cash. This type of borrower falls into a small elite group which I admire but have never been eligible for membership. I believe in credit cards, if for no other reason, to establish a credit history with the bureaus (Experian, Transunion, and Equifax). No credit cards ever means no credit scores, and this limits you to the FHA loan. FHA accepts such a situation, provided you have “alternative credit,” which includes (but is not limited to) car insurance, cell phone, a utility bill such as gas, electric, or water. It goes without saying that a stellar rent history is always a plus. A lender verifying this type of credit history prefers at least 3 types of alternative credit that has an on-time, twelve month history.

2. Families with previous credit challenges but are now credit-worthy.

I have always believed in second chances and perhaps that is why I love the FHA loan; it is the “second chance” loan. Life happens to all of us, and behind this fact is a host of potential tragedies, including divorce, sickness, the death of a loved one. Such circumstances may drive several late payments or a bankruptcy that drastically lowers one’s credit score to less than 620, the magic number that enables Conventional financing. FHA is not a credit score driven loan and FHA underwriters allow written explanations for past credit problems. Sometimes these explanations will require supplemental paperwork to support them. An example includes a borrower who has written that she was hospitalized for several months during a particular year. An underwriter may ask for a doctor’s note or proof of hospitalization. A word of caution: Do not write anything that you cannot back up!

3. First-time home buyers.

HUD was created to help low-to-moderate income families. Many first-time buyers are fresh out of college, starting a new job and therefore lack an established work history of 2 years. This is only one example of the first-time buyer for there are a host of other examples which we will cover in this blog over time.

FHA also allows a borrower more acceptable sources of down payment as well as higher qualifying ratios. For these reasons, as well as others listed above, you can rely on the FHA loan. However, there are loan limits. Visit www.fha.gov to research your area.

If you look in webopedia for a definition of HUD it will feed you the following definition:

“Short for Heads Up Display in video and computer games. HUD is the display area where gamers can see their character's vital statistics such as current health, bonus attributes, armor level, ammunition count, and more.”

Wrong HUD. For purposes of home buying, HUD refers to The U.S. Department of Housing and Urban Development. It is a government agency established to help Americans in home ownership. Their mission statement reads like this: "HUD's mission is to increase homeownership, support community development and increase access to affordable housing free from discrimination. To fulfill this mission, HUD will embrace high standards of ethics, management and accountability and forge new partnerships--particularly with faith-based and community organizations--that leverage resources and improve HUD's ability to be effective on the community level."

Like many people I was surprised to learn that, through the Federal Housing Administration (aka FHA), HUD is the largest mortgage issuer in the world. FHA provides mortgage insurance on loans made by FHA-approved lenders throughout the United States.

For more information, you can visite www.fha.gov.

The Self-Employed Borrower and FHA

Now here's a challenge. You work for yourself, maybe you sell Mary Kay, or, maybe you're an independent landscape artist. In either case, your tax returns are done in your favor--you don't owe Uncle Sam anything, and life is good until...you decide to purchase a home.

Everyday I attempt to pre-qualify this type of borrower. They want and oftentimes need 100% financing. In today's mortgage market, that means you must do a fully documented loan. In most cases, lender require tax returns for the last 2 years. The net earnings reported must be enough to qualify for a home; in most cases, it is not. So what do you do?

This dilemna probably inspired the "Stated" loan. Some lenders use other names like "Reduced Documentation." If you meet the credit score requirement and you have money for a down payment (~5% or more, depending on your score), then you are still in the game. At one time we used a "Bank Statement Loan" for these type of borrowers. I have not closed this type of loan in a while.

If you need a FHA loan and there is not enough income on your tax returns, you may want to consider adding a blood related, non-occupant co-borrower to the loan. Or, you may want to have your tax returns amended. Better yet, if you are newly self-employed and not yet a homeowner, I hope you are reading this post now so that you will take this into consideration before you buy.

As always, I can be reached on 404-401-6209 if you have additional questions about this.

A True and Trusted Friend

I have reserved this blog for one type of loan--The FHA Loan. It's a trustworthy friend that has been around the potential homebuyer since the 1930s. It was formed to encourage wider home ownership. Nowadays, with tighter underwriting guidelines and what I'll loosely call the dying off of Subprime loans (this is not entirely true but who wants to pay a few extra hundred on a mortgage payment due to higher mortgage insurance premiums--more on that in another blog), we need to resurrect and promote FHA.

Why FHA? As a Mortgage Consultant who has always closed credit challenged borrowers, this has always been my mainstay. It’s like the Many of my clients were fresh out of college or divorce or simply had credit challenges caused by some circumstance out of their control. Life had dealt them an interesting hand but they deserved a second chance. FHA is more lenient and forgiving when a client (s) has been down a rough road where credit or limited cash on hand is concerned. FHA also allows the borrower to use gift funds for the down payment.

Look to this blog to give you more information about the aspects of this loan, the requirements, as well as its benefits.