HUD has changed Downpayments? HUH? - Posted by Jim IL
Posted by Jim IL on January 19, 1999 at 24:38:43:
Alrighty, this will be long, becasue I am pasting it from the HUD website here in Illinois.
What does this mean to me as an investor?
Does this eefect flipping these homes if we can get them cheap enough?
I am confused by this stuff.
NEW CHANGES IN DOWN PAYMENTS
There have been additional directions frorm headquarters regarding down payment on REO properties. Directions and examples on loan amounts and down payments follow:
If a bid is over the appraised value, the buyer must pay the difference in cash.
Loan amounts for REO Properties will be caluculated according to Mortgagee letter 98-29. The differences between REO properties and non-REO properties are 1) allowable prepaids and closing costs can be added and 2) there is no statutory requrement of 3% down on REO properties. This means that you can now finance closing costs on a property with a reduced down payment.
Appraised value (or sales price, whichever is less) multiplied by the factor in ML 98-29, plus allowable prepaids, plus allowable closing costs = loan amount.
Appraised Value = $60,000 60000x0.9775 = 58650 The multitplying factor is
Sales Price = $60,000 +1000 0.9775 (over $50,000)
Closing Costs = $1,000 +500 0.9875 ($50,000 and below)
Prepaids = $500 60150 Maximum Loan Amount
The amount needed at closing is calculated as follows:
$60,000 + $1,000 + $500 = $61,500 Total
-$60,150 Maximum Loan Amount
$1,350 Cash needed to close
Please note that the amount of cash needed to close is less than the statutory 3% required on non-REO FHA loans!
If the Sales price is $65,000 ($5,000 over the Appraised Value), the Maximum Loan Amount does not change, but the Cash needed to close would be $6,350 ($1,350 + $5,000).
Remember that closing costs added to the loan amount are only those paid by the buyer. Also, if line 5 of the sales contract is $3,000 (5% on 60,000 bid), and actural closing costs equal $2,500, the remaining $500 CANNOT be used for other purrposes, but reverts to HUD. Lenders will not be allowed to charge excessive discount points or closing costs.
Several good things have come from these changes. You can now finance prepaids on REO properties, in some cases the down payment will actually be less than the 3% that we did use (its especially nice on properies $50,000 or less) and you can finance closing costs even with reduced down payment.
PLEASE NOTE THESE CHANGES ALSO APPLY TO PROPERTIES BEING SOLD ON 203K REHAB LOANS.
If the after-improved value exceeds thhe acquiisition cost (as is value plus the cost of rehab) the mortgage basis can not exceed the acquisition cost. However if the after-improved value of the property is less than the acquisition cost, the mortgage basis cannot exceed the lesser ot the acquistion cost or 110% of the after-improved value of the property.
Several good things have come from these changes. You can now finance prepaids on REO properies. In some cases the down payment will actually be less that the 3% that we did use especially nice on properties $50,