FHA,VA and Conventional loans: An Insider's Look by John Roussel

The mortgage tide has turned.

From virtually anyone being approved for 100% percent financing to 10-20% down payments in order to buy a house; I needed to learn more on the changes in the mortgage industry. 

Hence, John Roussel, A man who possesses what you might call 'infectious enthusiasm' yet is not hopelessly bounded by blind faith (correction: he also has it but not full-blown) often exhibited in our business.  A rare feat, if you ask me.   

Though I quietly disagreed (makes life colorful) with some of his arguments on the current state of our real estate market, he is on the side of the angels. I learned a lot from this guy.

Who is John:  John D. Roussel is owner of ProStar Home Loans with eleven years of mortgage experience in single family lending in Northern Nevada.  He is a member of the Mortgage Bankers and Builder's Association of Northern Nevada.

About this post:  John talks about Conventional loans, VA loans(veteran's administration) and FHA loans (Federal Housing Authority). 

Note: This 3-part article is not meant to encompass all the details regarding the topics mentioned.  Our hope is that through John's experiences we can all learn something new and hopefully aid us in our decision-making.

When and how did you get into the loan business?   

I actually started my undergraduate studies in cellular physiology.  So I'm not working in the field on which I started.   I had planned to attend Michigan State for medical school but my whole family relocated to Reno.  So I followed them and applied at the University of Reno's medical school and had gotten turned down because they've already filled out all their of state student box.

I had to wait for one year to establish my residency and during that year it was the first time I worked at a hospital, and I hated it.  I was so happy that my family relocated and I found out I never wanted to be a doctor in the first place. 

My whole family was in mortgage lending, it was an easy fit.   So that's where I went into eleven years ago.

What's the biggest difference in the mortgage business eleven years ago to now?

Actually, not a huge difference.  I've seen the business in that eleven year period fully cycled.  A lot of the loan programs that came around the last four or five years weren't there eleven years ago.  And a lot of those programs have now gone away.  So we've actually gone back to the lending practices similar to where I first began.
               

How about the changes from 2005 to the present? 

There's two parts to that answer.

Number one: what has Congress and Senate done to enact change? And the second part is how is the lending different?

The first part is they passed a terrific bill: AB440.  Where you can no longer state income without some type of backing documentation. Now, stated income makes sense for a lot of self-employed people who structure their taxes differently.  However, before, you could just state income and never had to give any backing, and the greedy industry was allowing that.

So they passed a bill (AB-440). (What is the AB-440 bill?)

You can no longer state income without some type of document backing, whether it be U.S Dept. Of  Labor, Salary.com or six months average deposit and bank statements.  That law helped tremendously. Congress and Senate on the local level, passed that law and they're trying to pass that on a Federal level.

On the Federal level they passed a number of laws that have helped like the FHA Secure product. (What is the FHA Secure Product? A word from the President)

That law would help a lot of homeowners that was on adjustable rate mortgages that are upside-down in their house.  This will help them fix their situation so that they don't have to go into foreclosure.

"Because Reno and Sparks have been tagged, 'in a declining market'.  It is very difficult to obtain 100% financing when using conventional financing."

That's sub-section one of your question.

Sub-section two: because of all of the profit-taking and the greed that happened in the past few years, many of the loan products that I was able to offer seven months ago no longer exists.  The conventional lending is drying up.

Because Reno and Sparks have been tagged, 'in a declining market'.  It is very difficult to obtain 100% financing when using conventional financing.

There are four major types of financing:  Veteran's administration (Better known as VA), Federal Housing Authority (FHA),Conventional and then Sub-Prime and there's also Private Financing.

However the three that everybody focuses on are  VA,FHA and Conventional.  So a lot of the conventional lending products are number one: hurting you on the loan to value that they're able to offer.  Number two: if you don't have a credit score of greater than 680,  it is going to severely affect your rate.  So conventional financing is becoming to where it's just the crème of the crop, just your 720 borrowers with ten percent down or greater.

If you don't fit those parameters you need to default back to your FHA and VA loans.

 

Tell us more about those loans

FHA has been around forever.  And back in the day (when I started 11 years ago) all of my loans were FHA. All of  these conventional products that have come out within the last four or five years, the ones that caused all the problems, didn't exist.

Ten years ago it was, ' oh you don't have 20% down, ok we're going to do FHA loan' and that's what the market has gone back to.

With FHA, you can still do a 106% financing.   I've told you a while ago that in conventional loans rules change five times a day and we have to keep a whole team just to keep up with that.

Whereas, I printed out the rulebook for FHA two weeks ago and the rulebook was from 1992.  Since 1992 they've released five mortgage E-letters, (a mortgage E-letter is how they announce their programs changes.) Since 1992 they've had five changes in the program.

"With FHA, you can still do a 106% financing."

So everybody is going back to FHA products, which is a terrific law.  It is designed for low to no down payment  loans.  The other good thing here is the mortgage insurance is very inexpensive,because it is a government-backed loan.

Describe your typical FHA borrower?

Nowadays, anybody with less than 10% down payment.  Which is exactly how it was seven to eleven years ago. Anybody with less than 10% down payment is now an FHA borrower.

How about the VA (Veteran's administration) loans?

For any eligible veteran who served in the military. This is a phenomenal loan as far as a zero down payment loan; there is not a superior product in the market. 

You see,FHA has a monthly mortgage insurance charge whereas the VA allows you to finance that on top of your loan amount so that you don't have to pay a monthly amount.  So you get a much lower payment as a veteran on a zero down payment loan.

If you are a veteran and you can exercise your VA benefits in buying a house, there isn't any zero down payment program that's going to surpass it.

 

...Read our 'friendly fire' dialogue on the state of the Reno real estate market

...Read why John loathes negative amortization and sub-prime loans

John Roussel of ProStar Home Loans
985 Damonte Ranch Pkwy Ste.120 Reno,NV 89521
775-284-STAR (7827)
john@prostarhomeloans.com
www.prostarhomeloans.com

Comments

[Gerard]

I've seen thing guy before.
hey, thanks for the post.
Keep us updated.

[Geralyn]

How hard is it to get approved by FHA?

What's your experience on this on your past clients?

Thanks for the mpost

[Ian Mariano]

Gerard,

I will tell John. The guys famous eh?

Your welcome.

And yes Joe and I will keep you updated.

[Ian Mariano]

Geralyn,

Getting approved is not hard or easy as it seems.

You can shoot me an email for your detailed questions regarding the FHA.

But here's a link that may help:
http://fhaomega.com/FHA_20_Handbook_20_4551.html

[mortgage services]

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[Mortgage advice expert]

I agree on most of what you had to say. If I may add that the new FHA bill passed by congress and signed by the president should help a lot of distressed homeowners

[Ian mariano]

Mortgage advice expert,

Would you know where I can get a complete copy of that bill?

[Ian mariano]

Mortgage advice expert,

Would you know where I can get a complete copy of that bill?

[Loans]

Great post, some very interesting points to think about.

[Joe Salcedo]

Loans,
yep.

[Anagha (cheap loans)]

Hey,

Thanks for your great information.
It's very informative and useful.

[Stephanie Hanna/Platinum 1st Mortgage]

In my inbox this morning, FHA has announced the loan limits for 2009 and they're lower than previous years.

MAX FHA LOAN SIZE FOR A SINGLE FAMILY RESIDENCE

Washoe County: $325,450
Storey County: $325,450
Douglas County: $350,750
Carson City: $286,350
Clark County: $287,500
Any other county: $271,050

Currently in Washoe county we can get up to $403,000 on an FHA loan. Ouch, it's quite a drop.

Keep in mind, if you're not using FHA (or VA or USDA Rural), and you have to go conventional (Fannie/Freddie) due to loan size/purchase price, you must put down a minimum of 10%. The MI companies will not provide mortgage insurance in the state of Nevada for any loan higher than 90%. If they’re looking at having to do a loan above $417,000, expect an average of about 20% down.

Stephanie

[home loan calculator]

You're spot on. I like your web page. Great article concerning the loan.

[home loan]

How hard is it to get approved by FHA? Thank you for sharing with us.

[san diego home]

Hi,

Getting approved is not hard or easy as it seems.