REBLOGGED FROM RAY SMITH'S BLOG...
The Federal Housing Administration (FHA) recently announced that lenders are permitted to offer first time homebuyers a "bridge" loan under certain conditions:
- The tax credit advance, when combined with the FHA-insured first mortgage may not result in cash back to the borrower
- The credit will issued in the second lien position and may not exceed the total amount needed for the down payment, closing costs, and prepaid expenses
- Secondary financing may require a monthly payment
- Payments must be deferred for at least 36 months to not be included in the qualifying ratios
Under guidance drafted by the FHA, all lenders approved to do business with the agency will be authorized to provide bridge loans at closing secured solely by the tax credit that the borrower anticipates receiving from the IRS. State and local government agencies and nonprofit organizations approved by the FHA will be allowed to offer either bridge loans or second mortgages secured by the house.
Snapshot Analysis of the FHA Bridge Loan Program
The bridge loan is theoretically a step in the right direction but there are some problems. Lenders do not have much incentive to loan money that will have a three year deferrment. Most lenders are already overwhelmed with refinances and new purchases in their system and may not want to take on the added risk of lending out bridge loans to first time buyers. Although not a practical money maker in itself, the bridge loan program could be considered an excellent referral source for local banks that offer the program in the hopes of converting a lifelong customer for other services. It will be hard to tell if the FHA plan can be implemented successfully. I will be monitoring the situation closely.
Ray Smith, MPA is a Mortgage Consultant for Home National Mortgage located in Lancaster, PA is an expert with First Time Homebuyers as an educator of the home buying process. Ray is active in the community, serving as a political and non profit volunteer. Ray is also a stern advocate of being sound in mind, body and spirit. As such Ray teaches personal training at Universal Athletic Club located Lancaster, PA, focusing on those who desire to lose weight.
