Monthly Archives: April 2012

FHA Loan Guidelines For Refinancing Mortgages

Individuals looking to refinance a FHA loan should first understand the FHA loan guidelines for refinancing mortgages. FHA refinance can be used to convert a 30-year mortgage to a 15-year mortgage and for other purposes.

82959546There are many benefits to refinancing a mortgage including: Home improvements, funding college tuition, or consolidating bills depending on the program you qualify for. The Federal Housing Administration does allow refinancing on FHA loans if certain requirements are met. In some cases closing costs can be included into the new mortgage if the property has built up enough equity.

Streamline Refinancing Program

This refinancing program will enable you to reduce the interest rate, many times without an appraisal. Streamline refinancing requires less paperwork than a traditional refinance so you can start saving more sooner.

To qualify for the Streamline option your mortgage must be an FHA loan; your loan must be in good standing with timely payments for the past 12-months, the home must be your primary residence; you must have owned the property for a minimum of six months before qualifying to refinance, and the refinancing must result in lowering your interest payments.

For individuals with conventional loans who wish to refinance under the FHA Streamline program you must apply just as you were applying for a traditional mortgage – debt-to-income requirements, credit check, employment verification, and other requirements as requested. Moving from a conventional lender to FHA may result in lower interest and lower monthly payments.

FHA Streamline loans do not require an appraisal, but you cannot include your closing costs into your loan if you do not have the property appraised. In this case, all costs must be paid up front.

The downside to the Streamline program is there is no option to receive cash. This is a feasible option for individuals who are not overwhelmed with debt, but could benefit from lower monthly payments.

Cash Out Refinancing Program

The Cash Out refinancing option is advantageous for homeowners with a substance increase in the value of their home since the time of purchase. The homeowner is able to take out a mortgage for more than they currently owe on the home. The first mortgage is paid off and the remainder can be used as needed.

FHA Loan Modification Guidelines – Tips to Apply and Qualify For Loan Modification Program

FHA loan are very popular among first time home buyers which do not provide any direct refinancing on mortgages. This is the best modification program available to homeowners who are in financial hardship and should follow FHA loan modification guidelines for the help.

82959507This has undertaken a demonstration in the area of automated underwriting before beginning to design its own automated underwriting tool as it saves time and ensures more of consistent treatment to all the applicants. To get an FHA home loan modification program approved you are required to meet certain guidelines, rules and regulations. It plays a critical role in financing for needy people who have a troubled bad credit history and do not have money to purchase a home. You must fill your form properly to meet the requirements of the bank and follow the tips with guidelines to make your chances of approval.

Here are some tips to apply and qualify for FHA Home Loan Modification Program:

· Firstly, you are required to be aware of all the FHA loan modification guidelines made by the agency. This will make your chances to get approved for program.

· Prepare a hardship letter to convince the lender. This must include all the circumstances and situation that you have gone through. Include all necessary steps that you have taken to improve your financial hardships and make sure with the lender that you will make the future payments on time while following proper guidelines.

· You are required to prepare a financial statement that includes all your current position. This would make easier for the lender to modify your loan quickly by the help of FHA modification program.

· Make a file of documents according to the FHA loan modification guidelines which must include your employment history, credit history, etc. And submit it with the bank to qualify for home mortgage easily.

· Make sure that the information you are providing to the lender should not be incomplete for FHA home loan modification program. An incomplete letter may reject your application and you cannot make to the next stage of it.

· As there are thousand of applications for modification program with lender, you need to call to the concerned person to check the status of your application. Don’t think that you are disturbing them as it is your right to ask and their duty to perform.

President Obama has offered $1000 incentive for home owners that opt for Loan Modification instead of Short Sale Or Foreclosure.

FHA Vs Conventional Loans – Which is Better For You?

There are many different types of financing available to those looking to purchase a home or refinance their mortgage. The key to finding the right loan for a homeowner’s individual situation is knowing what he or she needs from their mortgage and can afford. Homeowners should research the differences between what FHA loans and conventional loans have to offer to determine which financing option is best for them.

FHA Loan Information

79906199The Federal Housing Administration (FHA) insures FHA loans, which protects the lender in the event that the borrower defaults on the loan. This insurance makes these loans less risky for lenders, and they are more likely to offer low interest rates on them. The FHA is fully committed to its borrowers and has assistance in place for borrowers who need assistance making their mortgage payments.

If an applicant has a credit score of at least 580, the down payment on an FHA loan will be 3.5%. If the applicant has a lower credit score, the down payment will increase to 10%. Although, while the FHA does allow for loans to be granted to people with credit scores below 620, most lenders today do not. The FHA also requires that applicants have at least one year free of any delinquent mortgage or rent payments. Overall, FHA loans have less strict credit and income requirements compared to other home loans.

With an FHA loan, the borrower must be financing his or her primary residence. There is also an upfront mortgage insurance premium (which just increased to 2.25% from 1.75%), as well as monthly mortgage insurance. These loans also allow homeowners to refinance a greater value of their home (up to 97%!) and feature a streamline refinance option, which requires less documentation and quicker processing.

Conventional Loan Information

Conventional loans are not insured by the government, so lenders mitigate their risk by imposing tighter qualification standards. These loans tend to have higher interest rates than FHA loans because the rates are more likely to be driven by a borrower’s credit scores and other risk factors. With a conventional loan, an applicant needs to have a good credit score and income to receive competitive loan terms. These loans do not have to be used only on primary residences, but can also be used on investment properties.

The down payment on conventional loans tends to be higher, with the requirement currently set around 10% for most loans. Applicants will need to have a credit score of 660 or higher to be eligible and, in most cases, will need a 700 to receive competitive interest rates. There is no upfront mortgage premium requirement, but there will be monthly mortgage insurance if the borrower’s loan-to-value ratio is greater than or equal to 80%. There are refinancing options with conventional loans, but the amount a homeowner can refinance is only 80% for a cash out and 95% for a non-cash out, compared to 85% and 97% respectively for FHA loans. There is also no streamline refinance option available.

Which Type of Financing is Right For You?

After assessing his or her financial situation and weighing the pros and cons of FHA and conventional loans, an applicant can determine the best loan for his or her situation. Different loans are beneficial for different types of situations and it is important to be well informed so the best choice is made. An FHA loan would likely be more beneficial for those wanting to borrow more than 80% of the purchase price or home value, those with lower credit scores, or those who do not have a lot of money for a down payment because they can have access to lower interest rates. This loan might also be better for borrowers who want a cash-out loan because they will likely receive a lower rate than with a conventional loan.

On the other hand, a conventional loan may be better for those who have excellent credit, those borrowing less than 80% of the purchase price/home value and those not wanting to get a cash-out loan because they can receive low interest rates and, unlike FHA loans, they will not have mortgage insurance if the loan amount is less than 80% of the purchase price or home value. For those who need further assistance choosing a type of loan, there are a variety of resources available. Speaking with a knowledgeable loan specialist is a good way to make the decision process less complicated.

FHA Loan Interest Rate

FHA mortgages or house loans are those that help low income earners and the less fortunate individuals acquire a place that could call home. They help these individuals by decreasing the price of the house to be sold that would only take place if the house is under an FHA house loan to begin with. Also, it also aims to lessen the growing case of unemployment in the country by providing clerical jobs such as construction working and engineering. Insurance agents and companies also gain a lot of profit through the FHA house loans as well.

79383940There are different types of FHA mortgages that one can opt to choose and all of them have significant FHA loan interest rate. The interest rate varies from type to type and also depends on the lender or mortgage broker of the FHA house to be sold.

The first type is the conventional and fixed rate mortgages. This type of FHA loan has a fixed amount of interest rate. In short, the loan to be paid by the buyer remains the same throughout the lifetime.

The second type is the conventional adjustable rate mortgages. The amount to be paid is set but the interest rate changes or fluctuates as time pass by. The interest may either increase or decrease in value. The period of change usually occurs for around the third to the fifth year.

The third type is known as the hybrid type. It is basically the same as the second FHA mortgage type and only differs in the time of the interest change. The change usually occurs in a longer period of time.

Balloon mortgages are the fourth type of FHA loan and they only mean that the pay at the start is small and little but in a later date, the entirety of the price is paid.

Self-employed income mortgage are for those individuals who are self-employed of course and those who have obscurity in showing documents of a steady income.

Relocation mortgages are the type of FHA house loans that cater to people who transfer to another home while their current hone is still for sale in the market.

Those are just some of the different types of FHA housing loans available for the low income earners. Do remember that there is different FHA loan interest rate also which depend on a lot of factors like the type, the mortgage broker, etc. Just have patience in looking for the best house with the best FHA housing loan type and you are sure to find yourself your home sweet home.

The Down And Dirty Facts About FHA Loans

Owner-occupant home buyers do not usually think of themselves as investors who are trying to make money, so they pay full price for a home and get a government insured loan for the purchase, without giving it too much thought. Most of their focus goes into picking the right neighborhood or the right style and location. These are fundamentals that are more important to them than the money. They sort of assume that their home will eventually go up in value.

78531273The other sector is the 20% of buyers and sellers that make up the investing market. These are sellers who sell at a discount, and buyers who buy at a discount. These buyers and sellers are consciously attempting to make a profit, and their objective is to make money or build wealth.

But I believe that all home buyers are real estate investors, for the simple reason that no one buys a home with the intention of losing money. But with government insured loans, this is usually what happens.

As a result of on-going government intervention since the great depression of the 1930’s, today’s mortgage industry has grown into a half-private, half-public money machine that has become a monster.

While government insured loans such as FHA, VA and USDA were created to help low income buyers afford a home mortgage, the result has been very expensive loans that will more than double the costs of a home loan.

Note I said the cost of the loan. Not the cost of the home. The property value is set. It’s the loan costs that go up. And few loans are more expensive than government insured loans that are supposedly designed to help low income buyers.

Most retail buyers using a traditional FHA, (government insured), mortgage to buy a home never even realize the real costs over time. Traditional mortgage loans can be very expensive. In the traditional world, the real cost is more than twice the advertised cost of the home.

Here is a quick example: The FHA Loan

Probably 90% of all ordinary home sales are financed this way. You Borrow $95,000 to buy a home that appraises for $100,000. You bring $3000 to closing to pay the loan origination fee. You bring $5000 to closing for your down payment as required by FHA. You bring $3000 more to closing to cover everything else, like the attorney’s fee, courier fees, processing fees, appraisal fees, taxes, insurance, more fees, and… you get the idea.

So now you “own” a home with the following general numbers:

  • Appraised Value: $100,000
  • Down Payment $5000
  • Loan Amount $95,000
  • Fees and Costs: $6000

Private Mortgage Insurance, (PMI), currently calculated as follows: 0.078% /12 of the loan amount. Here’s how that looks: $95,000 X.0078 = $741 divided by 12 = $61.75 per month.

This “Private Mortgage Insurance” is the key to your “Government Insured” loan. The premium is added to your monthly mortgage payment. You’ll pay this insurance premium each month for about 20 years. So your $95,000 loan will cost an additional $14,820.00 for mortgage insurance.

Mortgage people will be quick to point out that PMI is what enables lower income buyers to get a home loan with a 5% down payment. Before PMI came along, the required down payment was 20%. On a $100,000 home this would be $20,000 down.

Most folks don’t have 20% down payments any more, so PMI was invented to allow home ownership for people with lower down payments. It has it’s purpose, but most buyers are usually not aware of this significant cost.

There are so many costs associated with traditional mortgage loans, that along with tax and insurance burdens, home ownership is becoming less and less affordable, in spite of “modern” financial tools like PMI.

So, back to our $100,000 home…how does this deal look? Are we gaining equity and building a nest egg if we buy this home with a “traditional” mortgage?

Doing a quick calculation on an ordinary mortgage calculator, I came up with the following:

  • A $100,000 home, an FHA loan with $5000 down payment, $95,000 loan amount. 30 year fixed interest rate of 6% means you’ll pay:
  • $ 95,000 amount borrowed. (principal)
  • $ 110,046.28 in INTEREST
  • $ 14,820 PMI Insurance (added to monthly payment)

So your little $95,000 home mortgage has turned into an expensive alligator that will actually cost you a minimum of $219,866.28!

So, you start out as a new homeowner already $6000 in the hole, and even if your home doubles in value over the next 30 years, you’ll still LOSE $20,000!

And we haven’t even discussed the costs for property taxes, insurance and on-going maintenance.

Buying a home the traditional way is very expensive and rarely leaves the buyer with any real equity at all. Most people don’t actually realize a true profit on the sale of their home, they are simply recovering expenses already paid when they sell at a “profit”.

Whether you are buying your first home or your 50th, you should always think like a real estate investor. Look for the best deals in your desired area. Negotiate your purchase price, and buy below what you think you can afford, then prepay some principal each month from day one to reduce your costs even further.

Even better, look for sellers who are willing to owner finance for you, and avoid expensive loans altogether!