Monthly Archives: November 2012

Rural Development or FHA Mortgage Loans

First time home buyers¬†often simply shop for mortgage interest rates. However, there’s more to the mortgage process and options for home buyers. Did you know you can get a home loan 100-percent financed? Did you know you can save money on the monthly mortgage insurance premiums? Did you know that your credit score affects the loan program you will end up with when buying your house? A mortgage consultant can help home buyers navigate all of these issues and choices. But before you shop around for an expert, let’s look at 2 mortgage programs available, and the differences.

FHA Mortgage Loans

126835696An FHA home mortgage is a federally-insured home loan issued by a lender that the Federal Housing Administration approved. This means that lending institution meets certain requirements in order to issue an FHA mortgage. Looking at some of the benefits, an FHA loan has a low down payment (3.5%) requirement. and generally more liberal qualifications. this means first time home buyers are most often a great fit. FHA mortgages also have lower closing costs most of the time and lower monthly insurance premiums.

Rural Development Loans

The United States Department of Agriculture (USDA) backs Rural Development Loans. The USDA has similar lending guidelines to FHA, but cover properties deemed “rural” by the USDA. While it sounds like you’ll need to “move to the country” for an RD loan, it actually covers many areas near bigger cities. Quite often, smaller towns and villages fall under the RD loan umbrella. The bonus to RD loans is they cover up to 102% of the appraised value of the house.

Some Differences Between FHA and Rural Development

  • FHA has: No income limits and no geographic restrictions.
  • RD has: Income limits and specific eligibility areas.
  • FHA covers 1-to-4 family-unit housing.
  • RD is only for single-family housing.
  • FHA has a maximum loan-to-value financing of – 96.5% + 1% funding fee for purchases.
  • RD’s maximum loan-to-value financing is 100% + 3.5% guarantee fee.
  • FHA closing costs: Seller can contribute up to 6% of sales.
  • RD closing costs: No limit on seller contribution.

Who is the Winner?

Home buyers looking for the best deal and the best monthly mortgage payments (whether it’s your first home or an upgrade or a step-down) you’ll need to ponder several factors. Some of these factors will include location, the down payment you have available, what kind of mortgage insurance you want to pay and your income level. With that said, there’s no clear winner for everyone between FHA and RD loans. The true winner here is the home buyer. You have the opportunity to figure out which mortgage option you think works best, and then work with a mortgage professional to hone in on the best mortgage program for you.

FHA Mortgage Refinancing – FHA Loan Mortgage Refinance Can Save You Money!

Even in this economy you can get help with FHA Mortgage Refinancing. In this economically hard time there is not an industry, person or private sector that has not been affected. Luckily, since the market downturn is so widespread there are factors in place that can help offset any problems if you qualify for them. A FHA Loan Mortgage Refinance can save you money.

117289746One such area that has great federal advantages to help you is if you are an individual who needs help making your mortgage payments. Interestingly enough this help has been around for before the economy nose dived but it is helping out people who need a little extra help in making their mortgage payments. FHA Mortgage Refinancing can help you through this downturn in the economy and maybe even save your home from foreclosure.

If you are one of the not so lucky ones who are trying to pay off a mortgage that either had an annual adjustable interest rate or possibly you were locked into a high interest rate mortgage for other reasons then looking into FHA Loan Mortgage Refinance can help you lower those monthly mortgage bills.

Mortgage rates are currently still pretty low compared to what they were just a few years ago. If you see rates that are below 1 percent of your current mortgage and you plan on staying in your current place, if you can get the mortgage relief you need, for at least a number of years to make the refinancing closing costs pay for itself, then it is in you advantage to refinance. Especially with a federally insured mortgage, you can get a lower rate if you are in good standing on your current mortgage.

Which leads to the next point about an FHA mortgage. While most lenders are tightening their purse strings and making it close to impossible to get a loan, the FHA lenders are still trying to make it reasonable for anyone to get one. If your credit is less then the desired 700, you may still have a chance of getting qualified. The FHA Loan Mortgage Refinance can also help if you are low on a down-payment.

With the help of a lender to work with a below prime credit score and a low down-payment there is a drawback. You have to make sure that any current mortgage you are in is in good standing. The FHA mortgage loan is a great opportunity to get your current real estate purchase from becoming another statistic in this economy.

But if you already have a FHA mortgage loan then you are in the driver’s seat. FHA Mortgage Refinancing can not only save you money but it is must easier and quicker to refinance a FHA mortgage. FHA streamline loan refinancing is must quicker because of the reduced paper work and it does not require an appraisal.

With the low interest rates FHA Mortgage Refinancing can save you money on your monthly mortgage payments or from foreclosure if you are struggling to make your mortgage payments. You need to check with your lender to see if you can do a FHA Loan Mortgage Refinance.

Who Can Avail of the FHA Loan?

The FHA loan has come as a boon to many lower income wage earners and individuals with bad credit scores. Now with the help of this loan they can realize their dreams of purchasing a home of their choice without having to worry about being rejected by banks and other traditional financial institutions. Since its inception in 1934, the main objective of the FHA loan was to provide financial assistance to those individuals who were not eligible or did not possess the means to apply for a regular bank loan. The loan scheme came into being to encourage more people to purchase homes by providing them with a unique mortgage loan that was secured by the Federal Housing Administration (FHA).

What are the eligibility criteria for the FHA loan?

111900594The eligibility requirements for an FHA loan are very basic and can easily be met by most individuals.

  • The applicant must be a legal resident of the United States and should be of the requisite age needed to borrow a loan in his state.
  • In order to ensure that you qualify for the loan, the lender would verify your debt load, your income as well as your assets.
  • Although the FHA mortgage loan does not require any minimum credit scores, you would need to show your past credit scores to the lender so that he can determine the interest rate.
  • The applicant must have a valid Social Security number.

In addition to basic eligibility requirements mentioned above, the applicant would be required to make a three per cent down payment in order to avail of the loan. Although this down payment is usually made as a cash transaction, the borrower is permitted to gift it to the lender. Compared to conventional loans, the low cash down payment of the FHA loan makes it more feasible for first time borrowers to avail of this loan.

The FHA mortgage loan is thus ideal for first time home buyers as the interest rate is much lower compared to most traditional bank loans. For individuals who have very poor credit scores, the FHA mortgage loan is a blessing as it is the Federal Housing Administration that secures the loan. This incentivizes lenders to provide a loan to borrowers with poor credit at very low interest rates as they can get rest assured that in the event that the borrower defaults, the FHA would step in and redeem the loan.

What Are the Differences Between an FHA Home Loan and a Conventional Loan?

When you are looking at the different loans available to purchase or refinance, it can be confusing. Over the past year there have been many changes in the underwriting guidelines for all mortgages. FHA has become a very popular choice for many home buyers. Let’s take a look at the basic differences between an FHA loan and a conventional loan.

107669045FHA stands for Federal Housing Administration. FHA insures loans that are made by approved FHA lenders, they do not lend directly to borrowers. FHA provides lenders with insurance in case a borrower defaults on their loan.

Fannie Mae and Freddie Mac are government sponsored enterprises (GSE). Their mission is to provide stability and liquidity to the U.S housing and mortgage markets. These GSE’s also do not lend directly to borrowers, but they help to ensure that the banks and mortgage companies have funds to lend at affordable rates. These types of loans are typically conventional loans.

The FHA underwriting guidelines are generally more liberal than on a conventional loan. The minimum down payment required by FHA is 3.5%. All of the down payment can be a gift from a family member. The seller is allowed to pay up to 6% of the purchase price towards the buyers closing costs. To be eligible for the 6% from the seller, it must be negotiated in the purchase contract. The minimum credit score that most lenders will allow on an FHA loan is 580.

At this time, the minimum down payment on a conventional loan is 5% – 10%. Due to the lack of private mortgage insurance available, most lenders are requiring that the borrower have a minimum credit score of 720 for a loan to value of 90% – 95%. The seller can pay up to 3% of the purchase price toward the buyers closing costs. However, they can only pay the non-recurring costs. They are not allowed to pay the recurring costs such as taxes, insurance or pre-paid interest. On an FHA loan, they can pay both recurring and non-recurring costs.

One of the other benefits of an FHA loan is that they will allow a non-occupant co-borrower to co-sign on the loan. The income of both the borrower and co-borrower will be combined and used for qualifying. On a conventional loan, the owner occupant must qualify at 35%/43% ratios unless higher ratios are approved by the Automated Underwriting System.

Another difference between conventional and FHA loans is regarding private mortgage insurance. FHA mortgage insurance is required on all 30 year FHA home loans regardless of the loan to value. FHA has a monthly mortgage insurance premium and an upfront mortgage insurance premium. Even though it is called an upfront mortgage insurance premium, it is usually financed into the new loan. On average, the upfront premium is 1.75% of the loan amount. Once you have paid on the monthly mortgage insurance premium for a minimum of 5 years and the loan to value is 78% or below, you can get rid of the monthly mortgage insurance. Speak to your current lender for requirements to remove the PMI.

Conventional home loans also require private mortgage insurance; however, they only have a monthly mortgage insurance premium. They do not require the upfront MIP. Also, conventional loans usually only require mortgage insurance on loan to values that are over 80%. You can have the mortgage insurance removed from your conventional loan once you have paid for 5 years and the loan to value is 80% or below. Check with your current lender for specific documentation needed to have your PMI insurance removed.

FHA Loans & Bankruptcy – Can I Get Approved?

With the rise of Bankruptcies in our nation as a result of the recent financial upheaval many are wondering if they will qualify for an FHA Home loan with a recent bankruptcy on their credit report and in county records. Others may be seeking other types of conventional financing. In either case they would like to know how a past bankruptcy will affect their ability to obtain a mortgage. The matter gets a little more complicated since a Chapter 7 and a Chapter 13 will bring to bear different qualifying guidelines depending on which loan program the borrower is seeking.

Chapter 7 bankruptcy

107669044Must be discharged for at least 2 years. If the discharge date was more than 12 months but less than 24 months than extenuating circumstances must be documented. Not being able to sell a home due to a job loss or transfer would not qualify as an extenuating circumstance. The borrower must have re-established credit and can show a payment history to the new creditors. Or, they may choose to not re-establish credit because they do not want to incur anymore debt. It will also require the lender to document that the situation that led to the bankruptcy no longer exists. The reason for this is simply that the lender does not want to see the borrower get into financial trouble again. So, if they can document what led to the bankruptcy and how they have corrected the habits or situation that led them to file that would show the borrower has become financially responsible and the probably of filing again sometime in the future diminishes greatly. But, mainly it demonstrates the ability to handle the overall household finances especially in regards to being able to make a mortgage payment on a timely basis each month.

Chapter 13 bankruptcy

Requires that 12 months of payout has occurred and that the payments have been made on time and also the court would have to give permission to enter into a mortgage transaction. What this means is that a person could be in a Chapter 13 currently and be able to obtain financing if all other underwriting guidelines are met. How about that? Would any sub prime lenders allow a current 13 to be underwritten? I don’t think so. That’s why this type of mortgage is so helpful to many people and you get market interest rates rather than sub prime rates with pre-payment penalties.

There are no prepay penalties on an FHA loan. So, in essence a Chapter 13 is treated kind of like a consumer debt. Must show 12 months of payments made on time. How many home buyers are there that need this information? They’ve been told by their local bank or by conforming lender that they don’ t qualify and so their hopes and dreams are dashed thinking they can’t purchase a home for several more years. This information should cause them to contact a lender who specializes in FHA home loans and see about getting approved.

Similarly to a Chapter 13 Bankruptcy would be a Consumer Credit Counseling scenario. Folks who have elected this route to pay down their debts should be relieved to know that they also can apply for a mortgage as long as they meet similar guidelines. Show that they have made payments for 12 months in a timely fashion and get permission from the counseling agency to purchase a home and incur new debt.

In all 3 scenarios listed above it is important to not incur any derogatory credit. None whatsoever. Just put yourself in the underwriters shoes. There is a BK7 or BK13 or CCC and derogatory credit after the discharge or during the repayment period – how do you think that will look? It will look like the person has complete disregard for paying their bills on time. We all know that situations arise that prevent bills to be paid on time, however, most of these are not extenuating circumstances from a lender’s perspective. So, keep your nose clean.