Monthly Archives: April 2013

VA Loans Or FHA Loans – What is the Best Home Loan Option For Veterans?

VA and FHA Loans are both great federal backed mortgage programs. When comparing the two federal home loan programs, it’s only natural to wonder which one might be right for you. There are obvious distinctions between military and FHA mortgages. Loan limits, qualifying requirements, down payments and fees can all vary between the two programs. Determining whether VA or FHA is the appropriate loan for a specific situation involves weighing the advantages of both.

135548885Because there is an eligibility requirement with VA loans, some borrowers can rule out this option early if they cannot obtain the Certificate of Eligibility necessary to participate in the VA Home Loan Program. Veterans and active military personnel need to have served for a certain number of days in order to be considered eligible. The Certificate shows how much (if any) entitlement a person has with the VA Loan Guaranty Program. Entitlement is the portion of mortgage that the VA will guarantee for each service person. Loan seekers who do not have entitlement are not VA eligible, and should consider an FHA loan.

Non-VA-eligibility could mean that a person is not affiliated with the military, has not accumulated enough service time, has been dishonorably discharged, or is using full entitlement that has not been restored, or is using partial entitlement that has not been restored and does not have enough entitlement left over for another VA Loan. Whichever the case, FHA can provide an excellent alternative government backed loan program for your mortgage needs.

Some advantages to choosing an FHA loan over a conventional loan may be: 

  • Low down payment of around 3% 
  • Low closing costs 
  • More lenient qualifying standards 
  • HUD-approved housing counselors can give free or low-cost advice on home buying, renting, default, foreclosure, credit issues or reverse mortgages.

With the VA loan program, the 2009 maximum loan amount that the VA will guarantee is $417,000. Each eligible veteran has basic entitlement of $36,000 on loans up to $144,000 and bonus entitlement of $68,250 on loans over $144,000, for a total entitlement of $104,250 (more in high-cost counties). Entitlement is calculated as follows:
– $144,000 x 25% = $36,000 basic entitlement
– $417,000 – $144,000 = $273,000
– $273,000 x 25% = $68,250 bonus entitlement
– Full entitlement for most veterans: $104,250

Veterans who are using all or a portion of their entitlement, and do not have enough entitlement left for another VA Loan, will definitely want to consider an FHA loan.

For those veterans who fall under this “maxed-out entitlement” category, an FHA loan can be very practical. FHA loans, like VA loans, help people buy and keep their homes by providing more manageable terms than those of conventional loans. The Federal Housing Administration (FHA), a division of the Department of Housing and Urban Development (HUD), insures the loans, so private lenders can offer better terms than those offered for conventional loans.

With FHA loans, first-time home buyers might pay down as little as 3% of the purchase price. And, like VA loans, most of the closing costs and fees can be included in the loan.

FHA loans can provide similar benefits to those of VA loans. However, VA mortgages are still the only option available for zero down purchase loans and 100% refinancing. For a mortgage of up to $417,000, the VA home loan program is hard to beat for those who qualify. And, for U.S. counties where the cost of living is higher than the rest of the country, the VA loan guaranty amount can be even higher than the “maximum” $417,000. For instance, in 2009 VA’s maximum county “loan limit” may be as much as $1,094,625 in parts of California, Colorado, and Massachusetts. Check with your loan provider to see what the VA entitlement limits are in your county.

It’s true that for many VA-eligible borrowers, a VA home loan can be the most beneficial option. The notable benefits of a VA loan are as follows: 

  • No Down Payment 
  • Up to 100% Financing on purchases and refinances 
  • The 2009 VA guaranty is for loans up to $417,000 (higher in some counties) 
  • No Private Mortgage Insurance (PMI) 
  • No Prepayment Penalty 
  • Less Strict Credit and Income Requirements

Other benefits associated with VA loans include: 

  • Equal opportunity lending
  • Buyer has access to appraisal
  • Negotiable interest rate
  • Funding fee may be financed
  • Same or lower closing costs compared to those of some other loan programs
  • Mortgage may be assumable
  • No penalty for prepayment
  • One-year builder’s warranty or 10-year insurance-backed protection plan on dwellings proposed or under construction if local inspection is not available
  • VA counseling for veteran borrowers in financial distress 

Understanding the advantages of FHA loans and VA home loans can help borrowers make the most appropriate choice when looking to purchase or refinance a home.

What is an FHA Loan and Why Choose an FHA Loan

Have you been hearing all the bad news about the economic downturn? Have you been led to believe that getting a mortgage loan is nearly impossible and that banks have stopped loaning money? While there has been a shift in the types of loans being made, it simply isn’t true that you can’t get financed for home ownership. FHA loans have become a standard in the changing economy, and with interest rates at the all time low – below five percent – now is the time to buy.

135383634If you are renting or wanting cash out of your home right now, the interest rates are very appealing. Five percent is a tremendous opportunity to get more house than you would be able to buy at a higher rate. When deciding how to get a loan, it is good to go in understanding the types of loans before talking to your loan specialist.

The internet has made it easier than ever to apply for an FHA loan as lenders have gone online. Just what is an FHA government insured loan? The FHA is an abbreviation for the Federal Housing Authority, and these loans are insured against default to the lender by the government. FHA loans are a good loan to apply for in several situations.

Whether you are a first time homebuyer, or don’t have a lot of money to put down, the FHA loan may be a good choice for you. FHA loans are also good for people who don’t have perfect credit scores and want to keep payments as low as possible. FHA loans are also advantageous if you want to get a lower interest rate. Why? The federal government insures the loan, so lenders can be assured they will get paid. The FHA loan is generally easier to qualify for, and credit problems (even bankruptcy) are easier to get past with an FHA loan as opposed to other loans.

With that assurance, the interest rate is often a little lower since the risk of non-payment is reduced. Since the FHA has been established since 1934, and in that time has developed ways to help homeowners keep their homes during hard times. The objective of the FHA is to help homeowners avoid foreclosure. Once you own your home, if you have trouble making payments often you can negotiate repayment terms in the case of temporary unemployment of disability.

WHAT TYPES OF LOANS ARE AVAILABLE Fixed rate loans are the most common. In this instance, the interest rate will not fluctuate during the life of your loan (15 or 30 years), meaning that your payment will not change. This is a good option, because you can depend on your mortgage amount and it won’t get higher if interest rates increase. Adjustable rates are available.

Since some homeowners may be a little short on income at the front end, they will choose an adjustable rate mortgage. With this option, the interest rate starts out lower and changes with the Constant Maturity Treasury Index. This may seem like an appealing option at the front end, since you might be able to get more house. Just be aware that the interest rate can change up to six percentage points during the loan, which will make a significant difference in your payment.

Rehabilitation loans are available if you find a property that you fall in love with, but it needs a lot of work. The 203K Rehabilitation loan program will provide a mortgage loan that includes the cost of repairs. The final value of the property once it is repaired is the determiner of the loan amount.

WHAT ARE THE REQUIREMENTS FOR AN FHA LOAN?

Credit Score: FHA loans do not use the FICO score. While you do not have to have perfect credit, FHA will look at the past two years of credit history and allow for minor issues.

Debt to Income Ratio: Debts include any loan payments, including auto, student person, and charge cards. The total amount of your debts should not exceed 38% of your income to qualify for a loan. Utility bills are not factored into this amount. Your mortgage payment should not exceed 29% of your income.

Down Payment: The standard down payment for an FHA loan is 3%; for exceptions and assistance programs, talk to your loan professional.. Not only do we offer FHA loan services, but other FHA loan programs such as HUD, the Officer and Teacher Next Door programs, and CHDAP and Nehemiah financing are available throughout site. There are an abundance of other programs that will assist you in finding the right programs for you, whether you want to buy, refinance, or get investment properties. We can assist you with all your financing needs. We look forward to serving you.

Pros and Cons to FHA Loans

FHA loans have been helping people become homeowners since 1934. Maybe this government program can help you purchase the dream home you always wanted.

135383134Financial instruments come and go with the economic environment, there has been a shift in which kind of loans new home owners are applying for. There has been a new shift with Federal Housing Administration loans which are more popular now than they have been in a few years. With rates and credit being tightened, they are asking for larger down payments, which consists of a 3.5% down payment required for all Federal Housing Administration loans. There are more incentives for lenders if you can get a loan insured by the Federal Housing Administration.

There are many great deals out there, but before your rush and finalize your loan. Here is some important information about Federal Housing Administration loans that could help you in your decision making process.

Government programs usually have a lot of restrictions for individuals with high incomes, but this is not the case with the FHA loan. These loans are available to anyone with any personal income. The main deciding factor in FHA loans has the ability to pay. For the majority of Americans with jobs this should not be a problem. There is a catch even though there is no income limit with FHA loan their are restriction on the value of your home. The value of the loan can not exceed $271,050, but in areas where the incomes and standard of living are higher the limit can be subject to change. So make sure to check if your are falls under the change.

FHA loans are actually easier to get than other loans. The Federal Housing Administration has now implemented a new under writing system that expedites the process and makes it a easier process for everybody.

If this sounds to good to be true. There are always a few draw backs with dealing with the federal government. Any home you want to buy with FHA loan requires a appraiser approved by the government. Also the seller needs to follow federal government safety inspection guidelines. This can result in penalties and delay of the loan being processed.

Looks can be deceiving, Federal Housing Administration loans appear quite low-cost. Federal Housing Administrations loans can end up costing more than you first thought. There is a 1.75% up front fee that you must be paid. There is also a annual 0.5% annual insurance premium and until the principal balance reaches 78% if the homes appraised value or sales price. On the other hand, the seller of the home can help. Sellers are able to help pay part of the Federal Housing Administration insurance costs in order to get the loan closed. Sellers can only pay closing costs that are under 6% of the sales price. But lets remember everything helps!

This might not be for everybody but in this economic downturn and with government stimulus programs there are a lot avenues that you can take to make your life easier.

How FHA 203(K) Loan Benefits 1st Home Buyers | Part 2

With the strong belief in community development, restoration, and 1st home buyer opportunities, the Federal Housing Administration (FHA) holds Section 203(k) as one of their primary FHA loan programs. Together with the Department of Housing and Urban Development (HUD), they support the importance built within the FHA 203(k) program and will continue to show their extreme stand by fellow lenders whom participate in the overall mission. As one of HUD’s important tools established for community support, home rehabilitation, and first home buyer ownership expansion, the department also sees this FHA loan program as an exceptional source for lenders to show their 100% commitment in providing lending for lower income communities which also helps to fulfill their responsibilities required under the Community Reinvestment Act (CRA).

As mentioned in last week’s Part 1 post on How FHA 203(k) Loan Benefits 1st Home Buyers, we listed out the purpose of the program, what types of properties can be approved for an FHA home in the Orange County, Losfha-203k-guidelines11Angeles, and Ventura counties, and various examples of approved rehabilitations a 1st home buyer or owner can make to both the interior or exterior characteristics in need for equity building.

Having endless potential for any FHA 1st time home buyer or owner, it is important to have everything in line prior, during, and post one’s loan FHA 203(k) approval. As seen on the HUD’s website, a step-by-step application process is outlined for all to review. Within the outline, roles of each player in the process is explained and shown here below:

HUD’s Application Process for FHA 203(k) Loan Program

A. Homebuyer Locates Property. FHA 1st time home buyer locates a property for purchasing.

B. Preliminary Feasibility Analysis. After the property is located, the 1st time home buyer and their real estate agent will need to make a marketability analysis prior to signing the sales contract. The following details should be determined:
1) The extent of the rehabilitation work required;
2) Rough cost estimate of the work; and
3) The expected market value of the property after completion of the work. Note: The borrower does not want to spend money for appraisals and repair specifications (plans), then discover that the value of the property will be less than the purchase price (or existing indebtedness), plus the cost of improvements.

C. Sales Contract is Executed. A provision should be included in the sales contract that the 1st home buyer has applied for Section 203(k) financing, and that the contract is contingent upon loan approval and buyer’s acceptance of additional required improvements as determined by HUD or the lender.

D. Homebuyer Selects Mortgage Lender. Call HUD Field Office for a list of lenders.

E. Consultant Prepares Work Write-up and Cost Estimate.

F. Lender Requests HUD Case Number. Upon acceptance of the architectural exhibits, the lender requests the assignment of a HUD case number, the plan reviewer, appraiser, and the inspector.

G. Fee Consultant Visits Property. The 1st home buyer and contractor (where applicable) meet with the fee consultant to ensure that the architectural exhibits are acceptable and that all program requirements have been properly shown on the exhibits.

H. Appraiser Performs the Appraisal.

I. Lender Reviews the Application The appraisal is reviewed to determine the maximum insurable mortgage amount for the property

J. Issuance of Conditional Commitment/Statement of Appraised Value. This is issued by the lender and establishes the maximum insurable mortgage amount for the property.

K. Lender Prepares Firm Commitment Application. The borrower provides information for the lender to request a credit report, verifications of employment and deposits, and any other source documents needed to establish the ability of the borrower to repay the mortgage.

L. Lender Issues Firm Commitment. If the application is found acceptable, the firm commitment is issued to the borrower. It states the maximum mortgage amount that HUD will insure for the borrower and the property.

M. Mortgage Loan Closing. After issuance of the firm commitment, the lender prepares for the closing of the mortgage. This includes the preparation of the Rehabilitation Loan Agreement. The Agreement is executed by the borrower and the lender in order to establish the conditions under which the lender will release funds from the Rehabilitation Escrow Account. Following closing, the borrower is required to begin making mortgage payments on the entire principal amount for the mortgage, including the amount in the Rehabilitation Escrow Account that has not yet been disbursed.
N. Mortgage Insurance Endorsement. Following loan closing, the lender submits copies of the mortgage documents to the HUD office for mortgage insurance endorsement. HUD reviews the submission and, if found acceptable, issues a Mortgage Insurance Certificate to the lender.
O. Rehabilitation Construction Begins. At loan closing, the mortgage proceeds will be disbursed to pay off the seller of the existing property and the Rehabilitation Escrow Account will be established. Construction may begin. The homeowner has up to six (6) months to complete the work depending on the extent of work to be completed. (Lenders may require less than six months.)
P. Releases from Rehabilitation Escrow Account. As construction progresses, funds are released after the work is inspected by a HUD-approved inspector. A maximum of four draw inspections plus a final inspection are allowed. The inspector reviews the Draw Request (form HUD-9746-A) that is prepared by the borrower and contractor. If the cost of rehabilitation exceeds $10,000, additional draw inspections are authorized provided the lender and borrower agree in writing and the number of draw inspections is shown on form HUD-92700, 203(k) Maximum Mortgage Worksheet.

Q. Completion of Work/Final Inspection. When all work is complete according to the approved architectural exhibits and change orders, the borrower provides a letter indicating that all work is satisfactorily complete and ready for final inspection. If the HUD-approved inspector agrees, the final draw may be released, minus the required 10 percent holdback. If there is unused contingency funds or mortgage payment reserves in the Account, the lender must apply the funds to prepay the mortgage principal.

How to Get Cheap FHA Loan Rate

If you are applying for an FHA loan rate for your first home, you have to apply for an FHA cast out refinancing mortgage or you can go for the FHA refinancing loan. These are sure to protect you with the negotiations. You should be aware of all the deals you are getting into before it is finalized. The most important right you need to have when you are applying is that the financial transaction must have specific conditions and the terms are clear.

131579225The paperwork that you are signing must indicate these. If you need assistance in understanding the conditions and terms of your FHA loan rate, you can always seek the advice of an FHA expert. There are also companies that assist the refinancing loans of FHA clients. Ask your lender to also explain what is written on the papers for you to better comprehend what you are getting into.

Do not be rushed to signing any agreement – not before your FHA loan rate has been fixed or made clear. You have to fully understand the conditions of your mortgage and your rent.

You should ask the following questions to make things clear.

1. Who is responsible in paying the closing costs?
2. What is the total amount that must be paid every month for the FHA loan rate?
3. What are the pros and cons if ever you sign up for the particular FHA loan rate? Will you be gaining more or losing more?
4. What will happen if you pay your FHA mortgage a day or two later than scheduled? Are you entitled to a grace period?
5. What causes the default of an FHA mortgage? Will it be liable for foreclosure as well?
6. What is the actual cost of the FHA loan rate if you are borrowing for the property?

If you were able to have all these questions answered, then the credibility of the FHA loan rate is not much of a concern anymore because it seems to be a good deal. Your lender can give you more details if you need it. You must make an appointment with him or her if you want the answers to be discussed completely. Also, you must be informed about every repercussion that could possibly happen if you agree to the FHA loan rate.

Be aware of your rights under the Fair Housing Act. As a home buyer, your shouldn’t be refused to apply for loan or get a purchase if you qualify for the FA requirements in the first place.

FHA Mortgage Loan versus Conventional Mortgage Refinance for Debt Consolidation

The term conventional loan includes loans under the current lending limits set by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Fannie Mae and Freddie Mac, respectively. A Federal Housing Administration (FHA) loan is a loan based on an insurance program that enables you to buy a home with a down payment of as low as 3%. FHA is administered by Housing and Urban Development (HUD). It is one of two government loan programs available to borrowers. The other is a Veterans Administration (VA) loan, available only to veterans of the military service.

130884283The FHA loan program, similar to conventional loan programs, allows for mortgage refinancing of owner occupied properties as fixed mortgage rate loans and adjustable rate mortgages (ARMs). Similar to conventional refinances, FHA refinances can be used for such purposes as:

  • Home Improvements and Renovations.
  • Debt Consolidation, including consolidating a home equity loan (second mortgage), if 2nd loan is less than 1 year old.
  • Large Purchases.
  • Schooling.
  • Vacation.
  • Investment(s), including second home or vacation home purchase.

According to the FHA, 1-2 unit primary residences may cash-out up to 95% of the estimated property value. For other property type the maximum cash-out is 85%. This is at least 5% more than on a conventional refinance loan. And, you do not have to have an existing FHA loan in order to get FHA refinancing.

While FHA loans are funded by financial institutions such as mortgage centers or banks like conventional loans, it does not actually lend money but rather guarantees a loan in case of borrower default. As a result, there is less financial risk to the lender, allowing them to offer lower rates to borrowers than rates offered by conventional refinancing. And, FHA has the most forgiving credit criteria–FICO scores of 580 (east coast), 560 (Midwest) and 520 (west coast) being considered acceptable.

Similar to conventional loans, FHA mortgages require mortgage insurance. Conventional loan mortgage insurance is cancelable under most circumstances once you build at least 20% equity in your home. The FHA states that, in most cases, FHA insurance will drop off after five years or when the remaining balance on the loan is 78 percent of the value of the property, whichever is longer.