Monthly Archives: May 2013

FHA 203K Loan – Benefits of FHA Home Improvement Loans

135548885In recent studies, home ownership rates have increased steadily because of the implementation of the FHA home loans. Purchasing homes has been made easier because of this benefit.

Through the years, FHA has assisted Americans to gain their rights in owning the homes that they want. Reasonable mortgage rates for middle class, producing housing for the elderly and those with low income, and financing military housing are only a few examples of what the FHA has done for them.

The whole process begins with the lenders extending the loans to those who normally couldn’t buy a house without their assistance. But of course, these people must meet the FHA requirements before they are given the loans that they are applying for. One requirement they must meet is that they should have a good credit rating.

If they have a bad credit rating, they might have a hard time getting their application approved. If they do get it approved, it might mean that they would have to pay a higher interest rate compared to those who have good credit score.

Also, FHA loans give benefits to those who wish to buy homes but aren’t able to make down payments because they are fresh college graduates, newlyweds, or people who are still trying to complete their education.

There are also some lenders who allow people with negative credit rating to qualify nonetheless. They know that these people are marred by foreclosure or bankruptcy but they are willing to give them a second chance.

The FHA 203k loan is the most popular FHA home loan. There is a fixed rate and this is the most ideal for first time home buyers. It lets the individuals pay up to 97 percent of their total home loan. This means the down payments are regulated on a manageable level and the closing costs are also at a minimum.

The FHA 203k loan is the only loan wherein the total closing costs can be given as gift from a non-profit or government agency that is related to the cost and benefits of the whole company.

However, the guidelines to remember in this whole transaction when dealing with the FHA 203k loan is that there is a minimum income requirement. The individual must qualify for this before he be granted an FHA 203k loan.

The debt ratios may also be specific, depending on the state he is living in. The FHA 203k loan is a great investment because one can purchase the home he’s been wanting.

FHA 203K Loan Makes Financing a Home in Need of Repairs Simple

The FHA 203K loan is a type of financing that is insured by the Federal Housing Administration. It is a unique type of financing that allows homeowners to obtain both a purchase loan and rehabilitation financing in the same transaction. Before this transcendent loan program, a homeowner had to obtain an initial, temporary loan to purchase the home and a separate rehabilitation home loan to make any necessary repairs. Only after the repairs were complete could the homeowner gain permanent financing for their newly improved home.

135383634FHA 203K: How does it work? 
The FHA 203K loan was designed to streamline the process of buying a home in need of repairs. In order to provide funds for the repairs, the loan amount is based on an expected future appraised value that takes into consideration how much value the completed repairs will add to the current value. Up to $35,000 over the purchase price of the home can be financed into the loan to cover the cost of repairs.

The contractors chosen by the borrower to do the repairs will receive the money for their work in two draws. One draw is for 50% of the work and is disbursed at the beginning of the repairs while the remaining 50% will be disbursed after the work is completed. The repairs must begin within thirty days of the closing of the loan and must be completed within six months. The amount paid to the contractor(s) must be determined before the loan closes by obtaining written bids on material and labor costs. The homeowner can do the work himself provided that he is a licensed and bonded contractor.

What types of repairs will the FHA 203K cover? 
Some of the repairs eligible to be completed with the funds from an FHA 203k loan include: roof replacement, electrical or plumbing work, kitchen remodeling, accessibility renovations, appliance purchases, and painting. Although many cosmetic renovations are allowed, luxury items and upgrades are not permitted. Also, any funds needed to repair to any detached structures, like sheds, swimming pools, and gazebos, may not be included in this loan amount.

FHA 203K: Qualifications 
The FHA 203K program has the same types of eligibility requirements that exist on any FHA home loan. A homeowner must qualify on the basis of both credit and income to be eligible and the property must be FHA approved. As a general rule, the monthly mortgage payment cannot exceed 41% of the borrower’s monthly income and most lenders require at least a 620 credit score. Homes that qualify include: FHA-approved condos, 1-4 unit homes, and planned urban development homes (PUDs). The construction of the home must have been completed at least one year prior to financing in order for the home to qualify.

The FHA 203K program can be a great tool for any homeowner looking to renovate or repair his or her home. In a housing market that has seen foreclosures reach record highs, the FHA 203k loan can not only provide potential home owners with more opportunities to purchase a home, but can also help rebuild the housing market by facilitating the rehabilitation of foreclosed properties.

Move In With an FHA Loan

FHA mortgage loans are among the easiest for borrowers to qualify for. If you are seeking a mortgage but your credit is less than perfect, you should definitely consider an FHA loan – It may be much easier for you to qualify and can save you a lot of money as well. Private financial institutions fund FHA Loans however they are backed and insured by the Federal Housing Administration or the ‘FHA’. The lender is basically covered in case you default on the loan.

Here are some of the main advantages of an FHA over a standard conventional loan:

1353831341. LOW DOWN PAYMENT -You only need 3% down in order to qualify rather than the 10% or more when dealing with banks or other ‘conventional mortgage products – the down payment can also be a ‘gift’, meaning you are not required t pay it back.

2. 550 MINIMUM CREDIT SCORE- Lenders have tightened a bit from requiring borrowers no minimum FICO score. Currently you’ll need at least 550 FICO to qualify. Remember, the lender who issues the FHA loan is backed by Department of Housing and Urban Development, so there is no risk to the lender once you qualify for an FHA loan.

3. YOU’LL SAVE MONEY OVER THE LIFE OF THE LOAN – FHA interest rates are very competitive and are typically lower than conventional loans. This could easily equate to saving tens of thousands of dollars if you stay in the home for the life of the loan.

4. EASIER INCOME QUALIFICATIONS – FHA allows up to 35% of your gross monthly income toward your total mortgage payment. Conventional loans usually allow only 29%.

5. OTHER INCENTIVES – FHA offers borrowers other incentives to take out loans such as foreclosure protection as well as cash incentives for making your house more energy efficient.

So what are you waiting for!

FHA loans are perfect solution for borrowers that may have had bad credit in the past but are now working and meeting current bill obligations.

Primer on the Difference Between an FHA Loan and a Regular “Conventional” Mortgage Loan

It is in every borrower’s best interest to understand the difference between a Conventional and an FHA loan, especially if they owe more than 80% of their home’s value or are interested in purchasing a home with less than 20% down payment.

131579225First FHA will allow a borrower who wants to refinance, or purchase a home, the opportunity to borrow up to 96.5% of their home’s value. This is also known as LTV or the “loan to value” ratio. If it is a refinance, and they want to borrow 96.5% LTV, then the borrowers are not allowed to take out any cash. The only refinance that will be accepted is one where the borrower benefits with a reduced monthly payment from a lower interest rate.

A borrower can work with a Conventional loan if they only have to borrow 95% or less LTV. It’s usually financially better to secure a Conventional loan than an FHA loan because of the 1.75% up front fee that FHA requires. This can be a significant extra fee if the loan amount is three or four hundred thousand dollars. For example, the extra fee on $300,000 is actually $5,250.

So if you have at least a 5% down payment on a purchase, or have at least 5% equity in your home when you are ready to refinance, you might qualify for a Conventional loan and forgo the 1.75% up front fee. If you can afford a 10% down payment, or have 10% in equity when you are ready to refinance, you have an even better chance of securing a Conventional loan. This is because there are several restrictions on Conventional loans between 90% and 95% LTV and many borrowers will not be strong enough financially to qualify. For example, the credit score must be exceptional (over 720 points) to get a loan over 90% LTV.

One advantage to an FHA loan is the cost of their Mortgage Insurance Program. Mortgage Insurance is an extra fee that must be paid alongside the regular monthly Mortgage Payment. Regardless if it is a Conventional or FHA loan, anytime a borrower needs a loan that is over 80%, they will be required to add a Mortgage Insurance Premium to their monthly payment.

FHA’s mortgage premium is a standard .50% of the loan amount. In other words it does not matter if you borrow 81% or 94%, if you borrow over 80%, the Mortgage Insurance Premium would be the same at .5%. A .50% Mortgage Insurance premium on $200,000 would be $200,000 x .50%, which equals $1,000. This is an annual premium and so it needs to be divided by 12. Therefore, the Mortgage Insurance Premium on an FHA $200,000 loan would cost an extra $83.33 per month ($1,000 divided by 12 = $83.33).

With a conventional loan there are different percentages associated with different LTV’s. For example a borrower who needs a loan that is over 80% but under 85% LTV will have a smaller Mortgage Insurance Premium than someone who needs to borrow 90% or 95%.

The Mortgage Insurance Premium payment under 85% LTV is about the same as the FHA premium, but the Mortgage Insurance Premium (also known as MIP) on a 90% or 95% LTV loan is much higher than FHA. So where as the FHA loan asks for a large upfront fee of 1.75% and a smaller monthly Mortgage Insurance Premium, the Conventional lender does not ask for an upfront fee, but collects a larger Mortgage Insurance Premium during the life of the loan. A good loan officer can crunch the numbers and figure out which type of loan is in your best interest.

I hope that this explanation clarifies the differences between the two loans and shows the advantages and disadvantages of each type.

FHA 203K Rehab Loan – From Handyman Special to Dream Home

An FHA 203K loan allows a home buyer to compete with the real estate investor. This loan allows for repairs to a property that generally would not qualify for financing due to property condition. This is a very popular loan for the budget conscious home buyer in New Jersey.

There are 2 types of FHA 203K loans. The full “K” and streamline “K.”

130884283A property that needs structural repairs or repairs exceeding $35,000 will require a full 203K loan. It is best to use a certified HUD plans consultant for cost estimates of your desired work. A HUD consultant will make the paperwork a lot easier. The average contractor may not be familiar with the required documentation. Using a HUD consultant allows for a smoother flow. The consultant will not do the repair work. They will do the detailed cost estimate. The estimate will be based upon what you want done. You are allowed to renovate, carpet, paint, add new appliances, etc.

Streamline FHA 203K’s are best if the required work is $35,000 or less and no structural repairs are necessary. The contractor will usually prepare the estimate on this loan. The paperwork is less detailed so it can easily be done without a HUD plan consultant. Up to $8,000 of energy efficient improvements may be added to any 203K loan.

A full FHA 203k and a Streamline 203K will allow you to use multiple contractors or one general contractor. You will chose your contractors. You should compare prices and the quality of their work. You may choose one contractor that specializes in flooring and another that is a licensed electrician. This is allowed but detailed written estimates must be obtained from each contractor.

This is the normal process flow:

1) Find a home.
2) Make an offer.
3) The offer is accepted.
4) Choose your contractors and get written work estimates. A HUD plan consultant may also prepare the estimates.
5) The contract and repair estimates are delivered to a qualified 203K lending specialist.
6) A mortgage application is prepared.
7) The work estimates are forwarded to the appraiser. The appraiser will prepare an appraisal with a value “subject to” the desired work.
8) The loan is approved.
9) The loan closed and seller is paid. You become the new homeowner.
10) Work begins.

The contractor has up to 6 month to complete the necessary repairs. They will be paid in as the work is done and inspected.

A 203K loan has a provision where you may remain in your current residence with no mortgage payments due if the new property is not habitable. This allows the contractor to complete the necessary work without a strain on your budget.

An FHA 203K loan is a fantastic way for you to take advantage of a great deal on a distressed property.