The Federal Housing Administration (FHA) insures mortgages so that low-income individuals can still qualify for home loans. Insurance from the FHA mitigates lender risk and lowers interest rates and initial cost for home buyers. However, there are drawbacks to this program and it isn’t for everyone.
What Section 203(b) Says About Mortgage Insurance
The FHA is not a mortgage lender, but a mortgage insurer. This program helps families buy homes by reducing costs. The program motivates lenders to grant mortgage loans to people who just barely fall short of the underwriting requirements. FHA loans are known for their small down payments as compared to traditional loans.
Under Section 203(b), the FHA helps people to purchase a new or previously-owned home with up to four units inside. The only catch is that the buyer has to personally occupy the home.
Advantages of Using the FHA Program
FHA mortgages make it possible for some home buyers to qualify for a traditional loan with lower interest rates, rather than toxic sub-prime mortgages with high rates. Over the course of the loan, this saves thousands of dollars in interest.
The requisite down payment is also smaller. Typically lenders ask for 10% down, but the FHA makes it possible to get in a home with as little as a 3% down payment. Closing costs can also be absorbed into the mortgage, making the purchase price of a home more affordable.
The FHA also puts a ceiling on the fees that are tacked on to home mortgage loans. For instance, the loan origination fee must be less than 1% of the total loan amount.
Disadvantages of FHA Loans
Of course, FHA loans include drawbacks and aren’t for everybody. The FHA sets loan limits in order to continue to serve low- to moderate-income families. When you consider these loan cap amounts, you might end up having to apply for a conventional or jumbo loan to buy the house.
The home you buy must also become your primary address. FHAs are not intended for use by people buying second homes or investment properties.
Getting an FHA Insured Mortgage
A large variety of participating lenders – almost all of them – carry loans backed by the FHA. As always when shopping for a loan, look around, do research, and compare mortgages. Just because a lender has FHA approval doesn’t mean they have the lowest rates.
Rates and terms are easy to locate online, either by surfing lender websites or visiting a mortgage broker’s home site. Collecting quotes allows you to gather and research interest rates without harming your credit rating.
Posts Tagged ‘ Fha Loans ’
For those borrowers in Florida who are out to get a mortgage loan but have poor credit, can not meet the 3 percent down payment requirement or both, and are looking for loans that are no larger than the program’s loan size limit, then the FHA mortgage loan program is the best option for you.
FHA defined
FHA stands for the Federal Housing Administration. It is governed by the Department of Housing and Urban Development (HUD) and insured by the US government, but is not issued by them. What the HUD does is collect the mortgage insurance from the borrowers, and in case the borrowers suddenly back out, they guarantee the lenders full payment. FHA mortgage loans were developed to support low-income housing loans so they have more lenient standard qualifications regarding credit history and down payment capacity compared to conventional loans.
Major advantages
Typically in an FHA mortgage loan, payments do not exceed 29 percent of the gross monthly income of the borrower and the total debt is not more than 41 percent of his gross income. What is the best about FHA loans is that you can get a loan with as little as 1 percent down payment. Conventional mortgages usually require a 26 to 28 percent and 33 to 36 percent down payment to qualify. Because of the less stringent measures to qualify for an FHA mortgage loan, it is fairly easy to take a loan. What’s more, the income of co-borrowers who do not live in the house can be included in measuring the adequacy of income. In special circumstances, FHA mortgage loans even allow gifts in paying for settlement costs.
Terms
In Florida, the current market offers FHA loans at about the same interest rates and points as traditional mortgage loans and also with the same terms. However, there could be a difference in mortgage insurance premiums. FHA mortgage loans are usually on a fixed-rate mortgage and have tenures of thirty years. The mortgage insurance premium for an FHA mortgage loan of a thirty-year period is 1.5 percent of the total loan amount paid from the beginning, and an additional 0.5 percent of the loan balance to be paid monthly.
Introduction
Mortgages are loans that are used to purchase real estate and come in many different forms. The most common types are Conventional, FHA and VA. Other types are Second, Reverse and Balloon Mortgages. These loans often involve the use of Discount Points.
Conventional
The conventional loan is the most common type of mortgage used in the nation today. Conventional mortgages are loans between borrowers and lenders that are not insured or guaranteed by the government. Conventional mortgages are either privately insured through private mortgage insurance companies or not insured at all. Conventional loan guidelines typically require a minimum down payment of five percent on owner-occupied (non-rental) properties; higher for investment/rental properties. For mortgages that have a down payment of less than 20%, private mortgage insurance (PMI) is usually required. Most conventional mortgages have time frames of 15 to 30 years and may be either fixed-rate or adjustable.
Fixed rate mortgages mean that the interest is permanently “fixed” at the rate available when the mortgage was created. The interest rate never changes no matter what interest rates do later. Fixed rate loans provide a level principal and interest payment that a borrower can depend on and are especially attractive when rates are low.
Adjustable rate mortgages mean that during the first few years, the interest rate will be lower than a typical fixed rate loan but will increase (adjust) upward to rates that are prevalent at a later date. Adjustable rate mortgages are normally used only when the borrower cannot currently qualify for the normal fixed rate interest level, but anticipates a larger income in the near future. The risk for the borrower is if that extra income does not materialize or if other expenses occur later on that cause the adjusted rate to not be affordable.
FHA
FHA loans are insured by the Federal Housing Administration, which is a division of HUD. The program was created in 1934 to stimulate the housing market during the Depression. FHA loans are insured by the government against default, but the mortgages themselves are made by major private lenders. FHA loans are often available from the same lenders who offer conventional loans. FHA maximum loan amounts are limited, and the maximum loan amount varies among geographic regions. High cost housing markets will normally have a higher maximum loan amount than lower cost areas. FHA mortgages are usually on a fixed-rate mortgage with terms of up to 30 years. FHA can lend up to 97% of the home value, and can be refinanced any time without a pre-payment penalty, and without having to qualify all over again. FHA insurance makes it possible for private lenders to provide mortgages to lower income families without attaching the rates and fees that sub-prime lenders do. FHA-insured loans have become an important element in the proposed solutions to the subprime mortgage crisis, and an FHA Reform package is making its way through Congress this year (2007) and will probably be a reality by the time you read this. The new package will enable FHA to accept even lower down payments and credit scores than they do now.
VA
VA mortgage loans are loans insured by the Department of Veterans Affairs. The program was created in 1944 during World War 2 to assist returning military personnel in buying a home. VA mortgages are reserved for those who have served in the military or are currently in the military in active or reserve status. They are also available to qualified surviving spouses. VA loan guaranty is only for owner occupied properties, which can include homes, condominiums, townhomes, 2-4 family properties and manufactured homes, as long as it is owner occupied at least in part. By example, the applicant can obtain a mortgage for a duplex, live in one side and rent out the other side. VA mortgages offer the qualified veteran or active duty military person an opportunity to buy a home up to a specified amount with no down payment and do not require Private Mortgage Insurance (PMI). Like FHA mortgages, VA places a limit on the maximum mortgage amount. VA determines your eligibility and, if you are qualified, VA will issue you a certificate of eligibility to be used in applying for a loan.
Balloons
A Balloon mortgage is a loan that is usually a short-term fixed-rate loan with even monthly payments amortized over a stated term, but provides for a lump sum payment to be due at the end of a specified term. These loans can be used as either a first or second mortgage. The nature of balloons are that the principal is not paid off entirely during its term and the monthly payments are often lower than they would be in a fixed rate first mortgage. Balloons are often used as a type of Second mortgage, especially when a borrower is seeking the lowest possible monthly payment in the short run. These loans carry an inherent risk for the borrower because that large lump sum becomes due and payable at the end of the term, so these financing options should be used with extreme caution.
Reverse
Reverse mortgages are becoming popular in America. They were designed only a few years ago and were made to help people who have retired and stopped working, but still have to make monthly payments. They are a special type of financing that lets a homeowner convert the equity in his/her home into cash. Reverse mortgages can be relatively complex, and their use should be considered carefully by the borrower. While they have been around for a long time, but it wasn’t until the early 1990s that they began earning respectability after the FHA began insuring reverse mortgages for repayment to lenders.
Second
These are used when a borrower needs additional financing to buy a home. Second mortgages are subordinate, meaning that in the event of default, the primary, or first lien would get paid off first, and then any funds remaining would be used to pay off any second liens. Second mortgages are also arranged for various purposes, such as financing home improvements, college tuition fees, debt consolidation or other emergency expenses. They are available as either fixed-rate loans, or adjustable-rate home equity lines of credit and are based on the market value of the home minus the balance of the first mortgage. Terms are typically shorter than the primary term and are commonly written at a higher rate of interest, due to the inherent risk of the loan. An advantage for the borrower is that the interest paid on a second mortgage is tax deductable, whereas payments for PMI are not.
Discount Points
Discount Points are used to buy your interest rate lower and are charged as a percentage of the loan amount. Discount points are entirely optional unless they are required for you to qualify for the loan payment, due to a lower than required income or higher than expected expenses. Discount points are paid in cash at closing and are typically charged to the seller. A common arrangement is that when discount points are charged, the seller will want to increase the price of the home to cover this expense. The result is that 80% or more of the discount point cost is actually financed by the buyer. Discount points are not to be confused with an origination or broker fee and are tax deductible only for the year in which they were paid.
Refinance rates encompass fees assessed by mortgage lenders to establish a new home loan and pay off the outstanding mortgage. Borrowers can refinance mortgages to obtain a better rate of interest or obtain cash for home improvements or to pay off credit card debt or outstanding loans.
A variety of refinance rates can be assessed with fees ranging from a few hundred to several thousand dollars. Common refinancing fees include: loan application and origination, property appraisals and inspections, lawyer review, real estate document preparation, and closing costs.
Borrowers might be subjected to prepayment penalties for paying off their mortgage early. Property owners should review real estate contracts to determine if a prepayment clause is included. Some banks assess prepayment penalties if loans are paid off within the first five years. Others reduce penalties over the course of the loan.
Not all mortgage providers include prepayment penalties including FHA, VA and loans obtained through credit unions. When prepayment penalties are assessed they typically range between 2- and 4-percent of the loan value.
It is important for borrowers to compare mortgage lenders and refinance rates to determine the true cost of mortgage refinance. Two good sources for locating mortgage providers are MortgageLoan.com and BankRate.com.
Both companies provide links to nationwide lenders, along with current interest rates and refinance fees. Each allows borrowers to utilize mortgage calculators to determine overall costs and potential savings of refinancing. Homeowners can enter the outstanding balance owed on their current mortgage note, interest rates, number of remaining payments, property tax rate, mortgage and homeowners insurance, and appraised property value.
Once current home loan costs are submitted, borrowers can compare refinanced mortgage amount, interest rates, loan term options, and closing costs to evaluate anticipated fees and potential savings.
Once borrowers decide to proceed with mortgage refinancing they should contact the lender of choice to obtain a good faith estimate. Mortgage providers review borrowers’ current mortgage note and provide an estimate of refinance rates.
Good faith estimates only include costs incurred by the bank and do not include refinance fees which might be incurred by third-party providers. These can include home inspections and property appraisals.
Banks require borrowers to obtain property appraisals to determine current market value. Some lenders include appraisal fees in the refinanced mortgage, while others require borrowers to pay out of pocket. Property appraisal fees usually range between $300 and $700.
Home inspections are necessary to determine the overall condition of the property. Inspection fees typically range between $150 and $400.
Borrowers might also be charged refinance rates for title insurance, property records search, loan points, survey fees, and flood monitoring and flood certification.
When refinancing mortgages, borrowers must apply for a new loan and undergo financial scrutiny to ensure they meet lending criteria. While the process of mortgage refinance can be cumbersome, borrowers can potentially save a considerable amount of money over the loan term.
Borrowers should give careful consideration before extending terms of their mortgage loan. Adding additional five or more years of loan payments can create unnecessary financial burdens. Those uncertain if refinancing is in their best interest should consult with a mortgage consultant or certified housing counselor.
As the economy slumps further into recession Senior Reverse Mortgage loans become ever more popular. There is some confusion though, as to the nature of the reverse mortgage loan. What is it, how does it work, etc. Here is a short list of key points to understanding senior reverse loans:
1. Senior reverse loans are a unique way for retirement age seniors to cash in the equity from their primary residence. Reverse mortgage loans allow you to borrow equity from your home, without having to pay the mortgage, or even pay back the loan in your lifetime. You still retain ownership of your home with the senior reverse mortgage loan.
Senior Reverse Mortgage Loan Benefits
The money you receive is tax free income No payments as long as you live in the home No credit or income requirements Reverse mortgages are supported by Senior organizations and celebrities Reverse mortgages are insured by the FHA
2. Senior reverse loans (most of them) are sponsored by and insured by insured by the US Government. This feature makes them safe, and sets them apart from similar loan products. Senior reverse loans carry the support of numerous senior organizations, and are touted by many financial planners as alternative way to fund retirement. They are not the best option for all seniors, but they are one option, in this tight economy.
Senior Reverse Mortgage Loan Qualifications
Borrowers must be Age 62 years or older Own their home and have enough equity in to qualify Occupy the home as primary residence The home must be in generally good condition Must meet with a certified HUD/FHA counselor
3. Senior reverse loans now offer more equity to the borrower. Rates were recently raised so more equity can be drawn from the homes value, allowing for loans. This becomes especially important in high priced areas. Many seniors own a valuable home, with tremendous equity, yet live on a fixed income. Senior reverse mortgage loans allow them to tap into that equity and live more comfortably.
Senior Reverse Loan Payments
Lump sum disbursement Monthly payments Line of credit A combination of the Above