FHA Loans and FHA Mortgages

Shopping mortgage rates can be confusing, especially if you are dealing with a loan officer that has no integrity.  It’s just a sales job to them.  You hear people say… Shop Rate…Shop APR (Annual Percentage Rate)…..  Shop mortgage fees….. So which is it?  Shopping for a mortgage can be very frustrating also to say the least. I hear so many called experts tell the average consumer to shop APR. This is not the wisest of decisions and can be argued by many professionals. Keep in mind, this is my opinion on this subject.

Lets add some more confusion. Most of us know what the rate is in regards to mortgages. Lets define rate and APR.  Rate :  A charge or payment calculated in relation to a particular sum or quantity: interest rates. (from answer.com)  APR (Annual Percentage Rate) :  Is the cost of your credit expressed as an annual rate. This is a federally required formula, designed to help the borrower compare the cost of credit. The APR rate is different from the note rate of your mortgage and is usually higher than the note rate. Why is this?

The APR rate is usually different than the mortgage rate because the APR includes certain fees which are calculated into the actual rate. The problem with this is that so many people tell you to use the APR as your measuring tool when shopping with other lenders. And each lender by law is suppose to send you a Truth in Lending disclosure which shows you the APR.

So why does comparing one companies APR with another can be misleading or incorrect?  Because the lender is suppose to include certain fees in this calculation. Not only do some companies leave some of these fees out, but there are other fees that don’t have to be included that some lenders might include and the rules are not clearly defined. Sound confusing? Yes and I will talk about this later.

So, what fees are included in the APR?

These fees are generally included :

  –  Points - both origination and discount

  –  Underwriting, loan processing, and document prep fees (these are generally true junk fees)

  –  commitment fee

  –  attorney and or title closing fees

  –  PMI (private mortgage insurance) or MIP for FHA (Mortgage insurance premium) financed

  –  Prepaid interest - Interest that is paid from the time that you close to the end of the month. The problem here is that some lenders put 1 day or 5 days down on your good faith estimate. Even if they don’t know your closing date.

Sometimes included :

  –  Application fee

  –  Tax related service fee

Generally not included :

  –  Appraisal fee

  –  Credit report fee

  –  Title fee

  –  Recording fees

Conclusion : The overall function of the APR is to measure the ‘true cost’ of the loan. Its suppose to create fairness and a level playing field amongst other lenders. Getting back to why I think comparing APRs from different companies is a bad idea. As mentioned, some lenders don’t know how to compute the APR. Others leave out certain fees that should be included. Lastly, many lenders use programs that help compute the APR and it doesn’t matter if you are applying for a FHA loan or a conventional loan. Not all of these APR programs are the same. Blame this on the government for not making it all the same.  

Another issue about the APR is that it’s based on the length of that mortgage. If you are applying for a 30 year mortgage, it will be based on 365 months. Keeping in mind that the average person moves out of their house in 6.7 years and or would refinance their mortgage in 4 to 7 years. Overall, it’s extremely rare that someone would keep that same mortgage for the length of that loan, the term of that mortgage.

My opinion?  Use the TIL (Truth in Lending disclosure) as a helpful tool to ask questions why it might be higher or lower than another companies disclosure. But go back to the good faith estimate as your real tool. Why? Because all fees are supposed to be shown on this form. I would compare rate, term, and fees and here is a good example of this. Shopping Good Faith Estimates.  (FYI - compare the same programs)    Just one word of advice, not every loan officer will be truthful when it comes to the good faith estimate. Some lenders will not show all costs or confuse you by mixing up the different costs. *** And remember this, most of the costs are 3rd party charges which are estimates. You need to decipher what these are in order to shop accurately. Finding a trusted mortgage consultant is very important.

Good Faith Estimates - Knowing & Understanding the Power of the paper!!!

First Time Homebuyers Series :

  -  First Time Homebuyer Tips : FHA - Conventional - VA - Subprime - The Basics - Part 1 of 5

  -  First Time Homebuyer Tips : Getting Qualified & Knowing your Credit - Part 2 of 5

   -  First Time Homebuyer Tips : Understanding the total mortgage process - Part 3 of 5

  -  First Time Homebuyer Tips : FHA, a better mortgage program? - Best Programs & Why - Part 4 of 5

  -  First Time Homebuyer Tips : Summary - Red Flags to be aware of - Part 5 of 5

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- FHA Loans - USDA Loans - Conventional Loans -      

- VA Loans - Mortgages - 

Finding Solutions to your DREAMS

_________________________________________________________________________

For more information about the 2009 $8,000 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!!

Copyright © 2009 by Jeff Belonger 

 -Energy Efficient Mortgages -

Many of us know that if the home is not up to code, properly insulated, has a poor air conditioning unit or heater, that it could cost you more money monthly. And keep in mind, there is a longer list of items such as lighting, appliances, etc, etc, that could reduce your expenses. Overall, there are specific types of mortgages that allow you to incorporate the costs of these upgrades into your mortgage, without coming out of pocket with extra monies. And this can be done not only with purchases, but with refinances. And to answer the question, what kind of mortgages?  This could take place with FHA loans, Conventional loans, and VA loans. But I am going to go over the particulars when using a FHA loan.

So what is the name used for this type of mortgage?  EEM, better known as Energy Efficient Mortgages. Unless you are having a new home built that could be an energy efficient home, in many cases, the older home probably won’t be up to the current standards, which could cost you hundreds of dollars monthly.

My question to you…. Are you part of the GREEN family now, because not only did you save money, improve your home, but because you are helping the environment? As stated above, this can be done without added expense, except for the home energy rating report.

Realtors - How about that this is a great way for you or a seller to market their home also. Especially for those homes that are 5 years or older.

HUD states that Congress started a pilot program in 1992 demonstrating the use of energy efficient mortgages, known as EEM’s. (Energy Efficient Mortgages)  FHA has adopted this into their financing options which allows a borrower to :

  –  save money monthly

  –  incorporate the improvement costs into the mortgage

  –  these improvements are installed after the loan closes

  –  this program allows you to use normal FHA guidelines with FHA mortgages

EEM’s recognize that reduced utility expenses will allow a homeowner to pay a higher mortgage payment to cover the cost of the energy improvements that were financed into the mortgage. A main reason behind the EEM’s program, it offers homeowners who couldn’t initially afford the cost of these energy saving improvements out of pocket, giving them the chance to finance them. Thus cutting down on pollution and making the environment a better place to live. And why bring this up again?  For 2 reasons.

  –  Not everyone thinks about this or knows about these programs (and)

  –  because HUD just released a new mortgagee letter on June 10th, 2009. - ML 2009-18 - The old way was not to exceed $8,000 or $4,000 of improvements, whichever was greater.  Now HUD states that : The maximum amount of the portion of the EEM for energy improvements is the lesser of 5% of:

            The value of the property, or

      –  115% of the median area price of a single family dwelling, or

      –  150% of the conforming Freddie Mac limit.

So overall, HUD increased the dollar amount that is allowed, depending on which category you fall into.

Eligibility Requirements

  –  Properties that are eligible are One to Four unit existing and new construction properties.

  –  Borrowers are approved through the normal FHA mortgage guidelines for obtaining a mortgage.

  –  The cost of the energy-efficient improvements that may be eligible for financing into the mortgage is the lesser of 5 percent of the property’s value, depending on 3 different equations. Please refer to these changes above.

  –  To be eligible for this mortgage, the energy efficient-improvements must be cost effective, meaning that the total cost of improvements is less than the total present value of the energy saved.

  –  The cost of the energy improvements and the energy savings must be determined by a home energy rating report which is done by a home energy rating system (HERS) or energy consultant. The HERS report usually costs from $150 to $350 and can be paid by the seller, the buyer, or sometimes included into the mortgage.

  –  The energy improvements are installed after the loan closes. The money is placed into an escrow account and is released once an inspection verifies the improvements are completed and that the savings will be achieved.

  –  Because of this program, the final loan amount can exceed the maximum mortgage limit by the amount of the energy-efficient improvements. Here is a list of the FHA max mortgage limits.

EXAMPLE :

Asterisk *– MIP now varies depending on credit scores. FHA Mortgage Insurance One-Time MIP 

** – Monthly payment does not include taxes or homeowners insurance.  Just Principal & Interest (P & I)

*** – Mortgage interest rate is just an average, depending today’s market, points, and or costs.

**** – As you can see, it’s not a huge savings, but it does add up. Just in 1 year only you saved $918.96. And the cost of the energy improvements that were added onto your mortgage now become a tax write-off.

***** – My examples in the cost of improvements and your monthly bills, will vary depending on several different factors…. such as age of air conditioner or heating, lighting fixtures, etc, etc. And also depending on what you pay per month. I only used these figures as examples.

Along with the FHA loans for these EEMS - Energy Efficient Mortgages, the VA(Veterans Administration) and FNMA / FHLMC also back these types of programs with their own guidelines.

Department of Energy (DOE) and HUD established a joint response to energy efficient housing.

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- FHA Loans - USDA Loans - Conventional Loans -      

- VA Loans - Mortgages - 

Finding Solutions to your DREAMS

_________________________________________________________________________

For more information about the 2009 $8,000 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!!

Copyright © 2009 by Jeff Belonger 

It’s time to have a quick class on FHA loans, the fees for FHA mortgages, and just a basic understanding on how all of this works. This is truly frustration on my part from some loan officers blatantly lying to borrowers, just to justify their fees and such. It’s total BS and it needs to be talked about.

Just today, I spoke to a borrower that is having a concern with their 2nd lender, after the first lender failed them miserably.  This lender is charging them 6.00% with 1 1/2 points as an origination fee.  His credit scores are above 670 and the purchase price is $272,000 with the minimum down. And they are being charged a $495 commitment fee.  With this scenario, they should be getting at least a 5.50% interest rate.  Here is what they are being told….. 

So here is the story of one borrower after speaking to their current loan officer. They were told that they are getting 6.00% and not 5.75%, because of his credit score of 670.  Well, I don’t know one investor as of 6/13/09 that would charge you 1/4% percent, let alone, a 1/4 point, for credit scores above 670. He was told it was because he didn’t have a credit score of 700.

Secondly, he was told that out of the 1 1/2 points of the FHA origination fee, that a 1/2 a point goes to FHA and the other 1 pt goes to the lender that they are selling this too. Even if the other lender was collecting something, FHA or HUD doesn’t collect origination fees. Sadly, this is the 3rd time just this year that I have heard a loan officer tell a borrower that part of the origination fee goes to FHA.  Rut Row…  see Pinocchio’s nose on the loan officer?  His nose should be much longer, because this is one of the biggest lies that I have heard.  The commitment fee being charged?  Very average in most csses.

So, let’s define FHA origination fee or just origination fee.  It is explained to be a fee charged for the processing of the loan application. This is even the same definition in the HUD buying handbook. The fee is often expressed as a percentage of the loan amount, which does vary among lenders. The basics behind this, no matter who gives what definition?  It is a point to pay for your rate. Either the lender is buying your rate down, or using it for extra profit. In my example above, it is being used for a larger profit. 

Lastly, what does HUD/FHA collect on all FHA loans? Just the Upfront Mortgage Insurance Premium (MIP) and the monthly mortgage insurance MMI.  The lender gets all other lender related closing costs. I hate saying this, but if a loan officer tells you that part of the origination fee goes to FHA, don’t walk, run very quickly and far away. This is not my opinion, but a real cold hard fact.

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- FHA Loans - USDA Loans - Conventional Loans -      

- VA Loans - Mortgages - 

Finding Solutions to your DREAMS

_________________________________________________________________________

For more information about the 2009 $8,000 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!!

Copyright © 2009 by Jeff Belonger