FHA Loans and FHA Mortgages

FYI –  There is still money to lend. Stop listening to the media and to some lenders. Yes, it’s tough to get a conventional loan if your credit scores are below 700 and putting 10% or less down. But getting a FHA Loan is not as hard as percieved. FHA loans might be the way to go.  

 Okay, so I gave you some pros and cons of buying a house in Part 1. You seem to be feeling good and confident. That’s great…… Tip : Keep your focus and don’t be talking to too many people outside of the loan officer that you are speaking with. That’s if you have picked one by now. And by this I mean don’t ask in depth questions to your parents, friends, neighbors, etc, etc. There is a reason for this. Programs change yearly and so does the way of financing. The biggest thing, mortgage rates can change daily!  What your friend received last week might be totally different the following week.

   –   This may sound simplistic, but first and foremost you should find  a neighborhood and a home that you just plain like.

Number Crunching

Keep in mind that while home ownership provides security, it almost certainly won’t give you the returns provided by equities. If history is any indicator, you can reasonably expect an 8% to 10% annual gain on your stock portfolio. Home prices, on the other hand, typically follow the rate of inflation over the long term which is usually 3% appreciation. Hence why it is sometimes good not to put as much down when buying your home. Your loan officer should be asking about your goals when talking to you. Don’t work for your home, let it work for you. 

Tip : Don’t fall into the trap of hoping that what has happened (larger increases in values) the last 4 years happens to you. Just remember that over time, you will build equity. 

RENT VS BUY WORKSHEET 

		What is your current monthly rent?			$1,300
		What is your expected yearly rent increase?				1%
		What is your federal income tax bracket?				28%
		What is the term of the loan in years?				30 years
		What is the loan rate?				6.5%
		How much do you expect to borrow to purchase a home?			$246,800
		What is the expected property purchase price?			$250,000
		What is the estimated annual appreciation of the home you expect to buy?				3%
		How much do you expect to pay in yearly property taxes on the home you expect to buy?			$5,600
		How many years do you plan to live in this home?				5

RESULTS

Based on the information you provided, the following represents your costs and savings over the next 5 years.
		Estimated costs of renting:				$79,576
		Estimated gross costs of buying: (includes $4,176 in closing costs)				$126,227
		Estimated amount of tax related savings:				$30,432
		Estimated amount in increased equity:				$47,845
		Estimated net costs of buying:				$47,950
		Estimated total savings: (not including investment related savings)				$25,516

Your total mortgage payment to include taxes, homeowners insurance, and mortgage insurance is :$2,161 / month

The worksheet shows that you will save $25,516 in 5 years which comes out to $5,103 / year. Should you buy? YES

***This worksheet had to be tweaked because it didn’t allow for mortgage insurance. I also did this based on a FHA mortgage, hence the mortgage insurance is built into the loan amount.***  

And keep in mind, this is using a rent of $1,300 a month. It all depends on the average rent in your area for that unit. And you need to compare the size of your rental and the property that you are purchasing. Also keep in mind that if your rent is more, your total savings would be less.   

Post Purchase Tip :  After you buy your home, just be careful of property scams!!!  

***As stated before, there are many types of rent vs buy calculators. Not all of them are accurate because there are several factors involved. I couldn’t copy the one I use. The one used is just average, but it still shows that buying is better than renting in this case.*** 

In regards to Part 3, I will give you examples of the different types of programs for those with money saved, no money saved, and those with less than perfect credit.

  –  Renting vs Buying – Understanding the difference…….. FHA? – Part 1 of 3

   –  Renting vs Buying – Showing the difference in $$ – Part 2 of 3

   –  Renting vs Buying – Knowing your loan options – Part 3 of 3

 
Buying Tips :

  –  What’s behind a home inspection…..

- FHA Loans  - Conventional Loans - VA Loans -

Experience & Knowledge at its BEST !!!

Are you throwing money out the window by renting? More than likely, yes. But this can be a complicated decision based on several different factors. Sure, you can try the many rent vs buy calculators online, but I have found so many not to be the same as the first one.

When should you not buy a home?

  –  If your rent is very low. (usually 2/3 or less of your monthly payment)

  –  You intend to move in a few years. (unless you get into the house with no money out of pocket)

Is this statement, “throwing your money away on rent”, a myth? It certainly can be and here is why. When you buy a home, you still have expenses unlike renting.

  –  maintenance

  –  original closing costs when buying the home

  –  monthly property taxes

  –  yearly homeowners insurance

  –  sometimes mortgage insurance [but there are many types of PMI loans (Private Mortgage Insurance)]    If it’s a FHA loan, there is monthly mortgage insurance, but it’s cheaper than conventional MI.

Okay, are you confused, since I have mentioned some negative reasons why not to buy a house. It’s because the positive reasons will outweigh the negative reasons of buying a home. Key word being usually. Your home can become your own personal bank.

Positive reasons for buying a home 

  –  You can write off the interest yearly

  –  You can deduct the points that you paid when purchasing, the 1st year

  –  Your home will appreciate, becoming more valuable over time ******

  –  Pride :  The home is yours. You can basically do what you want, within reason.

  –  Once your home is paid off, you just have yearly taxes and homeowners

Overall, this is the best time to buy.  Home values have dropped in many places and they are now leveling out, stablizing.  Also, rates are still low…. anything from 6% to 6.750%.

In Part 2 : I will talk about comparing renting vs buying in dollar figures. And I will also introduce a few different types of programs to help you in buying your dream home.

- FHA Loans  - Conventional Loans - VA Loans -

Experience & Knowledge at its BEST !!!

We have been in a doom and gloom housing market for the last 6 months to a year. Largely due to the part of the media and uneducated loan officers and realtors. Let me tell you something, there is still plenty of mortgage money to lend.

The problem is that you have some lenders that don’t know anything other than conventional mortgages. Or they aren’t FHA approved to do FHA Loans. And not to knock realtors, but there are many realtors that have been in this business for 20 years or so, that keep relating to FHA mortgages of the past. Yes, they were sometimes harder on appraisal repairs, but that was prior to 2001. Since then, HUD did away with the VC sheet. Only those items harmful to the borrower, must be repaired only if noted by the appraiser. The reason I bring this up is because I just spoke to a loan officer in Maryland that told me that he met 2 realtors that have been in real estate for 25 years, who told him that they don’t like FHA mortgages. The funny thing is that they haven’t had a buyer or seller do a FHA loan in 10 years. Hence why I want to give a quick education on FHA loans right now.

FHA loans & FHA mortgages - The basic principals and myths…

   –     FHA mortgages have a one-time mortgage insurance premium, known as upfront mortgage insurance, that makes the loan more expensive.   MYTH   And some realtors still think it’s 3.00 percent. Again, that was the 90’s. As of 10/1/08, it’s 1.75% of the base loan amount. And no, it’s not that expensive. Example : On a $250,000 loan amount, it’s about $30 a month added to the payment. And keep in mind, that is with 2.25% down. If you put 3% down on a conventional loan, just the payment alone would be $65 or more higher based on that same loan amount. And that is not including any pricing hits on the rate for credit scores under 720. 

   –     The monthly mortgage insurance on a FHA loan is very expensive.   MYTH   This is called annual mortgage insurance or MMI (monthly mortgage insurance. No matter how much you put down, it’s either .55 percent or .50 percent of your base loan amount. Comparing this to a conventional mortgage, you need to put down at least 10% in order to get to .52 percent. And again, you will still have to worry about credit scores being an issue.

   –     FHA loans overall are just hard to qualify for.   MYTH    Conventional loans are much harder to qualify for now, even with 10% down in some cases. If a conventional loan is not approved in the system, through DO/LP/ or DO, then it’s a dead deal. I can still do manual underwrite loans down to a credit score of 500. Most lenders can’t go below a 580.  It all comes down to a loan officer that truly understands on how credit works and how to qualify on income. 

   –     As of now, 3% out of pocket and 6% from the seller as seller concession.  As of 1/01/09, the new down payment change will be effective.

   –     FHA Cash out loans to 95% of the appraised value.  FHA jumbo cash outs to 85% LTV.

   –     Non occupant co borrowers on both purchases or refinances are allowed.  A non occupying co borrower has to be a relative though. And you can’t use the better credit score or the credit of the co-borrower. Their credit is still a factor though. The primary concept here is to use their income to help you qualify.

   –     Bankruptcies - A Chapter 13 needs to be 1 year old and a Chapter 7 needs to be 2 years old. On conventional loans, it’s 4 years old.

Overall, these are just some of the basics. In many cases, FHA loans are the way to go, no matter what the nay sayer says. Yes, mortgage money is still out there. Lenders are still making loans and lending money.  Those that are usually having trouble after they told you yes, theycould do the loab, are those that really don’t know what they are doing. They were just trying to get a deal in the doors and in many cases, hoping that it sticks on the wall. The real professional doesn’t have time to hope, but a real professional loan officer knows it will work, because of their expertise and knowledge.

Finding Solutions to your DREAMS

- FHA Loans - FHA Mortgages - Conventional Loans - VA Loans -

Experience & Knowledge at its BEST !!!