FHA Loans and FHA Mortgages

 IT’s still a great time to purchase a home or to refinance !!!!

Lenders still have money to lend. WARNING… WARNING…. buyers can still buy with little money out of pocket, all thanks to FHA mortgages.

There has been a lot of doom and gloom out there in recent months. It’s not even the media that is spreading the negative news. Realtors, loan officers, and even many of the consumers are telling others that there is no money to be lent. If not, many are asking questions if there is any money to lend.

With all the news mentioned above, not once have I heard that there are some lenders still lending money. And it’s really not that hard. You still don’t need stellar credit. In regards to FHA loans, you can still have a FICO score of 550 or higher, as long as the credit meets FHA standards. And even if you don’t, if you are working with a mortgage professional or a FHA loan officerthat is very knowledgeable, then he/she could have you buying in less than a year.

FHA Loans and FHA Mortgages have so many options to offer, making it very easy to purchase a home or to refinance your current mortgage. Many loan officers just don’t know the basics or the type of FHA loan programs that are out there. Part of the reason why was because in the past, it was easier for them to do a subprime mortgage. And in some cases, it didn’t take a rocket scientist to input your info into a system to get a conventional approval. Even if someone approved you for a conventional loan now, instead of a FHA loan, you might not be getting the best deal. Even if you have 5% or 10% down. Here is the proof… the proof is in the numbers.

So, what can still be done with FHA mortgages?  Here are a few details…..

    –  You can still buy a home with 3% out of pocket. But this will change as of January 1, 2009. You will need 3.5% down. But it’s still the cheapest way to get into a home.  Please read this for the new FHA down payment guidelines. >> FHA down payment

–  You can still do a FHA refinance up to 97.75% of the value of your home. And you can still include closing costs in the new loan. When it comes to a conventional loan, you need 10% equity.

–  You can do a FHA cash-out up to 95% of the value of your property. Most conventional loans will only allow you to go up to 85% ltv.

–  You can still use a co-signor to purchase or to refinance your home. This is called a non-occupant co-borrower.

–  As mentioned, I can still go down to 550 credit scores. Most lenders can only go down to 580. And depending on your deal, there have been cases to where I can still go down to 500.

Overall, this has been one of the best times to buy a home since 2003.  Why?  Home values are down and interest rates are still in the high 5’s to mid 6’s. And these programs mentioned are not just for first time homebuyers. You need to understand what can be done with FHA loans, and you need a trusted professional to help you with this.  Please read more on FHA loans aren’t just for first time homebuyers.  One word of advice… I don’t have a crystal ball, but don’t wait if you can buy, hoping that home values will come down even more. Or thinking that rates will come down more, since we are in an election period. To the contrary, mortgage interest rates have actually gone up in the last few days, even though the FED rate was lowered.

- FHA Loans  - Conventional Loans - VA Loans -

Experience & Knowledge at its BEST !!!

Today, the Federal Reserve and other central banks globally cut their funds rate a 1/2 percent.  The decision today reduced the Fed’s benchmark to 1.5 percent and lowered its discount rate by the same amount to 1.75 percent. This was in fear of global market turmoil and trying to stimulate the U.S. economy.  Because of this move, the stock market moved in a positive manner, up slightly this morning. It gained 100 points early this morning, but not has lost 196 points as of 12:20 pm EST.

The Fed’s Open Market Committee voted unanimously for today’s move, said in a statement, “incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial-market turmoil is likely to exert additional restraint on spending.”

 WARNING…. WARNING…… WARNING…..

This is not to say that mortgage interest rates have dropped. Sometimes in the past, mortgage interest rates did become lower in weeks after the Fed drop. There have been times when rates went up. There are many variables for these two factors to take place. Sometimes rates were lowered previously to the Fed lowering the discount rate.  The issue here is that its extremely hard now to predict where rates would go. Even by those that call themselves experts, it’s a flip of a coin. If correct, they are geniuses, if not, they are failures. Keep in mind, they have a 50% chance to be a genius.

The discount rate is for short term lending. The mortgage interest rates are when it comes to financing your property are considered long term rates. 

Overall, there is no true indicator to how rates will rise or fall anymore. It was a safe rule of thumb to say when the stock prices fell, the bond market became better in which mortgage rates became better. The indicator to watch for this is the 10 year bond.  At close of business yesterday, the 10 yr bond closed at a yield of 3.59. At 12;28 pm EST today, the 10 yr yield is now 3.67. This increase usually means that mortgage interest rates will go up.

A few topics of conversation and key points……

  – It’s been said that the short term rate reduction is a good thing, but for long term, it probably won’t have a giant effect.

  – This will not help the real estate market out of its troubles, but it should help the financial sector.

  – What the authorities are trying to do is to stabilize the current situation in the credit and money markets.

  – A reason for the Fed Rate cuts is seen as inflationary and inflation is not good for mortgage rates.

  – The bottom line, this news from our government is just trying to instill consumer confidence.

There is a lot more detail that I could give you, but you need to have a simple understanding to when you hear that the Feds lowered interest rates or that the Feds cut rates, it doesn’t mean that mortgage interest rates went down also.  I just wanted to make this simple to understand.

The definitions below are from Bloomberg News. 

Federal Open Market Comiittee - 
The body that is responsible for setting the interest rates and credit policies of the Federal Reserve System.

The Feds Fund Rate -
The interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. The Fed funds rate, as it is called, often points to the direction of US interest rates. The most sensitive indicator of the direction of interest rates, since it is set daily by the market, unlike the prime rate and the discount rate.

The Discount Rate - 
The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is temporarily short of funds. Collateral is necessary to borrow, and such borrowing is quite limited because the Fed views it as a privilege to be used to meet short-term liquidity needs, and not a device to increase earnings. In context of NPV or PV calculations, the discount rate is the annual percentage applied. In the context of project financing, the discount rate is often the all-in interest rate or the interest rate plus margin. 

Mortgage Back Securities (MBA’s) 
Securities backed by a pool of mortgageloans.

WARNING…. WARNING…. WARNING……  As I have been writing this, it’s now 1:30 pm EST, and the stock market has only lost 80 pts now, yet the 10 yr yield as now risen to 3.82. That is an increase of .23 since the close of business yesterday. For mortgage rates, that is not a good sign. And as this went on, we just received a interest rate freeze from our investors, which means that mortgage interest rates will become higher later today. As you can see, it will be a yo-yo for the next few months, just as it has been for the last several months. One other key factor to the rise and fall of mortgage interest rates are the MBA’s. Mortgage Backed Securities. Again, this could get confusing, so I will leave this alone for now.

****Don’t play with the float / lock game unless you are speaking to a true mortgage professional.

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

Experience & Knowledge at its BEST !!!

In obtaining a FHA loan might be a tad more challenging now, more than ever. Now with a slightly larger downpayment and the possibility of downpayment assistance programs being delayed or not coming back, the average consumer will just need to be a little more patient. Hence the reason why they will need the services of a mortgage professional more than ever, and just not an order taker.

So, what has changed and will take place next year? FHA Mortgagee Letter 2008-23 - The fact that you will need 3.5% of your own money as a downpayment. 100% of this can still be from a gift, which can still come from several different sources. But none of that 3.5% will be applied to your closing costs as if did in the past.

The effective date for all FHA mortgages on the new downpayment will be January 1, 2009. Now, this is for purchases only. We will still be using the old method for all refinances in regards to FHA loans. The one difference being that you could not exceed the appraised value when for all loans when adding the UFMIP.(upfront mortgage insurance premium)

Some extra changes or non-changes :

  –  Sellers assistance is still permitted up to 6% seller concessions. This 6% is calculated off of the sales price.

  –  As mentioned, closing costs may not be used to help meet the minimum 3.5% downpayment requirement.

  –  On all FHA loans, no matter if it’s a purchase or refinance, the total first mortgage with UFMIP can’t exceed the appraised value.

  –  In regards to the combined loan-to-value (CLTV). If government subordinate liens are involved, the combination of the 1st mortgage and any other lien can exceed 100%. This has always been the same, previous to this new mortgagee letter.

  –  The effective date for the 3.5% change is for all FHA loans with FHA case numbers that are assigned on or after January 1, 2009.

FYI Section - For any of you reading this that have been talking to another loan officer and it takes more than a day to get an answer about anything?  I would start to seek a true mortgage professional. Especially one that understands most guidelines when it comes to FHA mortgages. I am seeing more and more bad advice or misleading information being passed out by loan officers. This could cost you money down the road, no matter how you look at it.

For your FHA mortgage needs, please don’t hesitate to contact me.

FHA Loan changes for 2008 - 2009

   Part 1 - Down Payment Assistance Programs

   Part 2 - Upfront Mortgage Insurance Premiums

   Part 3 - Down payment and Maximum Mortgage Requirements

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

Experience & Knowledge at its BEST !!!