FHA Loans and FHA Mortgages

If you are a consumer looking to purchase or refinance, this is a must read. It could cost you thousands if you don’t pay attention. This is not a threat, but a warning from someone that has almost 16 years of experience in the mortgage industry.

When shopping for a mortgage, no matter if you plan on using the person that you first spoke to, or you have spoken to 3 different lenders, you want to get a good faith estimate from everyone that you speak to. You also

So, you need to understand how to read a Good Faith Estimates and not just what the loan officer tells you. There are many things to look at, but the two main things are the interest rate and the lender’s fees. Just don’t go to the bottom of the good faith estimate and compare the total costs. Why? I explain a lot of that in this post : Good Faith Estimates - FHA loans or conventional loans – A true understandingOne main reason not to compare total costs and use this as one of your major decisions is because the title insurance fees are just an estimate in which they vary. And another reason is because some loan officers don’t properly estimate your property taxes, which would be a part of your escrows.

 

So, here is my pet peeve.  This is a major red flag…..  if you speak to a loan officer and when you get off the phone with them or leave their office, and they didn’t offer you a good faith estimate…. Run Away !!!

Let me ask you this. If you are shopping for a car, don’t you want to see your payment, interest rate, and total costs?  I certainly do. Do you know how many people that I qualify on a weekly basis that never received a good faith estimate from the loan officer that they spoke to?  At least 1 out of 3. Sometimes two out of 3.  My clients never have to ask for one before we are done talking.

Overall, it doesn’t matter if you are applying for a FHA loan, a conventional loan, or any other type of mortgage.  And my biggest complaint?  If they pre-qualified you or pre-approved you, the numbers are already in their system then. Meaning, that it wouldn’t take more than 3 minutes to either print it out for you or to e-mail it to you.

 

Summary :  If you don’t get a Good Faith Estimate once the loan officer pre-qualifies you over the phone or in person within the first 24 hours, don’t go with that lender. In all honesty, it doesn’t take more than 10 to 15 minutes once I pre-qualify you. If the loan officer pulls your credit,asked income questions, and told you your monthly payment, the good faith estimate is already in the system.  There is NO EXCUSE then.  Any excuses other than the loan officer died in a plane crash is not acceptable. I am very serious about this. Unless you like games at the end of your closing, why trust this loan officer. The loan officer usually has a reason if they don’t share a good faith estimate with you. I am pre-warning you. Don’t be a shopper that shops themselves right out of the market.  I basically want my clients to be educated and not in the dark.  To alleviate this issue, make sure that you speak to a mortgage professional, not an order taker.   PS….. Make sure that you get these good faithe estimates on the same day. The market somestimes moves to much in one or in a few days, that you might pick the wrong lender because of it.  Knowledge in this area is King.

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Nehemiah programs are just one form of a down payment assistance program. You can use these in conjunction with FHA loans. There are other down payment assistance programs such as AmeriDream, Genesis, and a few others.

Lately I have been reading a few blogs that state that these down payment assistance programs are like laundering money. Okay….  I’ll talk about this in a few. Other blogs have talked about how bad the Nehemiah program in itself is bad. The reason why is because it’s more expensive than other DPA programs. Okay?  I’ll talk about this soon.

 

So, what about those that say these DPA’s are like money laundering. Well, HUD says that you, the borrower, can get 100% of your monies gifted to you. These gifts can come from a family member or a non-profit organization. Okay, sounds good. Believe it or not, the DPA companies are non-profit. So, why is it labeled as illegal? Someone’s opinion? One argument that I have heard is that these non-profit companies are making money off of the borrower. A small measly $500?  Then Mr. Borrower, save the money to put down on the house. Me?  I think it’s a great program if used correctly.

Which gets us to the second part, that the Nehemiah program is more expensive than AmeriDream, Genesis, and a few others. Okay?  What, an extra $100 to $200?  I have had much success with Nehemiah and I have learned in life…."don’t fix it if it’s not broken".  Right?  Or do you take that risk for a $200 savings. Sure, some of you have had some success with the other programs. I just won’t risk it.

 

As it stands, the Down Payment Assistance programs have helped over 600,000 families since 1997. I will agree that some institutions have abused this type of program. Meaning that the appraisal of the property was sometimes in question, when the lender would try and push the value of the home, so it would include everything that the borrower would need for both down payment and closing costs. And then there are some that argue the reason why these DPA’s are being shut town because of tax implications.

Overall, I have my various opinions on these types of programs. There could be an argument made that a homebuyer with no sweat equity, has nothing to really lose in the whole transaction. And my bigger concern in regards to this is if properly set up, a homebuyer could realistically come to the closing table with no money out of pocket because of these DPA programs. And there have been many times to where that buyer won’t even have $500 saved up after closing. This leaves the homebuyer in a precarious position because no matter what kind of home that you are buying, new or old, things happen. There will be times when you will need money to fix the house or to buy a new appliance. 

On the flip side, these types of DPA loans have put many worthy buyers into homes that were very deserving. My job is not to pass judgment amongst any buyer. My job is to properly educate the homebuyer in their decisions and to make sure that I give them a respectable mortgage, to ensure that they understand the whole mortgage/home buying process.  

 

Knowing that this has not been resolved hurts a lot of us in the today’s industry. But we just have to keep moving along as business as usual, until a decision is rendered. For any of your mortgage needs, please make sure that you speak to a mortgage professional who is on top of these chain of events. Someone that not only knows their mortgage products, but who understands today’s market.

 

FYI -  These down payment assistance programs are not limited to first time homebuyers.  Nor do you need to qualify for them. Just as long as you are approved for a mortgage.

 

For more information, I wrote a more detailed blog on Nehemiah and how to get into a house with little or no monies.  You can use FHA Nehemiah and these other down payment assistance programs for both FHA mortgages and conventional loans.  Do you truly think that FHA/HUD would want to see these programs disappear?  No…

Creative FHA financing – No money out of pocket from the buyer!!! – Part 1

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FHA loans have been the choice of mortgages as of lately in many parts of the country for numerous reasons. What I do hate hearing is that they have taken the spot of the subprime loans. This is not true by any part of the imagination. This statement is from those that are inexperienced in both the mortgage industry and the real estate industry.

The subprime loan for many years could go down to a 500 credit score, as long as you had more money down. But your rate was usually higher. The better your score, the less you needed to put down, the lower your rate. Sounds good, right?  Wrong, because the subprime rate was always higher than the FHA rates.

To compound this, so many thought just because you had a conventional loan, that you had the better loan. This was not always true when putting zero percent down or 3 percent down. In most cases, you were told this, because that particular lender was not FHA approved. Now?  Even with 10% down and credit scores less than 680, FHA loans in most cases, will be the best mortgage for you.

 

Okay, you could argue the fact that this is just my opinion. True, even though I have almost 16 years of experience as a loan officer in the mortgage industry. But numbers don’t lie. Let me show you…..

The example below is based on a $300,000 purchase price with 10% down. One reason why conventional rates are a little higher in this scenario as in FHA rates is because Fannie Mae and Freddie Mac have added penalties per se. If you are putting down less than 30% and your credit score is less than 680, certain fee penalties would apply to you, which would increase your rate.  The FICO (credit score) that I am going to use is 659, which is above the average credit score and I will still show in this example that FHA loans are cheaper, even with 10% down.  

***And keep in mind, some lenders have penalties on FHA mortgages with credit scores under 620. It all comes down to the investor. We don’t have penalties on any credit score above 580. And I can still do credit scores down to 500 with a manual underwrite. Many lenders can’t go below 580.***

Type of Mortgage

Conventional Mortgage FHA Mortgage

Purchase Price $300,000 $300,000

Mortgage Amount w/ 10% down $270,000 $274,275 w/MIP

Mortgage Rate with zero points 6.625% 6.000%

Principal & Interest payment $1,729.73 $1,644.42

Monthly mortgage insurance $   117.00 $   111.97

Total mtg payment  PI with MI $1,846.73 $1,756.39

Monthly Savings   $90.34

 Disclaimer :  These rates are based on today’s rates for a 30 year mortgage and can change any time because of various market conditions. To compare this scenario apples to apples, the fees would are the same and with zero points. The conventional rate also includes the penalty for the 659 credit score.

Some of you might be saying that you will be adding $4,275 onto your principal balance if you did the FHA mortgage because of the FHA one-time mortgage insurance premium. This is correct and I don’t want to confuse you with more numbers and charts. But here is a quick breakdown. If you kept your house for 5 years, which most people sell in a 6 year period, you would have saved $5,420.50 in payments in 5 years. This is a difference of $1,145.50 that you have saved!!!   And one other thing that is very small, but still makes a difference. You will be subtracting a few more dollars per month from your principal because your interest is lower, which would offset the interest that you would write off on the 6.625% rate. Just something else to remember, but consult your tax consultant or CPA. 

 

FYI –  If you sold your house in less than 3 years, you are entitled to a refund of the upfront mortgage insurance premium (UFMIP) of $4,275.

 

How dto I find an FHA approved lender?    You want to make sure who you are dealing with is FHA approved.

Why do I say this?  Not all lenders are approved FHA and some may tell you that you don’t qualify FHA because in reality, they aren’t FHA approved. 

You can find a HUD approved lender in your area by going to the following HUD website: http://www.hud.gov/ll/code/llplcrit.html     DISCLOSURE (just be careful of the spelling of the lender. If I put in my company’s full name, Infinity Home Mortgage Company, Inc, it tells me that there is no such company. If I put in Infinity Home Mortgage, it shows my company as being FHA approved. Just keep this in mind. You can always call HUD also. (202) 708-1112

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