Guidelines for FHA Loans Tightening Up

January 25th, 2010, by admin

The Federal Housing Administration recently announced that they are implementing some new policy changes to their FHA lending guidelines. With the continual plan to still provide an affordable mortgage product, the FHA is confident and hopeful that these new changes should support the housing market recovery, strengthen the FHA’s capital reserves, and start eliminating the risk of defaults. These new  FHA proposed changes are probably the most major steps the agency has ever taken to address the risk factor.  Since banks began tightening their lending guidelines and the sub-prime lending market disappeared, the demand for government insured mortgages greatly increased.

Financing with an FHA home loan has risen with considerable popularity, for it is one of the few ways a person can still purchase a home with very little out of pocket expense.
There are numerous plus’ financing with an FHA mortgage: the FHA loan is federally guaranteed if the borrower defaults, only 3.5% is needed as a down payment, and credit scores can be lower.

The FHA program still remains the largest originator of home financing products for under served communities, but obtaining an FHA is about to become a little more expensive and difficult. Due to the fact that the FHA has been faced with losses because of a weak housing market, the Federal Housing Administration will be making three (3) major changes.

Increasing the up-front insurance premium (MIP) to equal 2.25% of the loan amount. This will be increased .50 basis points from the current premium of 1.75%. Thus allowing for the capital reserves to increase with less impact on the consumer because the annual MIP is paid over the life of the loan instead of up-front at the time of closing.

The next item to be adjusted will be the amount of seller concessions permitted. Currently, FHA allows for up to 6% sellers concessions (closing costs paid by the seller on behalf of the buyer). In keeping with current industry standards, the new allowable amount for seller concessions will be a maximum of 3% of the property’s assessed value.

The third change comes in the nature of credit scores. A new borrowers looking to purchase a home will need a credit score of 580 or higher to qualify for FHA’s 3.5% down payment. For those borrowers with less and a 580 credit score, the amount needed to put down will be a proposed increase of 10% of the purchase price. In reality, today, most lenders are already requiring at least 620 FICO score to quality for FHA’s 3.5% down payment. This credit score increase will allow the FHA to balance its risk factor and continue to provide mortgages to the borrowers that have performed well in the past.

To help protect the FHA and limit loan defaults, they will be increasing their monitoring and enforcing actions in hopes that lender’s are adhering to FHA standards. The Department of Housing and Urban Development (HUD) is also looking to pass legislation that would allow them to hold lenders directly accountable for the mortgage loans they have originated.

The new guidelines pertaining to FHA mortgage’s will begin this spring through the summer of 2010.

15 year versus 30 year mortgage

December 15th, 2009, by admin

When deciding what mortgage is best suited for yourself, understand that numerous factors come into play when deciding if you should finance with a 30 year or 15 year loan.

A 30 year loan will afford the homeowner lower monthly mortgage payments compared to the homeowner who has selected to finance with a 15 year loan.  For the homeowner who decides they want a 15 year term loan and can afford the payments, in a way, it is ‘forcing’ them to save extra money by in actuality paying it against the loan itself.  There really isn’t a concrete answer which is the best loan to finance with: 30 year or a 15 year.  The answer simply breaks down to the fundamental elements required for qualifying the borrower. What may work for one person may not be the best alternative for another.

So now we have answer the question of which mortgage term would work best for your individual financial goals. Everyone understands that mortgage rates can fluctuate daily, but the same model prevails. Financing with a 15 year term loan results in considerably less money paid out over the life of the loan because of the lower interest rate and the amortization period is much shorter. With a 30 year loan, the borrower will be paying a significantly higher total paid interest during the course of the loan. Because the amortization is now spread over a longer period, the monthly loan payment becomes much lower.

So which loan is the best for you? We will evaluate the dollars saved on interest over the different loan years: 30 vs 15. Let’s take a 30 year mortgage with a fixed rate of 4.875% for a loan amount of $125,000. The total monthly payment which incorporates the principal and interest comes to $672.90. Over the course of the 30 years, the borrower would be paying a total of $118,938. The same loan amount of $125,000 on a 15 year mortgage with a rate of 4.25% would come to a monthly principal and interest payment of $956.52 and the total interest paid on the loan over the 15 years now just becomes $48,840.

There are numerous contributing facts to analyze when selecting the right mortgage. Someone financing a mortgage needs to carefully examine their total monthly expenses to determine exactly how much they can afford to set aside for a mortgage payment.  When factoring in your total monthly housing expense, besides the mortgage payment, you have to factor in Real Estate Taxes,  Homeowner’s Insurance and an Association fee (if applicable).

It is not uncommon for people to have other monthly financial obligations such as: student loans, car loans or credit card debts. With the ever changing lending guidelines, lenders want to see a total debt to income (DTI) ratio of 45% to nothing higher than 55% (for FHA).

Now here is an interesting concept to examine. Let’s go back to the 30 year mortgage payment on the $125,000 loan with a monthly payment of $672.90 (P&I).  Rule of thumb is that one extra mortgage payment per year will reduce your mortgage by almost 7 years. So someone financing into a 30 year loan who now decides to pay an additional $56.00 a month can turn that year loan into a 23 year loan. Pay an additional $112.00 a month and bingo, you have just shaved off another 7 years and you will be mortgage free in 15 years.  Of course, you have to make sure you are disciplined enough to make the commitment monthly.

Is A Mortgage Broker My Best Choice?

December 13th, 2009, by admin

The time has come that you are now purchasing a new home and need a mortgage. Possibly, with mortgage rates at their historical lows, you decide that now is the perfect time to take advantage of refinancing to lock into a low interest rate and start saving money.

Maybe you would even like some cash in hand to make those much desired home improvements. Whatever your needs, you now have a decision to make; what is your next step and who do you call? On every street corner there are Banks advertising that they do mortgages. You have another option, and that is to pick up the phone a call a licensed mortgage broker.

Remember, you the consumer, always have choices. This is your home, your money and YOU and ONLY YOU are the one paying that monthly mortgage payment! No one borrower or loan will ever fall into the same ‘cookie cutter’ pattern.

There are many advantages having a reputable broker working for you. Once a broker has taken your personal information (credit, income, and job history) and what this mortgage is going to accomplish for yourself, they will search among many lenders for the best rates and terms that meet your specific financial requirements.  In today’s lender market, guidelines are different from two or even a year ago. Lenders are requiring clients to have higher credit scores, lower debt to income ratio’s, and full income documentation (W-2 income and pay stubs or 2 years self employment with Tax Returns).

Obtaining a mortgage is probably the biggest and most important financial decision you will make in your lifetime. There is absolutely no room for error’s to be made.  Nervous?  Don’t be. Although you might think going though the qualifying stage of finding the perfect mortgage for yourself can be a nerve racking process and if you have selected the right broker to work with. In actuality, the entire process should really be educational, informative and stress-free.  A good mortgage broker will always give you more personal attention than if you go through a large retail banking institution. It’s extremely important to be assured that your broker will always be available, patient enough to listen, and even address the minute questions you might have.

Mortgage rates fluctuate daily. The wise consumer is someone who will shop around for the best rate and program to fit their specific goal. When shopping among a couple of Broker’s, the best way to comparable shop is doing it on the same day. This is the most accurate way to see what the broker can deliver as far as the rate is concerned and what closing costs will be associated with the loan.  For example, if pricing out on a Monday and then calling another broker 2 weeks later – there could be a difference in rates you are quoted. This is due to current market conditions. Another thing to understand is that since no two borrowers are identical, sometimes, it’s not always about the rate.

You as the consumer need to do your homework when selecting the person you are entrusting to do your financing. Just as you are qualified from the Broker/Lender, you basically have to do your own qualifying of your broker to see if you feel comfortable with them, satisfied with the product they are delivering, and if you feel confident that they will be there for you 100% from start to finish. One also needs to understand, even with mortgage rates as low as they are right now, sometimes it’s not always about a rate.  Simply put, pricing is based on a borrower’s credit score and the loan to value of the property being financed. To answer the question, Is A Mortgage Broker My right Choice? Yes, I seriously believe it would be the best choice to make.