Tag Archives: conventional loan

What If The Value Of The House On The Appraisal Is Lower Than The Sales Price ?

Unless you plan on buying a home in CASH and just love it to death.  More than likely you are getting a loan.   It does not matter if you are getting a first time home buyer loan or a loan for investment property.  You will have to get an appraisal, there is no whats or buts.  Normally this is the cost that the buyer will have to bear, and if it has been some time since you have bought a home lets say in the last 3-5 years you will find that the appraisals are a bit more expensive now.   Usually you can look to paying somewhere between $450.00 – $500.00 for an appraisal.

But anyways you will have to get an appraisal, part of getting an appraisal is really for your protection as well as the bank.   The appraiser will not only write up a report on what they think the value of the home you are planning to buy but also to see that there are no safety issues with the home.  For example that it is up to code and the roof is not falling apart, and in California that there is a working smoke detector as well as a carbon monoxide detector.

So lets say the home is for sale for $300k but the appraisal comes in at $280k.  The a couple of things has to happen.  Because even though you may be approved for a $300k loan the bank will only lend up to the appraised value.   So that means if you really want the house you will have to put up an additional $20k along with the down payment you were already going to put down.

Or your agent will send in usually an addendum to reduce the home to the appraised value.  This does not mean that it will automatically be reduced the seller will still have to agree to it.  The seller can say no way this is what I want and put back on the market if you do not agree to it.  Or you can go back to negotiations maybe meet halfway.

Something to just to keep in mind that if you were getting a FHA loan that the value on that home sticks with for 120 days or 4 months basically.  Does not matter what bank you go to when you get an FHA loan it is assigned a case number.  Now if you were getting a conventional and you really think the house is worth more you can try a different lender.  If you were using a broker he will just try a different source if you were using a bank you may have to start the process all over again at a different bank.  The file does not carry over when doing a conventional loan.

 

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Are You Planning On Getting An FHA Loan What You Need To Know

 

David asks…

Does anyone know of any upcoming FHA guideline changes?

I am suppose to be getting FHA. Just worried cause there is so many things going on with the market that in a few weeks it may be impossible to get a loan.

admin answers:

One of the major changes that FHA has done in recent years is the change in how the principal mortgage insurance ( PMI) now works when getting a home loan.  As of June of last year 2013 if you were getting a FHA home loan and were planning only putting down the required 3.5%.  The PMI would be for the life of the loan.  This is a huge difference since it use to be that after 5 years the premium that you were paying for the insurance would go away.

Now if you do plan on putting down more at least 10% then the PMI will only be active for 11 years.  That is assuming that you are doing a 30 year mortgage.   PMI is basically insurance that the Federal Housing Administration  (FHA) charges you the consumer if you want this home loan, hence the term FHA loan.  It really give you no benefit other than being able to get the home loan.   It is really for the banks, in case you do not pay on your mortgage and they have to foreclose on you.   FHA will step in and cover any losses the bank suffer due to the foreclosure.   PMI is calculated based off of your loan amount.  There is a 1.75 % upfront cost that can be financed and then there is the annual fee of 1.35% that is divided by 12.   So for example on a $200k loan the upfront cost would be $3,500.00, and the monthly premium added to your mortgage payment would be $225.00

You can try to avoid paying PMI by trying to qualify for a conventional loan some loans allow you to avoid the monthly PMI with as little as 5%.  As long as you qualify for a conventional loan based off of credit etc.

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Should You Get A FHA Loan Or A Conventional Loan ?

Robert asks…

Is FHA worth it now for the house I want or should I wait and get conventional?

I can afford both. If I go with FHA I still want to put down 15%+ to keep the payment lower. But if I went conventional I’d go 20% down but my DTI comes into play which is where I’m on the cusp of not getting approved via conventional because of my DTI.

admin answers:

I think that you should definitely consider the conventional loan. If you make a 20% down payment, then you will not need mortgage insurance.

A FHA loan will include both upfront mortgage insurance as well as monthly mortgage insurance payments. In addition FHA premiums are set to increase in April 2013. (Cancellation policy will change in June 2013).

It is not clear why you would qualify for a FHA loan (with Mortgage Insurance payments) and not qualify for a conventional loan. The DTI requirements for a FHA loan are 31% (upfront DTI which includes all housing related expenses) and 43% for the total DTI. Conventional loans are available up to 45%,

No matter which loan you choose, make sure that you have sufficient capital reserves and emergency savings funds. Also, I recommend that you don’t max out on your DTI. Make sure that you take care of your other debt payments.

I recommend that you shop around. Check out mortgage rates at Bills.com: http://www.bills.com/mortgage-rates/ and then get a quote for different types of loans. Ask the lender for a pre-approval, based on documents which prove your income and credit.  But there is no reason why you would not qualify for a conventional if you qualify for an FHA just because of the PMI not being an issue.  Another thing to think about is that the PMI on a FHA loans is for the life of the loan now so if you can put down 20% why wouldn’t you?

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