Tag Archives: fha loan

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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What Is Principal Mortgage Insurance

Here is the thing you are basically forced to buy and pay for private mortgage insurance or PMI or principal mortgage insurance with the condition that you put down less than 20 percent on your home. It gives your financial institution an opportunity to recover its losses in case you face a dilemma at the time of repayment.  At the time of the boom years, majority of home buyers did not even bother with it since there were loans with 100% financing well those days are over now.  Not to mention as of now in 2013 FHA loans the mortgage insurance is for the life of the loan since FHA took so many losses.

The guidelines for private mortgage insurance on conventional loans usually allow you to request it be cancelled at the time of the balance of your mortgage when equals 80 percent of your house value.  Now this is not automatic and you will have to request an appraisal to verify the value but it can be done.  In case if you only put 10 percent down and your house values has dipped a bit or more than it make take some time in achieving the 80 percent mark. Nevertheless, simply because the values of your place has decreased, it doesn’t suggest you can’t get rid of PMI within a short time frame.   You can always make extra payments to the principal to help pay down your mortgage as well.  Fact of the matter is that you don’t qualify for automatic private mortgage insurance revocation until the mortgage balance reaches the figure of less than 80 percent loan to value.

The problem is that usually the insurance is a few hundred a month so that is an extra expense that does the home owner no good other than allowing him to get the home loan.  One option that a buyer may have is paying an upfront mortgage insurance that can run about 2 % of the loan amount.  But that is a one time fee and its paid at the time of purchase usually reserved for good borrowers.  So for example on a 200k loan that may be 4k upfront but it can sometimes be financed into the loan BUT REMEMBER NO MONTHLY INSURANCE PAYMENT.  But same scenario for example on a FHA loan you have to pay 1.75 % upfront and then 1.30 % monthly.  So on a FHA loan that is $3,500. up front and then every month $216.67 EVERY MONTH.   But again every scenario is different and the conventional is usually at least 5% down payment vs. the 3.5% down payment.

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Buying A House After A Foreclosure

Just about everyone at this time has been touched by the mortgage collapse and it would be hard to find anybody which did not know somebody which had to go through a foreclosure or a short sale on their house.You may have recieved something either in the mail or left on your door stating how its better to do a short sale instead of a foreclosure .
It is very possible to get a loan right after your short sale if your bank allowed you to do a short sale without missing any payments. Getting the approval on the short sale sometimes can be kind of tricky, usually the bank wants you to not make the payment before they will even consider allowing you to do a short sale.
If you did miss mortgage payments in doing a short sale you will have to wait at least 3 years before you can get an FHA loan, now thats 3 years from the date of the short sale not from the date you started to fall behind.  Sometimes losing your home through a foreclosure or a short sale does not make a difference in regards to how fast you can buy a home again if you are going through a FHA loan although it will in a conventional you will have to wait 7 years if you were foreclosed on.   So after those 3 years expire you can put down payment on a home using an FHA loan with merely 3.5% like everyone else trying to get a home loan.
When looking at other loans that are not FHA loans there are some differences. loan, and getting a regular loan.  Currently Freddie Mac and Fannnie Mae are the two biggest investors at this time.  These two big govt. sponsored corporations are buying the majority of the loans that the banks are doing.From the date of closing your short sale your waiting period is only 2 years to get another home loan.  But please keep in mind if you are on another loan whether it is investment property or you co-signed on it, there can be no mortgage lates within the 12 months of the application.  That is a big difference when it comes to getting back into the market.  Credit is also going to be a determing factor.

Homes are much less now than they were 3-5 years ago and more than likely there will not be any dramatic price increases in the next 2-3 years.   In closing if you find yourself in a position of possibly having to do a short sale it could actually be a blessing in disguise.  If you are struggling to make those payments on a house that is only worth its value in today’s market. 

Focus on rebuilding your credit and saving money as much as you can during the short sale process.  Some short sales can last as long as a year, so that is an entire of not making any mortgage payments.  So save, save, save and you could possibly have another home just as nice as the home you had to walk away from and with only have the mortgage payment.

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Can You Have Two FHA Loans ?

Lizzie asks…

If I move and rent out my home under a VA loan, can I buy a house at my new location with an FHA loan?

I purchased a home in summer 2010 using a VA home loan. I expect to be PCS’d (Permanent Change of Station) in 2013. Due to the market, I doubt I can sell my home after only 3 years, but would still like to own my home at my next duty station. I would like to rent our current home after we leave. Because we are just starting out I won’t be able to build up my savings to afford 20% down, so I have been looking at my options. Can I purchase my next home using the FHA program and not have the VA or the FHA people sending me letters?
My credit is currently around 760.

We would have time to put renters in our house before purchasing another. And either way, we will effectively have 2-payments, whether we are renting at our new location or purchasing at our new location. I dont see being able to even break even on our current home yet and therefore we cannot sell it before moving.
Also, our household’s current income is around $7000 before taxes not including any rental income.
Thank you for the insight rswpbc.

admin answers:

Yes you can as long as you qualify with both payments. Since you have no history of being a landlord they may or may not let you offset the payment with rent, and if they do it will only be 75% of the rental income.  Will be the max you will be credited but more than likely even if  you are positive in the rent you will not be given enough credit to offset the mortgage payment.  If the other home does not have at least 30% equity you will need to qualify with both mortgage payments.

To correct other posts…only under very few conditions may you have 2 FHA loans at once. But for the most part the you can only have one FHA loan at a time.  FHA is 3.5% down, not 3%. Also keep in mind that this year the PMI factor is going up and from now on the PMI on a loan is for the life of the loan vs. only 5 years due the the FHA being in the red.

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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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