FHA Loans- Affordability Solutions for First Time Homebuyers

“FHA” and “First Time Homebuyers” are real buzzwords as far as home buying is concerned…especially when those terms are used in combination. Many readers I’m sure have heard the “FHA loans
are great for first time homebuyers” street talk, but without detailed, supporting information as to why.

The intent of this article is to quantify the features of the FHA loan, both good and bad, and discuss the circumstances under which it’s a beneficial program to the homebuyer (either first, second, or third time homebuyer).

First, FHA stands for Federal Housing Authority, and though the phrase “FHA loan” implies otherwise, the FHA does not lend money. Rather, the FHA insures the loan. The money still comes from the
lender selected by the borrower, but the FHA now provides an insurance policy to protect the lender in the event of borrower default. With this insurance, the lender has less risk, and so guidelines are less restrictive than with conventional financing.

The reader should be aware that FHA is completely different from Fannie Mae and Freddie Mac (otherwise known as GSEs, or “Government Sponsored Entities”). There has been a lot of buzz
recently about Fannie and Freddie, but these entities, and the associated loans, are completely different than the FHA.

Recent events in the credit markets have made the FHA loan a true affordability solution for buyers. In fact, it is this author’s opinion that without the availability of the FHA loan, there would be very few people buying houses these days.

In mid-December of last year, a report began circulating amongst all the direct lenders citing “counties of declining market value” throughout the country. This report placed counties in one of 3 categories:

1) par (little or no depreciation in home
values),

2) soft (significant depreciation)

3) distressed
(extreme depreciation). Since that time, the report, and the
consequence to lending guidelines, has been revised and updated.

Where things currently stand is that lenders mandate a 5% LTV reduction for soft market, and a 10% LTV reduction for distressed markets. LTV stands for “loan-to-value”, and refers to the
maximum amount of financing (as a ratio to the sales price) the lender will allow. So, for example, if a loan program in a “par” market allowed 90% financing, that same loan program in a distressed market would only allow 80% financing.

Since most counties in major metropolitan areas are on this list, hefty down payment requirements are placed on borrowers purchasing homes in these areas. On average, this means 10% down payment requirements in par markets, 15% down payment requirements in soft markets, and 20% down payment requirements in distressed markets.

But this is where FHA loans provide a saving grace. FHA loans are not subject to this “LTV reduction”. Rather, it is only the non-government loan programs (ie Fannie Mae and Freddie Mac)
subject to this constraint. Further, FHA loans allow up to 97.75% LTV (so 2.25% down payment). On a $450,000 home in a soft market, this means the borrower only has to put down $10,125 instead of
$67,500 on a non-government loan.

The other major benefit of the FHA program is the reduced credit requirements. Whereas non-government loans require credit scores of 700+, the FHA loan accepts credit scores as low as 640.

Is there a catch to all this? Somewhat. The FHA loan carries a mandatory Mortgage Insurance Premium of 1.5% of the loan amount that must be paid at settlement; on a $400,000 loan, 1.5% would
be $6,000. This will change to 1.25-2.25%, depending on the borrower’s financial strength, when the new FHA guidelines are released July 14, 2008.

However, even with the 1.5% Mortgage Insurance Premium, the total “down payment” required from the buyer (2.25% + 1.5%= 3.75%) is less than with a non-government program (10% in a best case
scenario). True, the additional 1.5% fee is not going towards equity, like a down payment, but the total out-pocket expense is still less.

Another “catch” to the FHA loan is that, assuming the borrower does the 97.75% financing (or at least anything above 78%), the borrower will have to pay Monthly Mortgage Insurance (MMI). MMI
is similar to PMI (Private Mortgage Insurance on non-government loans). However, the MMI payment of 0.50% of the loan amount is slightly less than a PMI payment would be for the same loan amount.

But is MMI or PMI really a bad thing? Before January 2007 it was, since it was not tax deductible. But as of January 1, 2007, following the “Tax Relief and Health Care Act of 2006” which President Bush signed into law, mortgage insurance premiums are now tax deductible. Before this time, buyers wanting financing in excess of 80% got a second mortgage to avoid MMI or PMI (and 2nd mortgages, when used for a purchase, are tax deductible). But with the new tax law, the mortgage insurance premium carries the same tax benefit as a second mortgage. Thus MMI can be thought of as a “second mortgage”.

And lastly, another “catch” to the FHA loans is they do take slightly longer to process. The reason is that there is more paperwork, steps, and procedures for the lender to go through then with non-government programs. In total, this means about 10 extra calendar days to the process, so 35-40 days instead of the usual 25-30. What I tell homebuyers making an offer on a home and planning to use FHA financing is to simply request a 40-45 day escrow instead of the usual 30. In this market, with sellers eager to sell, this is never a problem.

And those are the “catches” to the FHA loan, but minor if not insignificant in this author’s opinion. Truly, the only real thorn in the “FHA rose” is the 1.5% Mortgage Insurance Premium. And for borrowers that have the assets to afford a 15%+ down payment, I tell them to use conventional financing, so they can avoid this Mortgage Insurance Premium (and also qualify for a better rate with the larger down payment).

Speaking of rate, the reader may be envisioning a monster rate for the FHA loan. But the rates are in fact quite modest. As of mid-may, wholesale rates on an FHA loan with 97.75% financing
(2.25% down) were about 6.00%, compared with 5.625% on a conventional loan with 80% financing.

Thus, with the 15-20% down payment requirements of conventional loans for houses in “areas of declining market value”, FHA loans are a great resource for home buyers unable to afford these large
down payments. And since the FHA loan limit has been raised as high as $729,750 in some areas, the applicability is even broader. Yes, there are a few “catches” to the FHA loan, but overall the pros outweigh the cons for the borrower with limited assets.

Jared Martin is President and CEO of GOTeHomeLoans, Inc., an
Upfront Mortgage Broker Firm serving CA, DC, MD, VA, and PA.
Questions and comments can be emailed to Jared at jaredm@gotehomeloans.com http://www.gotehomeloans.com/

There’s something about spring that leads us all to want to make a fresh start. Spring cleaning is far more than just a part of almost everyone’s vocabulary; spring cleaning is a great way for you to take a much closer look at what you have, what you need and don’t need, and to make sure that your home is a healthy home.

Cleaning your home when a healthy home is your goal - is about far more than just going through the kids’ rooms and getting rid of clothes and toys that they have outgrown. Cleaning your home, ultimately, is about taking the time to thoroughly check your home for mold and for allergens; it’s about making an effort to ensure that your home is a healthy place for you and your family.

Rather than simply looking for the spring cleaning recommendations that will help you to get more organized - the spring cleaning recommendations that you can find in a wide variety of places - why not look for those tips that will help you to create a healthy home for you and your family? Rather than
focusing on simply getting things tidied up during your spring-cleaning, why not focus on those deep cleaning processes that will ensure that your home is a place where you can be healthy and not a place that may potentially make you sick?

When you take advantage of the following spring-cleaning recommendations, you can be sure that you are making your home a healthy home:

1. Wear protective equipment when you are focused on intensive spring-cleaning. When you know that you could be exposed to mold, pollen, dust mites and allergens, it’s important to wear a mask
or respirator so that you won’t be breathing in harmful particulates. Wear gloves when there is a risk of coming in contact with molds and rust as well as harsh cleaners that you will be using. Consider wearing safety glasses if necessary as well.

2. If you will be using a wet-dry vacuum, be sure that you take it outside for a thorough cleaning before use. Open the wet-dry vacuum outside in the event that water was left in the unit the
last time that it was used; that way you will be able to know that you are not spreading mold when you vacuum. Start too with a fresh bag - the best bag that you can buy for your vacuum.

3. Remember that outdoor spring cleaning is important as well; check the gutters and downspouts of your home to ensure that there are not holes that could create leaks and check for holes
around the foundation; if you find them, repair them and, if possible trap rodents or exterminate insects that could be causing damage to your home.

4. Check external walls around your home for mold and pay careful attention to the insides of closets where there may be a lack of insulation along with a lack of air circulation. If you discover that there is mold in the closets, you are going to want to remove any clothing that has come in contact with mold to clean it thoroughly; if mold is growing on the clothing, it should be discarded. Consider installing a transom to increase air circulation or a dehumidifier to reduce moisture.

5. Check all of the plumbing in your home. Leaks can create the potential for mold growth in your cabinets, so be sure that you are looking for signs of water damage that may have dried as well
as current wetness.

6. Check the air vents within your home to ensure that there is nothing obstructing the flow of air. Remove the grates, and clean behind them; check for rust or anything else that could create
health risks.

In addition to the value of these spring cleaning recommendations when it comes to ensuring that you have a healthy home, you will find that these spring cleaning tips will give you the opportunity to start thinking about those parts of your home that are often neglected.

Ultimately, these same areas that deserve close attention while conducting your spring-cleaning activities are areas in which home inspectors would discover problems in a home; by focusing on
them during your spring-cleaning, you can be sure that your home is a good, healthy place to spend your time.

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Thomas Ray operates ENView Inspections, based in Fairfax, Virginia. ENView Inspections serves Baltimore-Washington area residential and commercial clients. They provide key indoor
environmental inspection and testing services to help their clients meet the challenges of indoor air quality management. To learn more, you can give them a call at 703-910-0912, or visit the ENView website at: http://www.enviewonline.com

Many home based business owners, while passionate about the product they market, still struggle to increase sales, grow their downlines and find the right work-life balance in their lives.

According to the internationally recognized, direct sales expert and motivational speaker Pat Pearson, these seven success secrets can make the difference between a home-based business floundering
and flourishing:

1. Motivation - What keeps you motivated? Motivation represents a delicate balance between the push of discomfort and the pull of hope. Too much of either can be discouraging, so find the balance
that works for you.

2. Overcoming Challenges - Overcoming adversity in business requires resilience-the ability to bounce back quickly. How can you do this? First, decide to change. Second, commit to doing things differently. Third, honor your process as you deal with the challenge. Lastly, learn from your struggles and note what you can do better next time.

3. Stop the Self-Sabotage - Most of us say we want greater success, better health or more loving relationships, but our unconscious limiting beliefs keep us from having those very things. In essence, we “snatch defeat from the jaws of victory.” Learn the skills to eliminate these self-defeating
barriers.

4. Think Abundantly - Quite simply, this means changing your focus from scarcity to abundance by aiming your thoughts toward what you want rather than on what you don’t want. Then, expect
that the desired results will be yours.

5. Self-Esteem and Self-Confidence - Self-esteem is unconditional loving and appreciation of yourself for who you are, for “being” you. Self-confidence is conditional acknowledgment for performing, for “doing” something well, such as earning a sales bonus. Both are required to feel that you deserve the very best.

6. Work Smarter, Not Harder - You’ve no doubt heard this one before, and for good reason. We can all learn to do better in less time. The secret to working smarter is to do what you love and are good at, and then delegate the rest. Remember to break large goals down into small bites…and have fun!

7. Recruiting Magic - Gain an understanding of the four cycles of change-Go For It, Doldrums, Cocooning, Getting Ready-and how they affect your ability to recruit. Also consider, what is the gift your business has given you? Your efforts will be most effective when you start with gratitude and approach recruitment as a gift that you are offering to someone else.

Whether your business is skin care, nutrition or fashion, these insider tips are sure to bring you all the success you can handle-if you follow them!

MSSW is an internationally known author and motivational speaker with a passion for inspiring individuals to claim their own personal excellence. A clinical therapist for over 30 years, Pat has given more than 6,000 talks and seminars worldwide and has spoken to over 250,000 direct selling professionals and has worked with more than 300 companies in the U.S. More information on Pat Pearson’s approach can be found at: http://www.PatPearson.com