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/

?Homes in Every Market Place. Some over a million dollars, most well under $100,000. You have a supply of homes that will fit your requirements for size amenities and location. Your agent can place you in their VIP Buyer program and email you daily or weekly all new listings that come up and fit your criteria of bank foreclosure, distress sale, size, amenities, and location. What could be easier?

Pre-Approved Always as a buyer have your financing in line before you start your search. Some banks and government agencies will provide low cost, low down payment mortgages for owner occupants. You get the house cheap and the money to buy too. A great deal!

Find Your Home Your agents? emails will give you a listing detail of the home with photos and a locator map. Drive by check out the area, is this somewhere you would like to live and raise your family? If the area or subdivision is not what you want cross it off your list and tell your agent so he can adjust your criteria in the computerized home search. When you see an area you like make sure you agent knows and he?ll be all over that neighborhood looking for next home.

Make an Offer The listing price is usually set at close to market value, some listing agents try to impress the bank with higher than realistic pricing. With your Buyer agent doing some research (CMA) and tax records make an offer at your price. Don?t get caught up in the ?this is the only house for me? syndrome. Be ready to walk if the bank or its agent won?t make a deal. There are plenty of others to choose from.

Repairs and Renovations Some banks today are making repairs to properties before placing them on the market. This usually involves painting inside and outside, new heating and air, new water heater, new flooring, and maybe some new fixtures or appliances. You can still save money on this updated house because they have extra costs in the property and must sell it fast. Usually this is a property that the overall foreclosure costs was way less than the market price. Some people lose their $295,000 for not keeping current the $110,000 mortgage they have great equity to work with and get taken to the cleaners because they don’t work with the right agent.

Make Ready and Move In Maybe you have to do the repairs yourself you have just saved tens of thousands dollars. You have some equity to work with use a small home improvement loan or an equity line of credit or you may even be able to finance the repair in your new mortgage. You have a lot of options. And your agent can help you set it all up.

Bank Foreclosure - REOs are not just for investors, there are opportunities for some great deals for every home buyer in almost every area of the country. From $50,000 to $6,000,000+ you can find something that is right for you and have your real estate agent do most of the work.

Bill Carey with over 30 years in real estate sales, investments, and home building offers a unique perspective to the buying and selling process of residential real estate for F*R*E*E consumer information and reports log on to http://www.CharlotteNCExecutiveHomes.com and see
“Insider Real Estate Secrets Revealed”
…a must-read for Home-Owners and Renters!
It’s a F*R*E*E 12-lesson e-course covering more than 20 topics exposing the realities behind buying and selling a home.
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See http://www.BillCareyRealtor.com and sign up for our monthly e-newsletter with tips for buyers, sellers, home owners and soon to be home owners.

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Previously I covered how builders use a loophole in the system to sell you a home without using any of your own money. Now one question that seems to come up is if this is legal. The answer is yes. The big surprise here is that the money is added to the mortgage. This is the way of getting needed money to average folks by using gift funds.

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Let’s take a look at closing costs. Who is going to give you the money for this? Remember previously I stated the builder can contribute this. And what do you think the builder does to get his money back? You guessed it. That amount get’s rolled into the mortgage. So if the initial mortgage was $150,000 and you add the closing and down payment costs you are looking at really borrowing $159,750. How is his possible? Simple, the builder has to make sure that the home you are buying will at appraise for the amount you need to borrow.

The federal government watches the validity of appraisals and the frequency of foreclosures. Builders and lenders are very aware of this. When you do buy a home with zero down and you also roll the closing costs into the mortgage, you are most assuredly buying a home with dollar value.

I must caution you about crooked builders and greedy lenders. Several years back there was a class action lawsuit in Pennsylvania where a group of builders used phantom appraisals and had a participating lender approving the mortgages. These loans were NOT government insured so therefore certain criteria was not followed. Some of the home buyers had mortgages on houses for $130,000 while the real value of the homes was $85,000. This finally came to light when a few of these poor folks tried to refinance to take advantage of lower interest rates.

My last word of advice on this matter is to do your homework. Do your research on the builder. Most states have regulatory agencies that oversee the construction industry. They have records of any complaints that may have been filed against builders in their state. It’s your responsibility to know and understand everything about closing costs, interest, prepaid items, and origination fees. You are going in debt for up to 30 years.

It’s your investment and you should be aware of everything.

Chuck Lunsford is the owner and developer of www.EasyFloridaHomeLoans.com. He offers advice on how to get your credit in order and working for you. Visit his website and learn more about
target=”_new” href=”http://www.easyfloridahomeloans.com”>buying a new home with no money down.

There is still hope in getting a loan and buying your dream Baltimore home after filing for bankruptcy. Even with your bankruptcy history, there are many lenders out there who are willing to qualify you for mortgage. What mortgage lenders will look for and put more emphasis on is income verification and a down payment. If you have a secured income and can afford to pay the down payment, then you have a good chance.

Waiting period

Most lenders will want you to wait at least two years from the time of bankruptcy discharge before you can be considered for a mortgage loan. After this waiting period of two years, you will have a shot at getting a loan and up to 100 percent financing. Of course, you should have a good credit rating after your bankruptcy discharged. This means that all your credit payments should have been made on time. Cash on hand for a down payment is also a good way to get your foot in the door.

Resources for down payment

If you do not have enough money in the bank, one idea for you to obtain the cash for down payment is to borrow from relatives. Once you have obtained the house, you can try taking out a second or third mortgage up to the full value of your property so you will be able to repay your relatives. You can also check out down payment assistance programs or grants because they can also help you in getting the down payment. You can search the Internet for these programs by keying in ?down payment assistance? in your favorite search engine. But be wary because there are many bad credit mortgage lenders out there. You can get a list of these bad credit mortgage lenders on the Internet.

A lot has been written about filing for bankruptcy. It’s not the first choice most people might make, but when there is no other choice you might have to consider this option.

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The question I hope to answer in this article is if it is possible after filing to obtain a home mortgage loan.

You can obtain a mortgage loan, but there is one important thing to remember. Most attorneys do not tell people when filing bankruptcy is YOU CANNOT HAVE ANY LATE PAYMENTS AFTERWARDS if you are trying to obtain home financing. This is a hard, cold fact. Most attorneys simply take your money and do the filing. They literally have turned filings into a high volume business.

If you doubt this simply open the Yellow Pages in your respective town or city and see how many ads scream out ” Bankruptcies Filed For As Little As $300!”. These lawyers simply don’t have the time to get personal because of the competitive nature of this particular legal arena. Now before some attorney out there reads this and gets excited let me state that there are still those lawyers who will take your case and give you all the counseling time you desire. Of course everything comes with a price. You decide what’s right for you.

Let’s assume you’ve filed and the bankruptcy has been approved. Fast forward a couple of years. You’ve recovered from whatever circumstance that caused you to file. You’ve managed to save quite a bit of money and feel ready to apply for a mortgage loan. Will a company take the risk on you? The chances are that you can get approved, but may have to live with a higher interest in the beginning of the loan. An interesting thing I’ve learned is that it’s easier to get a home loan than a car loan after a bankruptcy. The reason for this is you cannot get in your home and take off for parts unknown. The bank knows it can at worst foreclose on your home and recover it’s loses.

One bright side of this sad subject is the fact that after a couple of years your credit should have drastically improved to the point where you can refinance the original loan at a much lower interest rate.

Chuck Lunsford is the owner and developer of EasyFloridaHomeLoans.com. He offers advice on how to get your credit in order and working for you. Visit his website and learn more about how to obtain poor credit home financing with a little education and some patience.

When considering the purchase of shutters for your Baltimore homes, many consumers are attracted to companies who claim to sell ones that are custom made. This may seem like a good idea, but

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the truth may actually surprise you. While many firms are able to offer their customers custom-made shutters, what they are actually offering are custom-made interior shutters. This type of shutter is manufactured by taking a prefabricated shutter panel, resizing it by cutting it down to the required dimensions and attaching hinges to complete the shutter panel.

As a general rule, if this method is used, a customer will likely find that the blind will not fit the window properly. The shutters may well be out of proportion in relation to the size of the window and depending on the amount that was cut off in the resizing process, the shutter panels themselves may be compromised.

Shutters manufactured with man made materials are normally constructed with certain standard components. These components, the stiles, rails, and louvers, would then be trimmed to the desired dimensions. The goal here is to get them to the consumer in a timely manner. In this case, the product may not fit the window properly and the shutter may not be in proper proportion to the window.

One can also deal with a company that offers custom shutters, in which case the shutters are manufactured to the dimensions of each particular window. While you would think that this option would ensure a more visually-pleasing product, in reality, this may not be the case. The curb appeal of one’s home is very important and there is absolutely no room for inferior workmanship.

Even in the case of custom-made shutters, some components, namely the stiles and rails, are designed so the specifications are identical throughout the customer’s home or office. The result is that even though the customer is under the impression that the shutters are being manufactured specifically to fit their windows, this is not entirely accurate.

When you get to the point that you are ready to purchase shutters for your home, be sure to steer clear of so-called custom-made shutters. The best course of action in this case is to measure your windows to determine what size you require, and then go to the store and get your new shutters in the appropriate dimensions.

By following this course of action, you will ensure that you purchase the blinds best suited to your needs. With the choices now available to consumers, it is possible to match a specific element of the decor of your home; you are not limited to either an exterior or interior element of style. With very little effort, you can own the shutters that you have pictured in your mind, and you can rest assured that you will have them on your own terms.

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Gregg Hall is an author living in Navarre Beach, Florida. Find more about this as well as window shutters at www.shutters-plus.com

If you were granted a personal bankruptcy decision over the past several years you know that obtaining new credit is difficult, almost impossible. Fortunately, if you are looking to purchase a home, there are ways for you to still find home financing even with a personal bankruptcy ruling on your credit report. It wont necessarily be an easy thing to do, but you could be in your new home if you explore some of the options open to you.

FHA People with low to moderate incomes as well as folks that have had credit problems in the past may find some relief in the form of an FHA backed mortgage. The Federal Housing Administration (FHA) which itself is part of the Housing and Urban Development department of the US federal government backs loans made by lenders to borrowers. These home loans are very attractive to borrowers and lenders alike: you can afford a home with little or nothing down while the risk of funding your loan is transferred from the lender to the government. This means that where a lender may have considered you to be too much of a risk, theyd reconsider if the FHA was involved. Ask your lender about an FHA backed mortgage option.

VA Veterans and close family members could find themselves eligible for a loan despite previous financial problems. Like the FHA, the VA relaxes some of the applicant guidelines in order to help you get in a home. Down payments are lower and you could receive a lower interest rate too. Ask a mortgage lender familiar with the VA program how you can apply too.

HUD US Department of Housing and Urban Development US Department of Housing and Urban Development When FHA backed mortgages fail, the homes are then transferred directly to HUD US Department of Housing and Urban Development US Department of Housing and Urban Development. HUD US Department of Housing and Urban Development US Department of Housing and Urban Development will then try to find a buyer for the home and although HUD US Department of Housing and Urban Development US Department of Housing and Urban Development will not finance your purchase, you could still be eligible for FHA financing on the very home that went into default previously.

Local and State Programs Depending on location, you could be eligible for regional financing from an arm of a local government providing loans in distressed areas for below market rates. In many cases these government programs will relax the rules to allow homes to sell to those who otherwise may not be eligible to afford one.

Yes, you may have to do some looking around before you are granted a home post personal bankruptcy. Learn about all of the options and then apply for a loan that is right for you.

Being employed in this modern era, helps a person the most while approaching for a loan. It simplifies the lending process a lot. A few decades ago the term self-employed was taken in somewhat a vague sense. A number of misconceptions had cropped up regarding self employment at that time. It was simply considered being same as one of the forms unemployment. But the days have changed now and self employed persons are getting dew regard. The lenders are showing a lot of interest in issuing different loans to the self-employed.

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Homeowner loans for self-employed is a loan issued to a self employed secured against his home. Just like the other loans, homeowner