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How FHA Loans Can Help You

 

In this week’s blog post, our team looked at how the Federal Housing Administration (FHA) loans might be best used to benefit would be consumers. Before we dig into that, let’s consider the fundamentals:

What is an FHA loan and how does it work? FHA Lender resized 600

FHA loans are a financing mechanism set up by the U.S Federal Government’s Department of Housing and Urban Development to help buyers with little to no assets, some credit history and a reasonable credit score to enter the real estate market. If eligible, the scheme helps facilitate market entry for buyers by collecting a premium on loans they provide, which they use to assure sellers against a potential default payment by a buyer, containing any market risks. 

Home buyers pay an upfront mortgage insurance premium (MIP) of 1.75%, followed by a 1.20% to 1.5% annually, paid in monthly installments for 5 year duration or more – irrespective of the amount of equity you’ve built in the home. This in turn helps assure sellers against unnecessary risks; if a borrower defaults on their loan, the FHA uses collected insurance premiums to pay off the mortgage.

In terms of eligibility, almost anyone can qualify and there are no income limits. Qualification depends on:

a) A decent credit rating, and

b) A good debt to income ratio.

 

The upside:

FHA loans are great for first time buyers, especially those with little to no upfront assets, since the down payment can be as low as 3.5% of the purchase price. In some circumstances, FHA loans can be accessed even with a very low credit score (contact us or a broker in your area for more information)

FHA loans are also great for financing home improvement projects, especially energy-efficiency improvements. Most FHA loans support fixing up a property you’re purchasing, or allows refinancing what you may owe, in case you already own a home, and adding the balance of the cost of remodeling or repairs into the final amount of the loan. Also, FHA loans allow borrowers to include the costs of energy improvements into an FHA Energy-Efficient Mortgage.

Finally, FHA loans are great for seniors over 62. If you live in your home and it outright or have a low loan balance, you may be eligible to use the FHA Reverse Mortgage to help you convert a portion of your equity into cash.

Other benefits include:

  • The loan often waives paying a repayment penalty
  • Most loans may be assumable (i.e. taken over by another buyer)
  • Most loans provide options of leniency during times of financial distress

 

The downside:

FHA loans are not for everyone, especially if you have: a) 20% down payment along with a good credit history, b) low debt to income ratio, and/or c) high earning power.

FHA loans will often not provide as much money you may need for the dream home you plan to purchase; the mechanism is more suited for less expensive properties.

Finally, the upfront mortgage premium and recurring monthly premium charges often cost more than rates provided by private mortgage insurance premiums. If one has good credit, chances are they can find a more competitive mortgage offer than the terms offered by the FHA loan scheme.

 

Current Upfront and Monthly Mortgage Insurance factors are as follows: 

Loan amounts less than $625,500 

Upfront: 1.75%

Monthly: LTV less than or equal to 95% =1.20%

             LTV greater than 95%= 1.25%

 

Loan amounts greater that or equal to $625.500.00 

Upfront: 1.75%

Monthly: LTV less than or equal to 95%=1.45

             LTV greater than 95%= 1.50%

 

To wrap up, the FHA loan scheme’s can certainly help make home ownership a reality for some people, who would otherwise not benefit from accessing this market. That said, the scheme has some downsides and surely isn’t for everyone.

For more information about FHA loans or other guidance about the right products for home buyers, please contact us at 818-788-9000 and arrange a consultation. We’re a trustworthy Californian mortgage company helping every day consumers to become a homeowner or help them refinance and lower their interest rate and make smarter real estate decisions.

 

by: Reza Rahimzadeh & Shawn Zanganeh

Loan-America.com

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US Mortgage Rates at All Time Low – Great News for Consumers

September 14, 2012  |  Loan-America.com Insights

In today’s US real estate market, mortgage rates are hovering near record lows, some claiming these to be the lowest in nearly a century, which bode well for prospective new buyers or re-mortgaging consumers.[1] 

The mortgage rates for the week ending Sept.13, 2012 include the following:

-  30-year FRM averaged 3.55 percent this week, unchanged from last week. Last year at this time, the 30-year FRM average was 4.09 percent.[2]

-  15-year FRM this week averaged 2.85 percent, down slightly from last week's average of 2.86 percent. One year ago, the 15-year FRM averaged 3.30 percent. [3]

Mortgage Rates 30 year

Factors contributing to keeping US Treasury bond yields low and, in turn, interest rates at unprecedentedly low levels include turmoil in world economy, investor concern with the European debt and bond markets, and a shaky economic recovery back in the US.

In addition, just yesterday, the Fed announced a new policy – “quantitative easing” – meant to stimulate the economy through a round of bond purchases targeting the mortgage market. This entails the central bank purchasing $85 billion in bonds per month through the rest of the year, and then $40 billion per month indefinitely until the economy requires less support.[4] The policy is intended to continue driving interests rates even lower to help support lending, borrowing and spending.[5] The Fed also supported their policy with strong language claiming they would extend plans to maintain interest rates at ultra-low levels through into mid 2015, and continue supporting the economy “for a considerable time after the economic recovery strengthens.”[6]

What does this mean for consumers and prospective buyers? Well, consumers should look to take advantage of the low rates by getting into the market or re-mortgaging their current deal to lock in at a lower fixed rate as soon as possible.

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