Posts Tagged ‘3% down’

LPMI Loans – What are they?

May 5, 2015

blog-author-clayjeffreys3

LPMI loans, or Lender Paid Mortgage Insurance, is a loan program that does not require a borrower to make monthly mortgage insurance payments regardless of the size of the down payment. A borrower can make a 3%, 5%, etc. down payment and not make monthly mortgage insurance payments.

Sound too good to go be true? Maybe. There is a catch. In exchange for not making a monthly mortgage insurance payment, the borrower agrees to a higher interest rate on the loan. The lender takes that higher interest rate and purchases a onetime up-front mortgage insurance premium at closing – thus Lender Paid mortgage insurance.

While the lender is technically paying the mortgage insurance, the borrower is really paying it through a higher rate. Does it make sense to use a LPMI loan?

If the goal is a lower payment, the answer is “yes.” When using an LPMI loan, the monthly payment will be lower than having a loan with a lower interest rate but paying monthly mortgage insurance.

Next time, I’ll discuss a couple of items to evaluate when considering a LPMI loan. In the meantime, if you’d like to know more about it, contact me today. I can help get you started on the path to home ownership.

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FHA lowering mortgage insurance

January 13, 2015

blog-author-clayjeffreys3

Finally, FHA mortgage insurance becomes more reasonable (and competitive) when compared to conventional loans. As recently posted on this blog, FHA mortgage insurance has been priced so high that it rarely made sense to consider using an FHA loan.

FHA mortgage insurance still has the one-time upfront premium, and is permanent if making less than a 10% down payment, but at least the monthly mortgage insurance payment is closer. Let’s take a look at how the new numbers compare to one another.

  • FHA – the monthly mortgage insurance rate is dropping from 1.35% to 0.85%. Using our same example of a $250,000 purchase price, the total loan amount would be close to $245,500. If you take 0.85% of that amount, you get $2,087, which is $174 per month.
  • Conventional – assuming the buyer’s credit score is 720+, the same $250,000 purchase price with 5% down would give us a monthly payment of $122 for mortgage insurance. When you take into consideration the fact that FHA loans have a lower interest rate, the difference in the total payment between the two is not much at all.

The buyers who could benefit the most from this are ones looking to make as small of a down payment as possible.

  • The 3% conventional loan is only available to first time home buyers. With only a 3.5% down payment, a buyer would qualify to purchase the home and not get hammered on the monthly mortgage insurance payment since FHA has lowered the monthly amount so much.
  • On the flip side, let’s say it is a first time homebuyer and they’d qualify for a 3% down conventional loan. The FHA loan may still be more attractive since the monthly mortgage insurance payment for an FHA loan is now lower than the monthly mortgage insurance payment for a 3% down conventional loan. Also, the interest rate would be lower on the FHA loan.

That is a lot to consider, which is why you should consult a professional who can ask you questions about your purchase, find out how long you plan to stay in the home, and if you plan on aggressively paying down the loan balance. The answers will ensure you choose the right loan for you situation.

Whether a first time home buyer or an experienced buyer, if you are buying in the state of Georgia, I’m happy to help. Contact me today to get started and we’ll get you into your new home.

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FHA Mortgage Insurance

December 16, 2014

blog-author-clayjeffreys3

In a recent post, I mentioned how buying a home using a conventional loan with a 3% down payment helps avoid ridiculously high mortgage insurance payments associated with FHA loans. What makes FHA mortgage insurance payments more expensive than conventional loans?

Due to the housing and foreclosure crisis, FHA continually increased their monthly mortgage insurance payments to help cover their losses from FHA insured homes that went into foreclosure. Prior to the crisis, the monthly mortgage insurance rate was 0.50% of the loan amount per year. After 5 straight years of increases, it is now at 1.35% of the loan amount per year.

Great. What does that mean?

Let’s take a look at some numbers comparing FHA mortgage insurance to a conventional loan with 5% down and also a conventional loan with 3% down.

  • FHA – on a $250,000 purchase price, the total loan amount for an FHA loan would be close to $245,500. If you take 1.35% of that loan amount, you get $3,313 for the year. Divide that out by 12 months, and the monthly mortgage insurance payment is about $276 per month.
  • Conventional 5% down – assuming the buyer’s credit score is 720+, the same $250,000 purchase price with 5% down would give us a monthly payment of $122 for mortgage insurance. The FHA loan is more than double that amount per month.
  • Conventional 3% down – again, assuming a 720+ credit score and a $250,000 purchase price with 3% down, the monthly mortgage insurance payment would be $222. That is about 25% less per month compared to an FHA loan.

The monthly mortgage insurance payments for conventional loans can be noticeably lower than FHA loans. I haven’t even got into the fact that all FHA loans come with an upfront mortgage insurance premium of 1.75% of the loan rolled into the loan amount (about $4,200 rolled into the loan amount on a $250,000 purchase price). Nor have I covered how, in most cases, FHA mortgage insurance is permanent.

I encourage my clients, when they qualify, to use a conventional loan to purchase a home because conventional mortgage insurance is typically lower per month, there is no upfront premium, and the mortgage insurance is not permanent. That said, sometimes an FHA loan is still the way to go.

Looking to buy a home in the state of Georgia but are unsure if you should use a conventional or FHA loan? Contact me today to get started. I’ll go through the pros and cons of each, and we’ll run the numbers to see which option makes the most sense for your specific situation.

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3% down loans are back (for some)

December 10, 2014

blog-author-clayjeffreys3

Fannie Mae has brought back 3% down payments for some home buyers. As of the date of this post, Fannie Mae is allowing the change starting next week, and lenders are currently updating their systems to accommodate the change. Soon home buyers can qualify for a purchase with as little as 3% down.

What is the catch for buyers? The 3% minimum down payment is limited to first time home buyers purchasing a primary residence. A first time home buyer is defined here as either:

  • a buyer who has never owned a property
  • a buyer who has not owned property in the past 3 years

Refinances are also included in the change. Current home owners can refinance with as little as 3% equity to cover closing cost rolled into the new loan (5% equity is required if closing costs are not rolled into the new loan).

Are you a first time home buyer with little down looking to buy a home? Are you looking for the smallest down payment available without having to use an FHA loan and pay ridiculously high up front and monthly mortgage insurance payments?

If the answer is yes to either of those questions, and you are buying the home in the state of Georgia, I can help you get started! Contact me today, and I’ll get you prequalified and on your way to owning your first home.

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Loan Guidelines Easing

November 19, 2013

blog-author-clayjeffreys3

I know what you are thinking from reading the title to this post… “really?!? After 3% down conventional loans have gone away, you are saying loan guidelines are easing?”

Yes. Yes, I am. It is true that the minimum down payment for conventional loans is now 5%. That said, guidelines have eased in two other areas.

Credit Scores – home buyers can now qualify to purchase a home (or refinance a home) with as little as 5% down and a credit score as low as 620. Depending on a lender’s guidelines, most stopped offering conventional loans with less than a 20% down payment to borrowers with credit scores under 660. That is no longer the case.

Whether a 5%, 10% or 50% down payment, buyers can now qualify for a conventional loan with a credit score as low as 620.

Debt to Income Ratios – while Automated Underwriting might approve someone with a debt to income ratio of 51%, most lenders stopped these ratios at 45% if mortgage insurance was required and 50% if no mortgage insurance is on the loan. Not anymore.

Regardless of the debt to income ratio, as long as you get Automated Underwriting approval on loans that do not require mortgage insurance, you can move forward with the loan application to buy a home.

The minimum down payment for conventional loans has increased to 5%, but recent changes to the minimum credit score and maximum debt to income ratio will make it easier to qualify. Want to know how this could impact you? If the property is in Georgia, I can help. Contact me today to get started.

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3% down going away (for now)

November 5, 2013

blog-author-clayjeffreys3

What does a dinosaur, a Dodo bird, and a 3% down payment conventional loan have in common? They are all extinct.

Beginning on November 16, 2013, conventional loans with a 3% down payment will go the way of the dinosaurs and no longer be available. And just like the dinosaurs in Jurassic Park, 3% down conventional loans will come back at some point in time. More on that in a moment.

For those wanting to take advantage of a 3% down conventional loan now, you need to be under contract and have the loan application process started prior to the 15th. You then need to be closed by the end of January 2014. If you meet both of those criteria, and qualify for the loan program, you can still use this program.

Why would someone want to use a 3% down conventional loan? There are several reasons actually:
1. the 3% down payment is less than the minimum down payment for FHA loans.
2. the monthly mortgage insurance payment is roughly 25% less each month for 3% down conventional versus FHA loans.
3. the monthly mortgage insurance is not permanent on conventional loans. FHA mortgage insurance is now permanent under most circumstances.
4. there is no upfront mortgage insurance premium rolled into the loan amount on conventional loans like there is on FHA loans.

As you can see, there are lots of advantages going with a 3% down conventional loan versus an FHA loan if you need a loan with a small down payment and have a qualifying credit score.

About 3% down payment loans coming back from extinction… this loan program has come and gone at least 3 separate times since the housing crisis. More than likely, it will come back again. I don’t know when it will come back, but my guess is it will take less time for 3% down conventional loans to reappear again that it did the Jurassic Park dinosaurs to come back.

If you are looking to buy a home and planned on using a 3% down conventional loan to buy that home, there is still time to use it. Contact me today, and we can get started and get you into that new home with only 3% down.

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Fannie Mae HomePath Mortgage

February 8, 2011

About a year ago, Fannie Mae created this loan program to help sell properties they own. Most of these properties are foreclosures. When the program was initially rolled out, I threw up a blog post about the details. It has been a year, and some of the guidelines have loosened up… so it seemed like a good time to revisit this loan program.

The HomePath Mortgage program has some major selling points.

  • available for primary residence, second home, and investment purchases
  • borrowers only need a 3% down payment to get started
  • non-occupant co-borrowers are allowed with a 5% or greater down payment
  • allows for sellers to contribute up to 6% of the purchase price toward a buyer’s closing costs and prepaids (typical amount with less than a 10% down is only 3% toward contributions)
  • no appraisal is required
  • no private mortgage insurance will be on the loan regardless of the size of the down payment

Some of the changes that have occurred over the past twelve months include the qualifying credit score being lowered to 660 and investors now only need a 15% down payment to qualify. On all other conventional loan programs, investors need at least a 20%-25% down payment to get started. A requirement of only 15% down is a big deal in the investment purchase market.

Again, Fannie Mae designed this loan program to facilitate the sale of homes they own. There are numerous properties available, and you can search for them here. That being said, do proceed wisely. I’m not saying anything is wrong with the homes, but one should:

  • as with any home purchase, hire someone to do a thorough inspection of the home
  • since there is no appraisal required for the loan, I would ask your real estate agent to conduct research on the home against recent sales in the area to ensure the purchase price is a good deal for you
  • some of these homes will probably be classified as being purchased “as is,” so don’t expect the seller to do many (if any) repairs to the home prior to purchase

Anyone interested in making an offer on a home to take advantage of a loan program that doesn’t require an appraisal or private mortgage insurance will need a prequalification letter, and that is something I can assist in providing! If you are looking to get prequalified, learn more about interest rates for this program, total monthly payments, etc., feel free to call or email me. It would be my pleasure to help you through the mortgage process!

3% down and no PMI

April 22, 2010

Yes, you read that correctly. Conventional loan, 3% down, no private mortgage insurance, and to top it off… no appraisal required! The program is known as HomePath Mortgage by Fannie Mae and is available to borrowers looking for a primary residence OR an investment property.

Investors using the HomePath Mortgage program need a 15% down payment, but will not be required to get private mortgage insurance or an appraisal on the investment property. Also, the limit on the number of total properties financed in an investors name is waived.

Fannie Mae designed this loan program to facilitate the sale of their foreclosures. There are numerous properties available, and you can search for them here. However, before you find a home and get ready to submit an offer, remember this is a foreclosed property and there are some things to keep in mind:

  • the property is purchased “as is”
  • the property may require some repairs
  • definitely get an inspection!
  • no contingency offers (on the sale of a current home) allowed

All offers must include a prequalification letter. If you are looking to get prequalified, learn more about interest rates this program, total monthly payments, etc., feel free to call or email me. It would be glad to help you through the mortgage process!