Posts Tagged ‘FHA 203b’

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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Discussing mortgage options

December 3, 2014

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Now that we’ve talked about the aspects of a mortgage payment, let’s focus on the mortgage options. There are so many mortgage options from which to choose – how do you decide which loan is best for you?

To contact any of us at Dunwoody Mortgage Services, click here!

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FHA to lower max loan amounts

December 10, 2013

blog-author-clayjeffreys3

At the beginning of 2013, I wrote a blog post mentioning how the government wants to pull back (not out) of the mortgage industry in terms of the number of loans they insure. One way they hope to accomplish this (as mentioned in the post earlier this year) is to increase the mortgage insurance premiums on FHA loans. See the link above for the full post.

Another sign the government is attempting to scale back is the recent announcement that FHA maximum loan amounts will be reduced. Expect to see the counties with the highest FHA loan limits of $729,750 to reduce by roughly 14% to $625,500. The reduction in other areas/counties of the country has yet to be determined. FHA also announced that areas where the housing market has not recovered as much will not see a reduction in the maximum loan amount.

This is actually a good sign for the housing market and mortgage industry overall. The government stepped in and expanded the availability of FHA loans during the housing crisis. Now that housing prices across the country are recovering and loan guidelines have loosened a bit for conventional loans, FHA insured loans are not as critical to the housing market.

With those two things in mind, the goals of FHA right now are to:

  • reduce the number of loans they insure
  • replenish their reserves that were depleted due to all of the foreclosures
  • concentrate on borrowers that are still underserved

How does this news impact those looking to buy a home? First, realize that a LOT has changed in terms of FHA loans, minimum down payments for conventional loans, minimum credit score requirements for both FHA and conventional loans, etc. In short, if you haven’t spoken with a licensed mortgage originator about the changes, an FHA loan may not even be the best avenue to explore anymore.

Second, expect a rush of buyers into the market this coming year. In the metro Atlanta area, there was a housing shortage for almost all of 2013. Now is the time to plan and get prequalified to get a jump start on the housing market for 2014. If you are buying in the state of Georgia, contact me today to get the prequalification process underway.

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You don’t need 20% down to buy a home

November 6, 2013

blog-author-clayjeffreys3

I’ve often wondered why many people who talk with me about buying a home assume they need a 20% down payment. Since staring in the mortgage industry in 2007, I’ve always been able to offer a conventional loan with a 5% down payment to my clients. The only exception was a couple of months in early 2009 when the minimum down payment for conventional loans in Georgia was 10%.

From the sound of this CNN Money article published yesterday, it seems 5% down conventional loans are something new. The article says that several large banks are loosening the purse strings, offering loans with down payments that are as low as 5%.

What is frustrating about this article is that I can and have been able to offer conventional loans with as little as 5% down. Guess what? So have those same large banks. I don’t understand why media news and broadcast stories make it sound as if the only way to get a conventional loan is to come with a 20% down payment.

So we are all on the same page, here are some standard guidelines when it comes to the minimum down payment:

Conventional Loan: you need a 5% down payment and a 620+ credit score. There is PMI on the loan, but the down payment is only 5%.
Lender Paid PMI Conventional Loan: you can also qualify for this program with a 5% down payment and a 620+ credit score. There is no PMI monthly payment, but the interest rate is going to be higher than a 5% down conventional loan with monthly PMI payments.
FHA loans: you need a 3.5% down payment. Most lenders prefer a 640+ credit score though a few will still do as low as 600. The monthly PMI payments are significantly higher each month for FHA loans.

Did you notice the credit score requirements listed above? From news reports, it sounds as if you must use an FHA loan if you have an average or below average credit score. That’s not true. Lenders will now approve a 5% down conventional loan with a lower credit score than what most lenders will allow for FHA loans.

In short – don’t believe everything you see on TV or read on the internet. Contact a mortgage professional to get accurate information for the home loan process.

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Coming soon – FHA changes

January 7, 2013

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I’m sure no one saw this one coming (lots of sarcasm here).

For the past several years, FHA has annually increased their monthly mortgage insurance. Toward the end of 2012, as posted here on this blog, FHA was given the approval to dramatically increase their monthly mortgage insurance. It seems the probable increase isn’t going to be that bad.

The actual proposed changes include increasing the monthly mortgage insurance from 1.25% of the loan amount annually to 1.35%. That isn’t a huge change. The BIG change is this…

Currently FHA mortgage insurance falls off once a borrower has paid at least 60 mortgage insurance payments AND has 22% equity in the home. Moving forward FHA loans could require mortgage insurance for the life of the loan. If approved, it doesn’t matter how much equity you have in your home, you’ll be paying mortgage insurance as long as you have the mortgage.

That is a dramatic change. Why would FHA be considering a change this dramatic? As with most things in life, it all has to do with money.

Also discussed on this blog, FHA exhausted its reserves toward the end of 2012. This doesn’t mean FHA can’t function. What it means is they don’t have the reserves the government say they “should” have  based on the amount of FHA loans they have financed. FHA is still funding loans and running its day-to-day operation. They are just lacking reserves.

Well, one way to get rid of this problem is making mortgage insurance payments never go away. That would certainly help. It isn’t official yet, but once FHA officially announces their changes, I’ll be here to update you.

In the meantime, if you are thinking of buying a home and needing to use an FHA loan to do it, now is the time to get going. We don’t know the exact changes, but we know the terms will be worse than they are today. If you are buying a home in Georgia, contact me to get the prequalification process underway.

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FHA mortgage limits reduced

October 18, 2011

What goes up must come down“… a common phrase that fits many aspects of life. Today, it relates to the mortgage industry as the Department of Housing and Urban Development recently dropped the maximum loan amounts for FHA loans.

The maximum loan amounts for FHA loans are determined by an evaluation of home values, and the limit is not a flat rate like the $417,000 mark set for single family homes on conventional loans. FHA limits are set on a county-by-county basis, and you can search for those limits for every state and county using the link below:

https://entp.hud.gov/idapp/html/hicostlook.cfm

Why the reduction in the limit? During the housing boom, home values went up. When prices kept going up, HUD increased the maximum loan amount. Now that home values have decreased, so has the FHA limit.

For the majority of the Atlanta metro area, the maximum FHA mortgage limit for a single family residence decreased from about $346,000 to $320,000. That is roughly a 7% decrease. The one Atlanta metro area exception of this drop is Hall County whose mortgage limit fell all the way to $271,000.

In the grand scheme of things (at least in the Atlanta metro area), this isn’t an earth-shattering change. That may not be the case across the U.S (depending on your county), but it isn’t like the drop in the FHA mortgage limit has fallen by the same percentage as housing prices across the United States. For the most part, the mortgage limit change simply reflects current events in the housing market.

To find out more about your county, use the link provided in this post or contact your local mortgage consultant. Buying or refinancing in Georgia? I can help you get started on your new loan. Contact me and we’ll take it from there.