Posts Tagged ‘FHA loan’

Down Payments Basics for Home Buyers

February 23, 2017

Blog HeaderA recent home ownership survey showed that 3 times more first time home buyers than repeat buyers say they lack enough money for a down payment.  Perhaps this is due to folks not truly understanding down payment requirements.  Many people believe you must make a 20% down payment to buy a home.  That is a myth!! 

Home buyers can purchase a home with as little as 3.5% down for a FHA loan.  Depending on your credit score and available cash, you may be better off going with a 5% down conventional mortgage.  In certain cases, you may be able to qualify (depending on your income and geographic area) for the low interest rate, low cost mortgage insurance “HomeReady” program, for as little as 3% down.  (Certain geographic areas have no income requirements.)

So what if you don’t even have 3% – 5% available for a down payment?  Are there options?  The first question for you is, “Do you have a relative who can give you the down payment?”  If you do have a loving person who will give you the down payment, we can use that with the proper documentation.  Note that the giver must be a blood relative or a spouse.  Generous ex-spouses are not considered family members so they cannot provide a gift.

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If you lack the available cash and you don’t have a giving relative, do you have a 401K or similar retirement account?  Depending on your plan’s rules, you may be able to borrow against your account to help fund your down payment.  Talk with your plan administrator for the details.

If these options are not available to you, you may need to wait and save.  But the time needed to save 3% to 5% is much better than saving for the 20% many people think is required.  Note that you must have 20% to avoid mortgage insurance, but if you can handle the mortgage insurance included in your monthly payment, you can buy a home with much less than 20% down.

Do you need coaching on the best loan / down payment option for you?  That’s what I do!  Call me at Dunwoody Mortgage.  Together we will evaluate your situation, review your options, thus allowing you to make the best decision for you and your family.

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Using government loans after a derogatory credit event

February 21, 2017

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Last week, we focused on using conventional loans to purchase a home after a major derogatory credit event such as a bankruptcy, short sale, foreclosure, etc. This week, we will focus on VA and FHA loans offered by the government.

In every instance, a government loan has a shorter waiting period after one of these events. It is the loan of choice to use if it will fit your needs. Let’s discuss the waiting periods:

  • Chapter 7 bankruptcy: requires a 2-year wait
  • Chapter 13 bankruptcy: requires a 1-year wait from the beginning of the payout period
  • Multiple bankruptcy filings: VA requires only 2 years, but FHA is a case-by-case basis
  • Foreclosure: VA once again is only 2 years, but FHA is 3 years.
  • VA Specific: in order the qualify for a VA loan (in addition to being a veteran), there must be a 1 year minimum of re-established after the judgement dates and other derogatory events paid/resolved
  • FHA Specific: If HUD has a claim against a borrower for a foreclosed/short sold home (and that home was financed using an FHA loan), a borrower isn’t eligible for a new FHA loan until after 3 years from the date of the claim being paid.

As anyone can read here, government loans have a much shorter waiting period than conventional loans. As low as one year, but mostly just a 2-year wait. An FHA or VA loan would be the preferred method for buying a home after one of these major events. That said, there a couple of situations that make conventional loans the way to go:

  • the borrower is not eligible for a VA loan (so you go FHA unless….)
  • the loan needed to purchase a home will exceed the maximum FHA allowed loan amount
  • there is a claim against the borrower from HUD
  • a borrower is not eligible for an FHA loan due to CAIVRS (a government credit monitoring tool to ensure people who take out government loans pay them back)

The last two on the list are not that common, so buying a home within the FHA maximum loan limits would be the way to go. In addition to a shorter waiting period, the interest rate tends to be better than conventional loans, the borrower only needs a 3.5% down payment, and the monthly mortgage insurance rate is lower. A borrower’s credit score will confirm those items, but in general, those are all reasons why FHA loans are the best way to go after a derogatory credit event.

Completed a bankruptcy two years ago, and ready to buy a home in Georgia? If so, we can get started today in the process. Contact me and we’ll make sure you qualify for a loan, and then send you out looking for your next home.

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Credit Reports and Qualifying for a Mortgage #3

October 19, 2016

In prior posts we reviewed the credit score and public record components of a credit report.  But even with a qualifying score and a clean public record history, that doesn’t mean you are in the clear.  There are other credit report factors that can create underwriting hurdles which we must overcome.  Here are some other details we consider…

The credit report shows a history of open and closed credit accounts.  Data shown for each account includes:

  • Current account balance.
  • Account credit limit.
  • Account type – credit card, mortgage, student loan, auto loan, etc.
  • Account status – open, closed, collections, etc.
  • Minimum payment – these are important because they are included in the client’s (let’s call her Mindy) debt to income ratio.  If the total of all monthly payments is too high, Mindy might not qualify for the loan desired.
  • Late payment history – late payments are categorized as follows — 30 day lates are not good; 60 day lates are bad, and 90 day lates are really bad.  The report shows the dates of the most recent late payments.

If Mindy’s late payments were made more than 2 or 3 years ago and she has been consistently making on-time payments since then, it likely will not cause loan denial.  However, if Mindy’s late payments occurred after a bankruptcy, then underwriting may deny the loan.  I’ve had this happen where the underwriter said no to a client with a bankruptcy in 2010 followed by two 30-day late payments in 2012.

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  • Account disputes – if Mindy has officially disputed an account, it will show on her report.  Underwriters do not like account disputes.  This is especially true for FHA mortgages when a disputed account balance exceeds $1,000.  In some cases, the dispute can lead to loan denial.  I’ve had clients who had to go through a multi-week process to get a dispute removed from their credit before we could win loan approval.  I search for the word “dispute” on all credit reports.
  • Collections accounts – when an account has a collections status, this can cause loan denial.  This is especially true for FHA mortgages.  If the total outstanding amount of all collections accounts exceeds $1,000, underwriters will not approve an FHA loan until the balances are paid in full.  I had a client with 3 collections accounts earlier this year.  The client had plenty of cash, so we simply included the payoff of all collections accounts at the closing of her home purchase.

Once again, there is much more to a credit report than the score.  If you know someone who wants to buy a home in Georgia, don’t let them get mislead by a lender in a hurry.  Refer them to Dunwoody Mortgage, we will invest enough time up front to give everyone great confidence that the mortgage will actually close.

 

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The Simplest Loan Around – Part 3

September 8, 2016

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Continuing the FHA streamline refinance theme… Here’s an example.  I’m currently talking with Confidential.  Confidential is self-employed.  Confidential’s spouse, Anonymous, recently took a new all-commission sales job. 

With a standard mortgage, the income and employment verification for Confidential and Anonymous would be very tedious at best, and they likely may not qualify.  Underwriters want to see a 24 month history of income for self-employed persons.  And they will average the 24 month income to determine the borrower’s current monthly income.  That hurts self-employed borrowers whose incomes are growing.  But those normal underwriting concerns do not apply to the FHA Streamline Refinance!

The interest rate on Confidential and Anonymous’ current mortgage is 4.75%.  That is high by today’s standards.  The good news is that they bought their home with a FHA loan several years ago.  I quoted Confidential and Anonymous a new FHA interest rate at less than 3.5%, and we expect to lower their monthly payment by over $220!  Given the closing costs for the loan, this refinance will pay for itself in less than a year.  After that, they are saving over $2,500 per year!

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I’m not worried about this loan being approved in spite of the fact that Confidential and Anonymous are self-employed and they cannot provide the standard 24 month income history.  And we don’t have to fret about an appraisal value.  They have made all FHA mortgage payments on time, and this refinance will reduce their payment by over 15%.  They qualify for what might be the easiest loan around – the FHA Streamline Refinance.

So how do you determine if a refinance is right for you?  There are many considerations, but we have a couple of rules of thumb:  (1) If you can lower your payment by $100 per month or more, and (2) if the refinance will “pay for itself”* in 36 months or less, then you may want to investigate refinancing options.  (*Divide the loan closing costs by the estimated monthly savings to calculate how many months will pass before the savings cover the entire cost of the refinance.  If this time period is 3 years or less, then refinancing may be a good option for you.)

If you want to lower your current monthly payment by taking advantage of current low, low mortgage interest rates, contact me here at Dunwoody Mortgage.  I will take the time to help you understand all of the options available to you, and I will coach you to make the best financial decision possible for you and your family.

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The Simplest Loan Around – Part 2

August 12, 2016

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In the last blog post, I introduced the FHA “streamline” refinance loan. These loans are the fastest, simplest way for FHA mortgage holders to refinance to today’s low, low rates.

The streamline program simplifies home refinancing by waiving the documentation typically required for a mortgage, including income and employment verification, credit score verification, and an appraisal of the home. Homeowners can also possibly use the program to reduce their FHA mortgage insurance premiums (MIP).  Like an Olympic swimmer reduces friction by “streamlining” when underwater, the FHA streamline refinance offers much less resistance and effort than a regular purchase loan.

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Here’s a quick summary of the benefits:

  1. No appraisal is required – FHA will use your original purchase price as your home’s current value, regardless of what the house is worth today.
  2. No employment verification is required with the streamline refinance.
  3. No income verification is required.
  4. No detailed review of your credit report is performed. If your score is 600 or higher, you qualify.

So to sum up the benefits, you can be (a) out of work, (b) without income, (c) have a low credit score, and (d) be underwater on your home mortgage and you can still qualify for an FHA streamline refinance.

Now this sounds crazy.  Why would they do this?  Well remember, to qualify, you must already own the home and have an FHA mortgage.  We are not qualifying you to take on a new mortgage payment for a new house.  The FHA is already committed to insuring your home mortgage.

Therefore, it is in the FHA’s best interest to help as many existing mortgage holders as possible lower their payments.  By lowering payments, they will lower the default rate.  So this program helps the FHA, but it also helps the borrower who can lower his monthly payment.

In the next post, we will review example scenarios where this type of loan can really help the homeowner.  But for now, if someone you know in Georgia has a FHA mortgage with an interest rate of 4.00% or higher, have them call me to discuss a potential refinance.  We’ll run the numbers together to make sure it’s a good financial move for them.

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The Simplest Loan Around – Part 1

August 4, 2016

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It’s a fun time to be a mortgage lender.  Interest rates are hovering near their historic lows.  They’ve been close to rock bottom for a while, but this Brexit situation has pushed them back to almost the lowest level in history.

Right now, for borrowers with a credit score of 680 or higher, I can quote an interest rate in a range right around 3.25% for a 30 year fixed rate FHA mortgage.  To me that is amazing.

That rate applies to both purchases and refinances.  But it gets even better for refinances….if you have an existing FHA loan that you want to refinance, we can do a “streamline” refinance that is much easier than a standard loan.

So what is this awesome FHA streamline refi program?  Here are the details:

  1. It is only for people with an FHA mortgage.  If you have a conventional mortgage, this does not apply.
  2. It is only for people who are current on their FHA mortgage.  If you are behind on your payments, you don’t qualify.
  3. It is only for people who have no more than one late payment in the last 12 months.  If you have multiple late payments recently, you don’t qualify.
  4. It can only be used if it lowers your monthly payment by 5% or more.  And by monthly payment, we are talking about principal plus interest plus mortgage insurance.  Escrow is not considered.
  5. If you have previously refinanced an FHA mortgage on your home, 210 days must have passed from the date you closed your last refinance before you are eligible.

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So that’s what it takes to qualify, what’s the big deal?  What makes this streamline program so special?

In short, these loans are the fastest, simplest way for FHA mortgage holders to refinance to today’s low, low rates.

The streamline program simplifies home refinancing by waiving the documentation typically required for a mortgage, including income and employment verification, credit score verification, and an appraisal of the home. Homeowners can also possibly use the program to reduce their FHA mortgage insurance premiums (MIP).

I’ll provide more details in my next post, but keep this in mind for now, if you or a friend / family member bought a house before January 2012 or in the second half of 2013 / early 2014, ask yourself or the other person (1) do you have an FHA mortgage and (2) have you refinanced that mortgage?

If their answers are “Yes” and “No,” tell them you know a mortgage lender who might be able to save them thousands of dollars on their home loan, and can make the process really easy.

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Time to Refinance?

March 3, 2015

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In recent weeks, interest rates dropped to their lowest levels since May 2013, causing the refinance business to jump significantly.  Interest rates have climbed a bit since late January, but for some people, now is still a great time to refinance.  So how do you know if refinancing may help you?  If any of these conditions apply to you, you may want to consider refinancing:

  1. If you have a conforming loan (not FHA and not jumbo) and you can lower your rate by 0.5%.
  2. If you have a FHA loan obtained between 2010 and January, 2015 – even if you obtain a new FHA loan, FHA mortgage insurance premiums have declined significantly – this may lower your payment significantly.
  3. If you pay mortgage insurance on your home loan, you can look to refinance to a lower rate and possibly drop your insurance payment depending on how much your home has appreciated since you bought it.
  4. If you have a jumbo loan and can lower your rate by 0.25%.

To refinance you will incur closing costs.  Even if the closing costs are rolled into the loan balance you still ultimately pay those costs over time.  So you need to determine if your monthly savings is worth the closing costs you will pay.  We calculate your breakeven point in months by dividing your refinancing costs by the savings on your monthly payments.

You need to ensure that refinancing will benefit you financially.  Consider this question first…”How long do you plan to stay in this home?”  If your breakeven point is after you think you will move out of the home, it’s probably best for you not to refinance.  If your breakeven point comes before the date you think you will move, then you should consider refinancing.

Not sure if refinancing is a good option?  That’s OK.  Contact us here at Dunwoody Mortgage.  We will ask you a few questions, and then we can determine your monthly mortgage savings and calculate your breakeven point.  We can discuss your options and, if refinancing makes sense for you, we will pursue it and give you the best possible rate, competitive closing costs, and outstanding customer service.  You have nothing to lose.

Don’t miss this opportunity.  Call us now before rates go back up!!

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FHA lowering mortgage insurance

January 13, 2015

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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

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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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Mortgage Mythbusting

October 21, 2014

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Continuing our educational series. Today, we’ll focus on mythbusting.

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

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