Posts Tagged ‘FHA’

FHA loans are back!

July 21, 2015

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President Obama issued an executive order that reduced the monthly mortgage insurance premium on FHA loans by more than a third. This order started in January. Since then, FHA loan applications rose dramatically. From February through May of this year, the number of FHA loans essentially doubled from the same time period in 2014.

Why all the love for FHA loans? Because the total monthly payment is more competitive now with conventional loans. Prior to the change, home buyers with excellent credit would see monthly mortgage insurance rates 2.5 times higher for FHA loans than conventional loans. Since the change, FHA monthly mortgage insurance is still more expensive, but nowhere near as bad as it was before the executive order.

In fact, I’ve been able to recommend FHA loans again to my clients. What I mean by that is this… prior to Obama’s executive order, the FHA mortgage insurance was so much higher, it made the total monthly payment for FHA uncompetitive to that of conventional loans. Only clients needing a down payment as low as 3.5% or had credit scores under 660 would really consider using FHA loans.

Now the total monthly payments are more balanced, and you see that by the amount of FHA loan applications now being processed. Here is a brief break down of FHA vs. Conventional loans on a decision making basis using credit scores.

  • those with excellent credit will still likely go with a conventional loan even though the interest rate is better on an FHA because mortgage insurance is not permanent (FHA loans can be), and there is no upfront mortgage insurance payment due at closing (FHA requires this).
  • those with average credit could go either way. It really depends on the exact credit score and the rate difference. Remember, the rate for FHA loans are better than conventional, so even though the monthly mortgage insurance could be higher (and permanent, more on this in a minute), the total payment could be basically the same when you take the interest rate difference into consideration.
  • those with below average credit scores tend to go FHA now. Why? The interest rate is much higher on a conventional loan than FHA loans for lower credit scores. Also, the monthly mortgage insurance payment is higher for conventional loans once credit scores go below 680.

The big drawback to FHA loans is that the mortgage insurance can be permanent. That said, under the “old guidelines”, it would take over 11 years of regular, on time payments before mortgage insurance on FHA loans would fall off. Since most people move on average every 7  years, the mortgage insurance would be on the loan the entire time – so “permanent” isn’t as scary as it sounds.

Don’t know if an FHA loan is right for you? If you are buying in the state of Georgia, contact me. We can talk about your situation and decide what loan is right for you and get you into your new home!

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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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Qualified Mortgages

January 21, 2014

blog-author-clayjeffreys3

There has been a lot of news coverage lately on Qualified Mortgages now that the rule has taken hold in the mortgage industry. What is a Qualified Mortgage and how does it impact the mortgage industry?

It is a great question and one that has been hotly debated as of late. Instead of getting into all of the minutia, let’s peer through the matrix and simplify the term Qualified Mortgage.

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In short, a Qualified Mortgage is a mortgage that does not have excessive upfront points and fees, no “toxic” loan features (such as interest only, negative amortization, prepayment penalties, and balloon payments), and a capped debt to income ratio of 43%.

What does that mean? Let’s look at each part:

1. There is now a cap on all lender fees to keep customers from being charged with excessive fees.

2. Over the past several years, negative amortization loans, prepayment penalties, and balloon payments have essentially disappeared from the mortgage industry. Interest only loans did exist, but a buyer needs at least a 30% down payment in order to use an interest only product. In other words, these “toxic” loan features are, for now, already out of the mortgage industry.

3. While the debt to income ratio cannot exceed 43%, there is a temporary exception in place until January 2021 for all loans that are eligible to be sold to Fannie Mae, Freddie Mac, FHA and VA. If the loan being used to buy a home is eligible to be sold to Fannie Mae, Freddie Mac, FHA or the VA, then the debt to income ratio can exceed 43% just as it was allowed prior to Qualified Mortgage rule taking over the mortgage industry. Given the amount of changes in the mortgage industry over the past few years, a 7 year exception might as well be a 700 year exception. By the time 2021 rolls around, odds are there will be another set of rules that has replaced or modified the Qualified Mortgage rule.

How does this impact those looking to buy a home? In all honesty, it really doesn’t. The part most people are concerned about is the cap of 43% on the debt to income ratio, but doesn’t come in to play unless the loan isn’t eligible to be sold to Fannie Mae, Freddie Mac, FHA or the VA. Considering there are VERY few loans  available that are not eligible to be sold to these institutions, the 43% cap on the debt to income ratio won’t impact many home buyers in the near future.

When you are out looking to buy a home this year, don’t worry about any of the “the end is near” stories you are hearing about Qualified Mortgages preventing you from buying a home. Work with a professional who is up to speed on the changes and can guide you through the loan process into your new home. If you are buying a home in the state of Georgia, contact me. I can help you get prequalified and start the home buying process today.

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Government Shudtown impacting lending

October 1, 2013

blog-author-clayjeffreys3

UPDATE – As of 10/07/2013 – most of the lenders I use are allowing loans to close for W2 salaried borrowers as long as their employer completes a full Verification of Employment. Since the government (and IRS) is still shut down, this is great news for some. Those who are self employed or make most of their money from commission/bonuses will not be able to close until a tax transcript can be provided from the IRS.

With the government shutdown (which is still on as of this post) in full swing, most people assume they will still be able to close their home loan if it isn’t a government loan such as an FHA, VA or USDA loan.

The truth is the shutdown could literally shutdown closings regardless of the type or purpose (purchase or refinance). Why? The government shut down also closed the IRS. That wouldn’t be a huge deal a few years ago, but it is today.

Why?

The reforms in the mortgage industry and underwriting brought the IRS into the middle of the loan process. In order to close on a loan, the IRS must supply tax return transcripts from the previous two tax filing years. It doesn’t matter if you are a W2 salaried employee, self employed, 100% commission, etc… if you are applying for a home loan, tax transcripts are required.

Until the government is up and running again, the IRS won’t process the tax transcript requests. As of today, requests are piling up. The longer this goes on in DC, the larger the pile of requests will get. Eventually this will begin delaying closings, rate locks could expire, emotions will run high… fun times.

Fortunately, government shutdowns only last a few days. I’m sure DC will figure this out soon (fingers crossed!).

In the meantime, juts realize the shutdown could impact your home loan even if it isn’t a government loan.

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Small down payment loan options

March 13, 2013

blog-author-clayjeffreys2
With yet another round of FHA mortgage insurance premium increases set to begin on April 1, 2013, many people think their only option of buying a home with a small down payment will just have to coincide with a ridiculously high monthly mortgage insurance payment.

What many people are not aware of is the fact that conventional loans have a program that requires only a 3% down payment. You will need a higher credit score than an FHA loan, but the down payment is actually smaller than an FHA loan. Also, you can get approved for conventional loans with as little as 5% down. Let’s talk these loan programs.

As we have recently discussed, FHA loans only require a 3.5% down payment. The drawback in the monthly mortgage insurance. Starting April 1st, all new FHA loans will have a 1.75% up front premium rolled into the loan amount. Also, the monthly mortgage insurance will increase to 1.35% of the loan amount. The mortgage insurance payments will be permanent unless you make a 10% down payment when you buy the home. The advantage of FHA loans is that your credit score can be as low as 640, but it comes at a cost of a REALLY high monthly mortgage insurance payment.

Conventional loans with 3% down do require higher credit score of 700, but you do get by with a smaller down payment. That isn’t the only thing that is smaller. The monthly mortgage insurance rate is only 1.15% of the loan amount. Also, there is NO upfront mortgage insurance premium rolled into the loan amount. If you have a qualifying credit score, this program comes with a smaller down payment, no upfront mortgage insurance premium, and a lower monthly mortgage insurance rate.

Conventional loans with 5% down only require a 660 credit score. The down payment is higher than an FHA loan, but again, there is no upfront mortgage insurance premium. Even with a 660 credit score, the monthly mortgage insurance will be less than an FHA loan. If you have a credit score in the 700s, the monthly mortgage insurance could be half as much as an FHA loan.

Whether you are a first time home buyer OR just someone looking to buy a home and need a small down payment, you have options other than an FHA loan. You can qualify for a conventional loan with as little as 3% or 5% down. In both cases, the monthly mortgage insurance will be less than an FHA loan. There is also no upfront mortgage insurance premium being rolled into the loan amount.

With all of the changes taking place to FHA loan, conventional loans are becoming more and more attractive. If you haven’t discussed a conventional loan with your mortgage broker, you should. If you are buying a home in the state of Georgia, contact me* and we can discuss it today!

* scroll down to the bottom of the page for my contact information

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FHA changes begin April 1st

February 12, 2013

blog-author-clayjeffreys2

As you may have heard OR read on this blog, FHA announced changes to their loans. Those changes take place on all case numbers assigned on or after April 1, 2013. Does this mean you need to be closed on a home by the end of March.

In the words of Lee Corso – not so fast my friend!

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The changes that increase the monthly mortgage insurance rate AND make the mortgage insurance permanent are for all loans with case numbers assigned by April 1st. That doesn’t mean you need to be closed by that date. Ideally, you need to be under contract by Monday, March 25, 2013 so your lender can order your case number. Under this scenario, you should have a case number before April 1st.

Typically it takes 24-48 hours to get a case number back, but there could be a rush on case number orders due to the April 1st deadline. To ensure you get a case number assigned before April 1, 2013, be under contract by March 25th. Have your lender order the case number ASAP, and you should have it back by the end of the week.

This means you don’t have to find a home and be closed in roughly 45 days from now. What it does mean is you have six weeks to get prequalified, find a home, make an offer, and get under contract. You can close after April 1st and still get the current mortgage insurance terms and guidelines for your FHA loan.

Looking to buy a home in the state of Georgia? Contact me today, and I can help y0u get started with the prequalification process.

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FHA changes officially announced

January 31, 2013

blog-author-clayjeffreys2

As I mentioned earlier this month, FHA has indeed announced changes to their guidelines. While FHA was approved by Congress to increase their monthly mortgage insurance rates by roughly 60%, the actual increase wasn’t that severe. Don’t get too excited though. There is one change that isn’t going to be very popular at all.

The announced changes include:

  • Monthly mortgage insurance for borrowers making the minimum down payment will see the monthly mortgage insurance rates increase from 1.25% to 1.35%. On a $200,000 that works out to about a $17 per month increase.
  • The biggest change is that mortgage insurance will be required for the life of the loan. Mortgage insurance will no longer fall off of the loan once you have 22% equity. You’ll pay monthly mortgage insurance for 30 years on a 30 year fixed FHA loan unless you make a 10% down payment when you buy the home (if you can make a 10% down payment, you more likely to be better off going conventional).
  • Borrowers with a credit score less than 620 and a debt to income ratio higher than 43% will require manual underwriting for approval along with a letter from the lender explaining why this borrower was approved. Individuals looking to buy a home that fall into this category will be hard pressed to find a lender who will process their loan.

As expected, these changes make conventional loans look way more attractive. For example, let’s assume you are looking to buy a home and have a credit score 720 or more. With today’s PMI rates, the monthly mortgage insurance on FHA loans is twice as much than conventional loans with a 5% down payment.

Let’s use a $200,000 purchase price again and compare FHA and conventional loans:

  • The FHA down payment is only $7,000, but the monthly mortgage insurance is $220 per month.
  • The conventional loan down payment is a little higher at $10,000, but the monthly mortgage insurance is $107. That is a savings of $113 per month (over $1,300 per year).

Why the changes? It is twofold. First, FHA is looking to raise money because their reserves are exhausted. Increasing mortgage insurance and requiring it for the life of the loan would help replenish their reserves that have been severely hurt by the foreclosure crisis over the past few years.

The second reason is to reduce the number of FHA loans they insure. By making it more expensive to use an FHA loan, it will steer borrowers to conventional loans – which is the goal of the government so they do not have to insure as many mortgages as they are currently funding.

The moral of the story – if you are looking to buy a home using an FHA loan, you want to get started and closed before these changes take effect. If you are buying in the state of Georgia, I can help you get started with the prequalification process today. Don’t delay as these changes are coming!

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FHA Exhausts Reserves

November 16, 2012

It finally happened… FHA and the Department of Housing and Urban Development are reporting their reserves are now exhausted with a loss coming at the end of the 2012 fiscal year. It was bad enough at the end of the 2011 fiscal year with reserves at just 0.24%. Now FHA is in the red. For the first time in FHA’s 78 year history, they may need a tax payer funded bailout.

How did this happen? When the financial crisis took hold in 2007-2008, subprime mortgages disappeared. Borrowers who could only qualify to buy a home using a subprime loan turned to FHA loans and their minimal qualifying standards. At the time, FHA had no credit score requirements and could use alternative forms of credit to qualify for the loan.

The increase in FHA loans was so dramatic, that many began to wonder if FHA loans were becomming the new subprime mortgage. I blogged about that possibility in the summer of 2008.

Fast forward a couple of years… with the increase in the number of FHA loans being originated coupled with the record number foreclosures, FHA was paying out way more than it was taking in from their mortgage insurance premiums. FHA knew this was coming and has worked to increase the amount of money coming in on the newly originated loans. FHA has increased the monthly mortgage insurance rate annually for the past several years, and looks like it will happen again soon.

FHA is currently saying a bailout may not be needed. Just because they do not have reserves doesn’t mean they don’t have the money to pay new claims OR that they need money from the government immediately. Until they need a bailout to continue to insure new loans, this isn’t a crisis… more of a concern. That said… the day could be coming.

Moving forward, it is only a matter of time before the monthly mortgage insurance rates go up again. If you are waiting to buy a home OR refinance an existing mortgage using an FHA loan, it would be good to get started now. Once FHA announces a start date for the increase in monthly mortgage insurance rates, there will be a rush to close on FHA loans under the current guidelines.

Avoid the rush by getting started today. If you are buying a home in the state of Georgia, I can help you get underway!

Even more changes to FHA loans

March 6, 2012

In my previous post, we discussed an FHA change that is soon to be implemented. There are a couple more being proposed or recently approved, which include:

  • Reducing seller contributions to closing costs: FHA guidelines allow for a seller to give up to 6% of the purchase price toward closing costs (lender fees, attorney fees, etc.) and prepaid items (setting up escrow account, home insurance, etc.). The seller cannot give any money toward the down payment. So even if the seller were willing to give the full 6% to the buyer, there has to be enough closing costs and prepaids to cover the contribution OR it goes back to the seller.

With today’s guidelines, even on a smaller purchase price, 6% would be enough to cover the closing costs and possibly some (or perhaps all) of the prepaid items. The proposed change would limit seller contribution to the greater of 3% of the purchase price OR $6,000. This sounds scary, but let’s look at the numbers.

If you take the greater of the two, then the minimum is $6,000. That is enough to cover closing costs and some of the prepaid items on the smaller loan amounts and the same can be said on purchases all the way to $200,000. Once we pass a purchase price of $200,000, then the seller contribution will go above $6,000. Once we get past this point, the numbers get even better.

For example, a purchase price of $250,000 gets you $7,500 toward closing costs/prepaid items. Again, this is enough to cover all closing costs and most of the prepaids. At a purchase price of $300,000, now the buyer gets $9,000. That is enough to cover closing costs and possibly all of the prepaids.

Why is this being made into a big deal? In states that have higher closing cost, this is going to make it more difficult for buyers with fewer assets to qualify for an FHA loan. In states such as Georgia, the impact will be miniscule.

  • Increase the up front mortgage insurance: for the first time in the history of FHA, there is a projected deficit in the mortgage insurance funds for FHA loans. This money is set aside to deal with foreclosures. With the slew of foreclosures over the past few years, the fund has dwindled. Once the fund is empty, FHA will have to ask the government for money in order to continue funding new loans. In addition to increasing the monthly mortgage insurance, FHA approved increasing the upfront mortgage insurance premium from 1% of the loan amount to 1.75% of the loan amount. This begins on all new loans date April 9, 2012 or later.

These are the items primarily being discussed. We know the upfront increase is approved, and as soon as a decision is made on the seller contribution, The Mortgage Blog will certainly update you!

In the meantime, how does this affect a potential buyer? From reading this post, you know the cost of getting an FHA loan is going to increase. If you need an FHA and are thinking of buying a home, go ahead and get the process started today. With the option of getting more money for contribution AND it costing less money from the mortgage insurance, FHA loans will only become less attractive in the coming months. If the property is in the state of Georgia, I can help get the ball rolling toward buying your new home!