Posts Tagged ‘mortgage insurance’

Which Type of Mortgage To Use – Scenario 1

August 13, 2019

Now that everyone understands the basics of FHA and conventional loans, let’s do a buyer comparison. Both Jack and Diane want to purchase a $300,000 home. They both have $11,000 (3.7%) for the down payment and qualifying credit scores of 680 for Jack and 795 for Diane.

With Jack’s 680 credit score, his monthly payment for a conventional loan (principal, interest, and mortgage insurance “MI”) would be $1,820.82.  For a FHA loan, his payment would be $1,563.19. There’s no comparison. For Jack, the better deal is the FHA mortgage, even though it has the draw backs of the up-front mortgage insurance and the permanent monthly mortgage insurance payment.

With Diane’s 795 credit score, her monthly payment for a conventional loan would only be $1,582.61. Her FHA loan payment would be $1,542.47.  In this case, Diane is also better off, at least initially, with the FHA loan. One thing to keep in mind is the MI premium. If Diane chooses the FHA loan, that premium is permanent (assuming Congress does not change the law). If she chooses the conventional loan, the insurance will eventually be cancelled, dropping her payment to $1,442. The key question for Diane is, “How long will you stay in the home?” If less than 5 years, Diane’s best bet is the FHA loan. If longer than 5 years, Diane may want to consider the conventional loan.

Notice the FHA payments for these examples. They differ by only about $21 even though the credit scores are drastically different (680 versus 795). This shows why FHA is better for those making a purchase with lower credit scores. The buyer doesn’t see as steep of an increase in their payment.

In the next blog post, we will make the same comparison with a 10% down payment.

Does your friend Scott talk about buying a house?  Does he understand which loan program is best for him?  If not, have Scott contact me. We Dunwoody Mortgage professionals understand the details of these mortgage programs, and we coach our buyers to make the best decision given their circumstances.  Often, with a slight change to their home purchase situation (change of down payment, paying down a credit card balance, etc.), we can help our clients save money with a better interest rate or a lower mortgage insurance cost.  Home buyers should consider all options before buying, and Dunwoody Mortgage offers the service and knowledge to help home buyers make the best decision possible.

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More potential changes to FHA loans

August 6, 2019

I’ve thrown up a posts over the past couple of months (here and here) about potential changes for condo purchases using FHA loans. How about a change on FHA loans that is beneficial for everyone!

A new bill working its way through Congress would make mortgage insurance for FHA more like mortgage insurance for conventional loans.

Currently, FHA mortgage insurance is permanent unless the buyer makes a 10% down payment. When making a down payment as large as 10%, often buyers use a conventional loan. Maybe there is a case where someone still wants to do an FHA loan (for example, a foreclosure 3 years ago is OK on FHA loans but not OK for conventional loans), but often 10% down means a buyer is using a conventional loan for their purchase.

With FHA’s current permanent monthly mortgage insurance, it makes FHA loans much less competitive with conventional loans. The new bill looks to change this situation.

If passed, the bill would change the cancellation date on FHA mortgage insurance from “until the loan is paid in full” (meaning permanent for the life of the loan) to when the loan balance is 78% of the homes original value. Meaning, the mortgage insurance is no longer permanent.

The current set up with mortgage insurance on FHA loans really isn’t fair to the home buyer. They are way over charged paying mortgage insurance for the life of the loan, and the change could make FHA loans are more viable alternative for buyers making the minimum down payment on a home purchase.

Can’t decide if an FHA is right for you? Contact me and we’ll find out! If you are buying a home in the state of Georgia, I can also get you prequalified and ready to make an offer on your new home.

Types of Mortgages – FHA

July 23, 2019

Given recent mortgage program changes, now is a good time to review the pros and cons of the major loan programs and when borrower circumstances favor one specific loan program.  In the last few years, many of our clients have used the conventional Home Ready program.   Without Home Ready, many of these buyers would have used FHA loans.  Given the Home Ready changes, we expect more future buyers to use FHA loans.

So let’s talk about FHA loans!

  • In the metro-Atlanta area, buyers can purchase homes up to about $390,000 using a minimum down payment (3.5%) FHA loan.  That is a lot of home!
  • Relative to conventional mortgages, FHA loans are generally more forgiving of credit “issues.”  This means lower credit score borrowers will most likely get a better FHA interest rate versus a conventional loan.
  • FHA allows for lower credit scores and shorter wait times following derogatory credit events, such as foreclosure or bankruptcy.  Borrowers typically need a 620 score to qualify.  Depending on other borrower details, Dunwoody Mortgage may be able to close loans where the borrower’s credit score is as low as 580.

Both FHA and conventional loans require monthly mortgage insurance “MI” for down payments less than 20%.  For FHA, the monthly premium is a flat 0.85% of the loan amount.  Conventional loans determine the premium based on the borrower’s credit score and down payment.  FHA loans also have an up-front mortgage insurance premium.  FHA monthly MI is permanent if the down payment is less than 10%.  Note that Congress is now considering a bill to automatically cancel FHA MI similar to how conventional loans cancel the insurance.  More to come on this story.

In the next post, we will review conventional loan details.  For now, if you know someone looking to buy a Georgia home, please refer them to me.  We Dunwoody Mortgage professionals understand the key loan program details and we coach our buyers to make the best decision given their circumstances.  We can help our clients find ways to lower interest and mortgage insurance costs.  We have a strong record full of very positive customer reviews.


Low Down Payment / Credit Score Mortgage Options

January 16, 2019


Joe Tyrrell, an executive with mortgage software company Ellie Mae, recently stated, “People still have the misunderstanding that they need a FICO score above 720 and more cash for a down payment, so they don’t apply for loans because they assume they’ll be denied.”  These would be borrowers are self-selecting themselves out of the home buying market based on false assumptions.  So let’s clear up some mortgage myths.

Firstly, borrowers do not a need “great” credit score to win mortgage approval.  Conventional loan guidelines allow credit scores down to 620.  FHA loan guidelines allow credit scores down to 580.  And now non-traditional loans exist that can approve borrowers with scores down to 500 and derogatory credit events (e.g., bankruptcy or foreclosure) in the last two years.  Note that the lower one’s credit score, the higher the interest rate the borrower will face.  But FHA interest rates for lower credit score borrowers are not ridiculously high relative to rates for higher credit score home buyers.


Secondly, winning loan approval does not require home buyers to break their proverbial piggy bank and make a large down payment.  Home buyers can obtain FHA loans with a minimum 3.5% down payment, and they can win conventional loan approval with a 3% down payment.  And if the home buyer qualifies, he / she could obtain a low-interest Home Ready or Home Possible loan with a 3% down payment.  Qualifying military veterans can secure 0% down payment VA loans.  Buyers in rural areas can receive 0% down USDA loans in approved counties.

What may confuse potential home buyers about down payments is the fact that conventional loans require a 20% down payment to avoid mortgage insurance.  But as long as the buyer can win loan approval with the added monthly mortgage insurance expense, the buyer can get their mortgage with a down payment of only 3%.  This 20% down payment myth  requirement is widely held.  Even some financial journalists hold this incorrect notion, as shown by this statement in a recent Wall Street Journal article, “While conventional mortgages can require buyers to put down as much as 20% of the purchase price up front, FHA buyers can pay as little as 3.5%.”  Regardless of what some journalists write, I can help home buyers win conventional loan approval with a down payment as low as 3%!!

Home buyers should remember that they will have to pay closing costs and prepaid escrow in addition to the down payment.  So buyers should plan to invest more cash than just the down payment at closing.  But buyers have options to help with their cash to close needs.  We will explore those options in the next post.

For now, do you have a friend or co-worker who wants to buy a house but is concerned about the down payment or credit score requirements?  Connect them with me and I will help them obtain the best mortgage for their financial situation and home needs.

VA Mortgage Volume Grows (Again)

December 28, 2018

For the seventh straight year, the number of homes purchased using VA mortgages has increased.  VA home purchase loan volume has increased dramatically in the last five years – up 59%.  610,000 VA home loans have been closed in the current fiscal year, generating $161 billion in loan volume.  According to Chris Birk, director of education at Veterans United, “More Veterans have used this $0 down loan in the last five years than in the prior dozen years combined.”  VA loans now comprise about 10% of the residential mortgage market.

Many experts consider the VA loan to be the “most powerful home loan on the market.”  One key reason – low interest rates.  Industry researchers report that VA loans have consistently had the lowest interest rates for 53 straight months.  A second key reason – veterans can obtain a loan with a zero down payment.  That enables many veterans to buy now instead of waiting several years while saving money for another loan program’s minimum down payment.  A third reason – VA loans require no monthly mortgage insurance payment.  Combining these three factors can make a home purchase much more affordable for American military veterans.

 

 

Given the many VA loan benefits, any veteran considering a home purchase should investigate the VA loan option.  The first question a veteran should ask is, “Do I qualify for a VA loan.”  A prior Mortgage Blog post from 2016 addresses this question in detail.  See the post, VA Loans:  How to Qualify, by Clay Jeffreys.  The key update to this post is that the 2019 VA loan limit will be $484,350, as opposed to the $417,000 amount valid in 2016.  A quick summary is that VA loans are available to the following people:

  • People who were on active duty for 90+ days during wartime.
  • People who were on active duty for 181+ days during peacetime.
  • People who served 6+ years in the National Guard or Reserves.
  • Spouse of a service person who died in combat OR resulting from a service related disability.
  • Some people who have served as public health officers or in the Coast Guard.

To qualify, veterans must submit service related documents to the VA, which then provides a Certificate of Eligibility (“COE”) to the mortgage lender.  For example, active duty personnel submit the military form DD-214 to obtain the COE.  The VA requires different documents for National Guard and Reserves personnel.

Instead of standard monthly mortgage insurance, the VA charges a funding fee, based on the home buyer’s service record and down payment percentage.  The lender simply adds the funding fee to the loan balance.  See the post, VA Loans:  Funding Fee, by Clay Jeffreys for a more detailed funding fee explanation.

Do you know a veteran considering a Georgia home purchase?  We at Dunwoody Mortgage love helping veterans buy homes.  We deliver these great VA loan benefits with the excellence service all Dunwoody Mortgage customers receive.  Tell veterans you know to call me.  We will treat them with the honor, respect, and excellence they deserve.


Government impact on housing

August 7, 2018

Sometimes the government gets involved in areas, and things get worse. Here is one area where inaction would be really bad – flood insurance.

On the last possible day, Congress avoided a lapse in the federal flood insurance program when the Senate voted to extend the program through the end of November. The National Flood Insurance Program would have expired July 31 without this action. So the program has been extended, but still doesn’t include any reforms to the program. Despite years of debate and proposals to reform the program, reforms have stalled. In lieu of any changes, Congress has kicked the can down the road another few months. We’ll get to do all of this again in a few months.

This isn’t a case of “they’ll do anything to prevent a lapse of flood insurance coverage.” Congress has let the national flood insurance program lapse some in the past few years. Here is hoping the next change/extension/reform won’t be at the very last minute, but something tells me it will be.

In other mortgage news from the government, it appears the current set up for FHA mortgage insurance will remain the same. There will be no decrease in the monthly premium AND the insurance will still be permanent for the life of the loan.  FHA’s insurance program works differently from private mortgage insurance, which typically falls off after a certain amount of time.

The FHA’s policy wasn’t always this way. The FHA’s previous policy required borrowers to pay mortgage insurance premiums until the outstanding principal balance reaches 78% of the original home value, but the FHA instituted the life of loan policy back in 2013. This action was part of the effort to improve the status of their mortgage insurance fund. While there were some good years of rebuilding the fund, the decline of the funds balance in 2017 caused FHA to pause in potential changes to mortgage insurance.

Currently, the mortgage insurance is so high on FHA loans that it rarely makes sense for a borrower to consider using an FHA loan unless they have really low credit and/or a very high debt threshold. Good credit, low debt, but short on the down payment? Conventional loans allow only a 3% down payment (compared to FHA’s 3.5% down payment). Hopefully FHA can update their mortgage insurance policy in the near future to provide more options for well qualified borrowers.

Looking to buy a home before the end of the year? Ready to have a new home for the holidays?!? If you are purchasing in Georgia, contact me today. I’ll get you ready to make an offer in one quick phone call.

My (FHA Loan) Christmas Wish List

December 19, 2017

FHA loans are great for certain borrowers.  I look to FHA loans when my clients have credit scores of say 680 or less, little available cash for a down payment, and want a 30 year mortgage.  FHA loans also can help a home buyer who has a higher level of other outstanding debt, as FHA guidelines allow slightly higher debt to income ratios.

FHA loans typically offer lower interest rates than conventional loans, but they do have some limitations.  But now there is some movement in Washington to change some of these limitations.  Let’s pretend that the federal government is Santa Claus.  Here’s my FHA mortgage wish list:

  • Rep. Maxine Waters, D-Calif has introduced the Making FHA More Affordable Act.  This bill would repeal the “life of the loan requirement” for FHA mortgage insurance.  Right now, if a borrower closes an FHA loan with a less than 10% down payment, the mortgage insurance is permanent – it never goes away.  In contrast, the mortgage insurance is cancelled automatically on a conventional (non-FHA) mortgage when the outstanding principal balance reaches 78% of the home’s original value.  In my opinion, this would be a good change for consumers who need FHA financing.  I don’t think they should have to pay the mortgage insurance after they have 22% equity in their home.
  • Under Ben Carson, the federal Department of Housing and Urban Development (HUD) issued a report signaling an easing in FHA requirements for condominiums.  Currently, to close a FHA loan on a condo, the condo complex must be on the FHA approved list.  Condos apply for FHA approval based on a number of FHA-specified criteria.  If the complex is not on the FHA approved list, a buyer cannot obtain a FHA loan and must obtain conventional financing.  The National Association of Realtors reported that of the 614,000 condo sales in 2016, only 4% were closed with FHA financing. 
  • In addition to loosening FHA condo complex approval guidelines, the administration is also indicating that it wants to revive FHA’s “spot loan” program.  This program allows homebuyers to purchase a  condo in a complex that has not been approved for FHA financing.  Some estimates have claimed that without the spot loan program, 90% of condo projects cannot have buyers with FHA mortgages. 

We mortgage lenders must work within the rules defined by the regulators – we don’t make the decisions.  But I think the above changes would be very positive, as they would make home and condo ownership less expensive and more realistic for buyers who need the FHA loan program. 

If you know a potential home buyer in Georgia who wants to know if they are on Santa’s, sorry, FHA’s, “good list,” have them contact me at Dunwoody Mortgage.  We will work within FHA guidelines (and explore other potential loan options) to make sure they get the best deal on their mortgage, and hopefully enjoy some FHA guideline “gifts” from Washington soon.

Merry Christmas and Happy Holidays!!

Geographic Income Limits for Home Ready Program

May 1, 2017


One potentially limiting aspect of the Home Ready program is that income limits are specified by census tract.  (Notice I said “potentially.”  We will get back to that point very soon.)  To qualify for the program, the borrower’s income must be less than or equal to the income limit set for the geographic area of the subject property.  Fannie Mae specifies and publishes the geographic income limits as part of the program.  Many areas in Metro Atlanta have an annual income cap of $67,200, but there are many other areas that do not have an income limit.  Now back to the word “potentially.”  If the home you want to buy lies in a no-income-limit area, you could make a million dollars per year or even per month and still qualify for a Home Ready loan for that house.

Two key points to remember here:  First of all, the income limits are based the subject property’s location, so you can have varying income limits in different parts of the same county.  In fact, the eligibility maps go down to the street level, which means that houses on one side of a street could carry a $67,200 income limit and houses on the other side of the same street could have no income limit.  Secondly, the income limits apply only to borrowers on the loan.  If two employed people plan to live in the home, but only one of you is on the loan, then the other occupant’s income does not count toward the income limit.  Of course that means that the sole borrower must qualify for the loan using his or her income only.   

So how can you determine whether you qualify for the Home Ready program’s low down payment / low-interest rate / low mortgage insurance benefits?  You can call me at Dunwoody Mortgage!!  We will first discuss your income and the geographic area where you want to buy.  I can look up the area online and determine whether your income qualifies for Home Ready in that area.  If you meet the geographic income limits, we will complete your loan application, pull your credit report, and run your application through our Automated Underwriting System (“AUS”).  The AUS findings will then determine if you do qualify for Home Ready’s great benefits. 

Buying a house in Georgia and curious whether you can obtain a Home Ready loan?  Give me a call and we will review Home Ready and your other loan options.  Don’t think you will qualify?  We at Dunwoody Mortgage have secured loans for many customers who initially thought they would not qualify.  Don’t assume you cannot win loan approval!  Call me and let’s discuss your situation.  We might just surprise you!! 

 

 

 

LPMI Loans – Things to consider

May 7, 2015

blog-author-clayjeffreys3

Continuing a series on LPMI loans, or Lender Paid Mortgage Insurance. Last time I introduced LPMI loans. Today, I want to focus on two things to consider when deciding between using a conventional loan with monthly mortgage insurance OR using a LPMI loan.

#1. Credit – I bet you could have guessed this one! With a higher credit score, the impact to the interest rate is decreased. That said, the lower the credit score, the more the interest rate will be increased.

Remember how LPMI loans work – the borrower won’t pay a monthly PMI payment, but to do so, they are agreeing to a higher interest rate. How much higher? Let’s take a look at two examples of a $300,000 purchase price with 5% down. That gives us a loan amount of $285,000 on a 30 year fixed rate loan.

– 760+ Credit Score: the interest rate on the LPMI loan is 0.375% higher. While the mortgage payment is higher, when you factor is NOT making a monthly mortgage insurance payment, the LPMI loan is lower by about $65 per month.
– Under 720 Credit Score: this time, the net total payment is about $30 less going with the LPMI option. The drawback is the increase to the interest rate, which is 0.750% higher going with the LPMI loan.

The lower payment with the LPMI loan is great, but having the interest rate increased that month is tough to swallow (at least it is to me). The moral of the story is this – an LPMI loan may make more sense for those with excellent credit.

#2. Down Payment – the more money that is put down at the time of the purchase will lower the impact to the interest rate when using an LPMI loan. For example, let’s look at a 5% down payment versus a 15% down payment on our $300,000 purchase price.

– 5% down: it would take about 9 years for monthly PMI to fall off making the minimum monthly payment.
– 15% down: it would take a little over 4 years for monthly PMI to fall off the loan.

The borrower may have the lower monthly payment using an LPMI loan, but why go with the higher rate if the monthly PMI will fall off in only a few years. With an LPMI loan, you are stuck with a higher rate for the life of the loan. The monthly MI payment may result in a higher mortgage payment for a little while, but when the PMI falls off, you’ve got a lower monthly payment. The moral of the story is this – an LPMI loan makes more sense when making a smaller down payment.

How to decide? Tune in next time when we ask the question that helps to decide which option is best for you!

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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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