Archive for the ‘FAQ’s’ Category

Debt-to-Income and FHA

Wednesday, February 13th, 2008

As a consumer housing advocate, I teach on home ownership often. When consumers are preparing to purchase a home they think about where they want to live, the type of house they was whether it is pre-existing or building, even the school system in the neighborhood and the distance from their job. Granted, those are very good requirements that all consumers should consider, but I say to you there are even more items you should consider.

Purchasing a house is a major purchase and should not be taken lightly. Do not choose a house based on keeping up with the Jones’s, relatives or friends that have a certain type of house that you like. I recommend that you do not even purchase more house than you can afford. Maybe you are reading this and asking yourself, what do I mean by that? There are people that purchase homes and then they cannot afford to furnish the house. You probably know what I am talking about now, you drive by the house and there are no window treatments and you can see all in the house. Do not misunderstand because when we moved into our homes both times we took our time with furnishing our home and did it without incurring extraneous debt. We made the choice and paid for all of our furnishing with cash and on our own schedule not anyone else’s.

When you are not educated with good information you can make the mistake of overbuying. What that says to me is that you are not aware of your finances down to income and expenses. A very crucial item that you need to sit down and factor out is what your debt-to-income ratio is. I strongly advise that you figure this out even before you start looking for a house.

Let me define for you what debt to income ratio means and then elaborate on how it pertains to FHA if you are considering getting an FHA loan. Debt-to-income ratio is the percentage of a consumer’s monthly gross income that goes toward paying debts. Remember, gross income is a person’s income before all deductions. The debt-to-income ratio can include certain taxes, fees and insurance premiums. This is what lenders look at to determine what percentage of your income is available for a mortgage payment after all continuing obligations are met.

Therefore, if you are applying for an <a href=””>FHA loan</a> and are not sure what their debt-to-income ratio is let me share with you. After doing much research, I found out that the FHA has a 29/41 rule which means this:

Gross monthly income times 29 percent equals the amount that can be applied towards housing

Gross monthly income times 41 percent equals the amount that can be applied towards recurring debt and housing expenses.

This formula all in itself can help you decide if you are in a financial position for home ownership. Use this formula as an educational tool that can help you in the home buying process.

Dr. Taffy Wagner

Can I Refinance my FHA Loan?

Friday, December 28th, 2007

With all this talk in the news and media about foreclosures lately and different programs to help those facing foreclosure, I began wondering about refinancing. So many times people refinance their loans and I thought someone is probably asking themselves this very question – can they refinance their FHA home loan? While they are thinking about this question to themselves and not asking a person, they begin to become anxious about their housing situation. Not knowing the answer to questions can lead one to a path of wrong decisions and stagnant path, not taking action which can be detrimental. Read the below information slowly and carefully because this could be the answer you are looking for.

An FHA streamline refinance is a mortgage refinance of an existing FHA loan with limited amount of documentation and qualifications which streamlines the process. I have to admit when I think back to the loan processing for purchasing a house or car, it takes up some time. Sitting there going through pages and pages of information, terms, and more making sure nothing is left out. I applaud the fact they have streamlined this process. These times made me feel as if I was enlisting in the military again. Now that you are aware of what a FHA streamline refinance is, let me share regarding the cost. This is always going to be important. There are many types of interest rate and fee combinations for FHA streamline refinance. Check with your lender for what the parameters are.

You know that I could not let you guys think that is all there was to this loan. Of course not, there are qualifications. You should not even be surprised because you have to qualify for most things today. Seems there are only two qualification requirements which are (1) must currently have a FHA loan; and (2) must be current on mortgage payments. I ask you if you were not current, why would you be applying for an additional loan? It does amaze me sometimes watching the news hearing what people are saying.

For those that were preparing to ask this question, is there a difference between a normal refinance and an FHA streamline refinance, the answer is a strong yes. The difference from what I surmised is qualifications and documents required to qualify for the loan. The benefit to me is streamlining. If this limits the amount of documents and qualifications, this could be the one for you. A big one before I forget is that with a typical refinance loan the loan cost will be higher than an FHA streamline. Oh another huge benefit to this is FHA does not require an appraisal for a FHA streamline. How many of you know the costs of an appraisal can sometimes get you? For that reason alone, you should be doing your homework and researching what you think is best.

The main concern I have is that you go to a loan officer and have not fully done your research on the type of loan you are seeking and then get turned down. You can never have too much knowledge. Take the time to research all types of loans and decide on what works best for you.

Taffy Wagner

When Can I Stop Paying My Monthly FHA Mortgage Insurance Premium?

Thursday, November 1st, 2007

If you are someone that has had a FHA Loan for a period of time, you might not have realized that you don’t have to always pay mortgage insurance premium. I remember when my husband and I first bought our house this was something we talked about. Then as time went on, we forgot about it.

I did some research and thought I would answer this question here this time. What I am about to share is food for thought. You will want to get rid of your premium mortgage insurance because it is not tax deductible, like mortgage interest. I’m always happy to receive that statement at the end of the year from our mortgage company in preparation for our taxes.

When you first purchase a home, you are looking for all the deductions you can get. True you get a lot that first year you purchase the home more than the following years, because you have points as well as mortgage interest and some other items. Let’s get back to premium mortgage insurance and when can you stop paying it.

I must share that this very question was addressed in a lot of different places. One of them being What I liked was that the lender could not force you to keep the PMI once the loan-to-value has gone below 80%, however, the lender will not advise you when you are eligible to discontinue the coverage and stop making the mortgage insurance premium (MIP) payment. I have to say, if the lenders did contact the buyers even months or years down the road regarding discontinuing their mortgage insurance premium, what do you think the buyers would think of their loan company?

I know that I personally would be recommending that loan officer to everyone that I knew would be purchasing a house. However, it is left up to you to keep a track of what is happening with your loan. To find out where you are with your loan, take a look at your most recent mortgage statement, even if you are paying electronically. The files are usually up to date. Divide the remaining principal by the original purchase price of your home. If that number is below 80%, call the lender and find out their specific procedure for removing premium mortgage insurance.

Before you do anything, remember, remember, it is the responsibility of the buyer (you) to track the debt to value ratio and make the arrangements to stop premium mortgage insurance.

I continued researching to see if there was any more information I could share with you that would help you answer this question. When I was reading the website it actually gave more information based on the different loan amounts. Here is what I mean, it stated it you have a mortgage that is 15 years or less and the loan to value ratio of 90% and greater, the mortgage insurance premium will be terminated when the loan to value reaches 78%, irrespective of the length of time the borrower has paid the mortgage insurance premium. I want to caution you if you have a 15 year or less term, to check with your lender as to their procedures. Because I am always hesitant when terminology like “will” gets thrown around. Sometimes they don’t follow through.

Look at your statement and see where you stand with mortgage insurance payment. You might find that you can stop at this time. Follow your lenders procedure for discontinuing.