Why FHA Loans Are Cheap Home Loans

December 6th, 2008

FHA loans are loan insured through the Federal Housing Administration.  These loans are not held by or funded by the FHA, but rather funded by commercial lenders (they must be approved prior to providing these loans.) What makes them different is that the lender is able to take an “insurance policy” out on the loan. If the borrower of the loan defaults, the lender is able to recoup some of their invested money by selling the property and by collecting an FHA insurance payment.

What Does This Mean To You?

As you take into consideration how the FHA works, consider how it affects you, the individual hoping to purchase a home in a troubled economy. There is no doubt: now is the time to buy especially if you have a good credit score, a down payment and want a good deal. Home prices are at much lower prices than they were just a few years ago. But, what if you want to save even more money on your home loan purchase?

To get cheap home loans, consider FHA loans. Because these loans have an insurance policy on them, of sorts, the lender is less at risk of losing their investment in the loan. With the opposite type of loan, a conventional loan, there is no guarantee that they will be able to make up this cost. Even if they foreclose on the property of a default borrower, they still take thousands in losses.  To the lender, the risk of an FHA loan is lower and therefore they are not as worried about the loan. In return, interest rates are lower.

Lower Risk = Lower Interest Rate

There is no way to know what your interest rate will be until you apply for or at least talk to an FHA loan specialist. You are likely to get a far lower interest rate with an FHA loan than you would if you obtained a conventional loan.

Where’s The Catch?

Many people fear a catch. What is behind this type of loan? You still have to qualify for the home loan. You still have to have a down payment for the home loan, but it is far lower than those f conventional loans. You do have to have a decent credit score. The days of having a very low credit score and no down payment and still getting a home loan are gone.

Nevertheless, FHA loans are solid investments. They can help more people to qualify and they are, by all accounts, the cheap home loans you are looking for.

Mortgage Lending Freeze Makes It Difficult For Self Employed To Get Home Loans

December 2nd, 2008

While there are many proposals in the works to help the ailing mortgage industry, one group seems to still be struggling to get into a decent home loan even with good credit. That is the self employed. Mortgage loans have always been somewhat difficult to get if you do not have a standard job, but the current trends seem to make it a bit harder.

Are You Self Employed?

The credit markets are starting to thaw and that means that more people are able to qualify for home loans. Those that are self-employed are still struggling to get the same treatment.

Self employed individuals, such as doctors, attorneys, small business owners and even accountants, may have good or better credit and a sizable back account, but without that steady paycheck, many lenders have shied away from loaning to these individuals. The problem is the lack of a W-2, the document that most people get in the mail at the end of the year stating that they worked for a company and earned a set amount of money. Rather, self employed individuals seeking a home loan will need to use an income tax return instead. Tax deductions that many of the self-employed receive often lessen the income, too, making it harder to prove that they do make enough to afford a home loan.

What Can You Do?

If you are in this position, where you are struggling to get a home loan because you are self employed, you may qualify for FHA financing. The FHA provides more flexible terms for borrowers. There are still specific goals that need to be met, including minimal down payments on the home and a decent credit score. Yet, the FHA loans are often easier to obtain for those who have trouble proving their income. These loans can be the best opportunity for individuals who may struggle to qualify for other types of loans.

According to some lenders, credit is the most important factor in obtaining a home loan. Yet, for the self employed, even high credit scores (in one case a woman was denied a home loan even though her net worth was three times that which she was requesting and her credit score ranked in the high 700’s) can hold you back. Proving to lenders that you are a good credit risk can be tricky, but it is something you must do.

FHA lenders can help you to avoid some of those obstacles. You still need to show income proof and you will need to be qualified for the home loan. FHA requirements are much lower. You will still need to meet qualifications including:

  • 2 years worth of income tax returns
  • If you have less than one year of self employment income to prove, you may not be eligible without some other proof of employment prior to this
  • Federal business income tax returns for the last two years, for all corporations of “S” corporations and all partnerships
  • Profit and loss statement and balance sheet showing your income
  • A credit report from your business, in some cases

The FHA lender will need to take your income over the last two years (which you need to have proof of,) and will average it over that time. Provide them with additional information, such as income growth patterns over the last months. A detailed letter explaining expenses as well as any fluctuations in income is important.

With a good credit score, there is help for those who do have the need for a home loan even if they are self-employed.  FHA specialists can help you to qualify for these loans.

HUD Mortgage Modification Program Offers Some Help

November 24th, 2008

As a homeowner struggling to make your monthly payment, you may have to choose between things like seeing a movie, Christmas presents or even food on the table just to keep the roof over your head. In a recent press release, HUD, the Department of Housing and Urban Development announced a new loan modification program, which has plans to offer individuals struggling with their mortgage some help.

Note The Changes

The program, being called Hope for Homeowner, has undergone some further modifications. The goal is to get lenders to participate, something that has to happen for anyone to get their loan under the microscope for improvement. The new modifications to the program allow the lenders to write off less of the loan value than in prior situations.

The homeowner will benefit from this program because the lender will renegotiate the mortgage with them. They get a lower monthly payment and therefore have the money they need to make the monthly payment. In order to help make this possible, the loan terms (the length of the loan) can now go to as much as 40 years.

The Hope for Homeowners program is designed to help individuals to get into new loans if they are struggling with their own. The goal is to make the loans affordable for each borrower, so that foreclosure can be avoided. To do this, the rules of the program state that the monthly payment on the mortgage cannot be more than 31 percent of the homeowner’s monthly income.

The rules also allow for the lender to write down the loan to 96.5 percent f the home’s actual value. This is up from the 90 percent it was when the program first came to be this summer.  Another change is in the amount of debt that the home has. As a homeowner, you may not have household debt of more than 43 percent of your monthly income.

In order to qualify for the Hope for Homeowners program, your home loan must have originated prior to January of 2008. You also have to have a loan amount that is lower than $550,440.

Do You Qualify?

Many people may qualify for this program. Others may not. All should make the move now to find a solution to their current financial situation.  The Hope for Homeowner program is one option that many people have, and anyone who may be struggling right now to make their loan payments should contact a loan specialist to get some help in qualifying.

If you are otherwise struggling with your debts, even if you do not quality for this specific program there is still help available to some. Refinancing your loan is an option. There are also program in place to help you to liquidate the lien you have on your home through a second mortgage or equity line, so that you can actually qualify for the Hope for Homeowners program or refinance your home otherwise.

These changes to the program may in fact help encourage more lenders to start working with their struggling borrowers. You do not have to wait to see if your lender approaches you, though. In fact, you likely should not do this. Rather, you should work with an FHA loan specialist or other lender to try and find a better solution for your loan. In many situations, homeowners are never aware that they do have options for saving their home.

In fact, even if you are not behind on payments or struggling to make them, these professionals can help you to refinance your loan into more affordable terms or to help you simply to save money.

Can Anyone Get A Home Loan?

October 24th, 2008

As someone that writes about home loans on a regular basis, I fully understand the frustrations so many are going through. The fact is, people are wondering several things.

 

  • Some think mortgage companies are going to come calling to demand payment on full on their mortgage 
  • Some people believe that no one will get mortgage loans again, not for a long time
  • Others think that the mortgage crisis is going to cause them to lose their home even though they have made payments regularly throughout their loan

These are all mistaken beliefs.

 

While there are some instances when the mortgage companies can come demanding payment in full on your loan, this only happens when you are in foreclosure, after months of trying to get you back on track. Most lenders want you to keep paying them, they don’t want to own your home. For those who are making timely payments, your mortgage loan will not become due immediately.

 

As for the second concern, there is some concern here, but not nearly as much as you may think. First, there are loans available from nearly all of the traditional mortgage lenders in business. The requirements are stricter with some lenders requiring more down and a higher credit score before they will lend. Call it the “once burned, twice shy” scenario with home loans.

 

At the same time, for those without a lot of money to put down and with a credit score that is not as high as it could be, there is the FHA.  FHA loans are still available for most American home buyers. These loans require much less down (just 3%) and they provide you with an outstanding assortment of opportunity: even the fact that these are fixed rate loans.

 

On the final concern, as long as you keep paying your mortgage back on time, your loan is going to be in good standing and to the mortgage lender, you are a good person to have on board. The only way for lenders to make money is to lend money and charge interest.

 

Is Now A Good Time To Buy?

 

Here’s another situation I hear which is one of the biggest problems with the market right now. People who have the money and want the home are avoiding the market. This is a mistake and here’s why.

 

  • The current interest rates on home loans are at an all time low: just 5 percent in some cases. This is the perfect time to buy.
  • Lenders want good buyers. They are actively looking to lend to those that want to buy.
  • Home prices are also low: lower in some areas than they have been in ten years.

No matter which way you look at it, now is the best time to buy a home, if you qualify for a home loan. If you are not sure if you do qualify, a good place to start looking is through a FHA loan specialist. These professionals provide guidance to prospective home buyers. They also have the ability to help you qualify. These are not bad mortgages, these are good mortgages and some of the safest investments to be in right now.

Home Buyers With Less Than 20 Percent Down Need FHA

October 18th, 2008

It used to be common that purchasing a home with little to even no money down was acceptable, especially when you were a first time homeowner with decent or better credit. This “used to be” was in fact just a handful of years ago. The problem is now that lenders are not willing to take on that level of risk any more.

As one of the problems of the current credit crunch, people from all walks of life are finding it more difficult to obtain the loan they need and want to buy a home. The only organization offering any type of mortgage loan under 20 percent down is the FHA. FHA loans with low down payment are becoming the best route for those homeowners who just want to find an affordable solution to buying a home.

Why Creditors Just Aren’t There

Over the course of the last two years, many lenders who typically provide home loans have faced a number of foreclosures on their properties. Some continue to lose money on these properties and are facing an incredible decision: risk losing more money or only lend to those less likely to default.  By requiring a larger down payment, the homeowner is less likely to walk away from their loan since they have a stake in the property. Therefore, these loans are less risky to lenders.

Here’s the kicker: in order for the credit markets and financial markets to get better, the housing market must improve.  In order for the housing market to improve, banks have to lend to borrowers so they can purchase the homes. The cycle is quite limiting and stressful.

What To Do If You Don’t Have 20 Percent

The American family just starting out may have a small amount of money set aside, but most do not have 20 percent for a home. They are struggling to find lenders who will qualify them for a home loan. If you are one of those looking for a home loan with a low down payment, one of the best places to look is the Federal Housing Administration, or FHA.

Here’s how you will benefit from an FHA loan:

  • Down payments as low as 3%
  • Low interest rates on home loans
  • Easier qualifications for home loans than most traditional lenders
  • Fixed rates: giving you stability in your repayment terms
  • Help even with less than perfect credit
  • A variety of programs for those who need help or have unique requirements

They are federally backed loans, with a larger amount of flexibility. What is important is to note that the current credit freeze traditional banks are placing on the housing market is unlikely to change right away. But, FHA can help you to get the home you need and want.

Contact a professional to talk about your options. When 20% down is too much, these lenders can help.

The Stocks Are Tanking: Here’s Where To Put Your Money

October 15th, 2008

Today, the stock market fell, again. How in the world will people make money if they keep losing it? The fact is, the financial markets are horrible and they are shaking even the most seasoned professional investors. So, as an individual with money, where should you put it?

One option you do have is to put the money towards a home investment. Buying real estate now just makes sense. In some areas of the country, the value of real estate has fallen 10 percent, 25 percent or as much as 50 percent. The good news is that the homes are still as highly valued (outside of the financial sense.) Buying a home now can help you safely invest your money. Consider the following.

Let’s say that in your area you invest in a home selling at $200,000. You secure a home loan at 6% through the FHA with a fixed interest rate. You put down $6000, which is the minimum 3% investment the FHA requires as a down payment.  You have a $1200 mortgage payment.

Over the next few years, the home continues to rise in value, as many real estate investors believe that this is the bottom and that housing values will continue to rise. So, in 5 years, at just a 3% gain in value per year, you could have a home valued at nearly $220,000. This would be a low gain, but a safe one.

As you can see, socking your money away into a home loan could make you a sizable profit over the long term. But, even as the market stays well priced, your money is safe. It is not going anywhere. Even if property values fall, you will still be making money in the long term. There is no telling what the future of the stock market is today, but there is only so much real estate available.  It is one of the safest loans.

Do You Qualify?

To get into a safe loan, do consider FHA loans. These loans are the most well priced homes you will find in the coming months. They offer a low down payment. They also provide you with a low interest rate that is fixed for the life of your loan. Those with credit scores that may be slightly low may still qualify for these loans. There are just so many options available.

It is your money and no one wants to lose their money. When you invest in real estate, you do not put your money on the line with investors who may or may not be too scared to allow the stock market to grow. Rather, you have a security at a very low rate. That home you bought for $200,000 was valued at $250,000 or even higher just a year and a half back. As the housing market picks up, it could be back at that level in just a few short months.  For most, this is an option for you.

Hope for Homeowners Program: Refinancing Opportunity for Borrowers

October 8th, 2008

With all the latest legislation passing through Congress specifically aimed at the housing market, it’s getting not only harder to get loans but more difficult to understand it all.  Luckily, the HOPE for Homeowners Program looks to be one with a basic breakdown.  The program has authorization under the National Housing Act, which was amended earlier in the year by the Housing and Economic Recovery Act of 2008.

What Does It Say?

HUD issued Mortgagee Letter 2008-29 detailing what this program includes.  First, it gives any current or delinquent borrowers the ability to refinance into a 30 year fixed rate loan through FHA. In order to qualify for this aspect, you must have made at least six payments on the mortgage prior to requesting the refinance.

Additionally, the program is designed for those who have a debt to income ratio higher than 31 percent with their current home loan.  The original loan must originate prior to January 1st, 2008.

  • Payment to income is limited to 31 percent while debt to income is limited to 43 percent.
  • These numbers may be higher, according to the program, following a three-month trial modification put in place through the program first.
  • There is a maximum loan of $550,440 on all loans through the HOPE for Homeowners program, (referenced as the H4H program.)
  • There is also a restriction of a 90 percent loan to value in place on these loans.
  • All homes must be owner occupied homes, on one unique properties
  • FHA approved appraisers must appraise the properties within three months prior to the closing
  • Origination fees are capped at 1 percent
  • Buyers do not pay closing costs and prepaid items upfront
  • A 3 percent upfront mortgage insurance premium and annual premium up to 1.5 percent will be applicable.

One of the unique aspects of the HOPE for Homeowners program is that lenders must insure that appraisals are complete within the letter of the law.  In other words, they are responsible for any poor or fraudulent appraisals that lead to an FHA insured mortgage.  Inflated home values, considered one of the problems within the housing market crash today.

More Information

The HOPE for Homeowners program promises to offer outstanding opportunities for homeowners to get out of the hole they are in.  Namely, they are able to get into FHA loans with a fixed rate, often lowering the amount they must pay monthly.

The program is available to those who have government loans and conventional prime loans, as well as Alt-A loans and the worrisome subprime loans. This includes most types of mortgages, too, including negative amortization, payment option and interest only mortgages.  There are legal restrictions, for example, any state or federal fraud conviction within the last ten years can disqualify an individual from obtaining the loans.

For homeowners struggling with their current loans, falling within these areas, there is no doubt that the HOPE for Homeowners Program offers a lifeline.  It is highly encouraged that you seek out FHA lenders to get the process started.

FHA Loan Inspections: What to Expect

October 1st, 2008

FHA loans used to be highly avoided by home sellers. Those who were selling their homes often requested only conventional loans because they worried about the complexities of loan inspections. FHA loans are insured by the federal government. That means that the government wants to be sure the value and condition of the home are high enough to warrant the mortgage and that they are safe to live in. The good news is that FHA loan inspections are much less complex than they used to be. The bad news is that you still have to have one to get into a home with an FHA loan.

While that’s the case, don’t worry too much about what goes into the FHA loan inspections. Even with conventional loans, you’ll want a home inspection. You want to know what hidden problems there are with a home. More so, you want to be sure that what you are getting is really worth the price you are paying for it. Therefore, view FHA loan inspections as opportunities to learn about problems you may not have noticed.

What They Are Looking For

What are FHA loan inspectors looking for? Once you apply for an FHA loan and have an offer on the home, the next step is to have an approved home inspector (who is working for FHA, not you, not the lender and not the home seller) come to the home. They will walk around, checking various aspects of the home. Most inspections take only 30 minutes to an hour to complete. You may wish to be present so you can learn of any defects or problems first hand.

There are some problems that they may require repairs to be made on before they will agree to funding the loan. Some potential problems include:

· The home has a defective roof; leaking roofs will need to be replaced or repaired. Age is less likely to be a factor assuming the roof doesn’t have any signs of leaks.

· Chipping paint may be a problem, especially in an older home.

· Handrails may need to be installed on steep steps without them.

· Windows that are broken may be a problem, though sticking or cracks may not warrant replacement.

It’s important to note that the FHA loan inspector that comes to your home is not doing the job of a professional home inspector working for you. If there are problems with the home’s inspection, the repairs will need to be made before the loan can be funded. The home seller often does repairs, but in some cases, the home buyer can do them. Once complete, the loan will move along the financing process.

New Jersey Help For Foreclosures

September 8th, 2008

Homeowners who are struggling to make payments in New Jersey may have an opportunity to get out of their bad mortgages easier than they think. As a proponent for helping those who are struggling with home loans, I must first say that if you are on the brink, contact an FHA loan adviser to find out what your options are. If you are in New Jersey, consider this opportunity.

The Federal Home Loan Bank of New York is a large bank providing funds to many of the 200 local banks in the region, including those in New Jersey. The bank has recently announced an initiative to offer some help to those who are struggling with their current mortgages.

The initiative is called HARP, or Housing Assistance and Recovery Program. The Federal Home Loan Bank is providing some $6 millions to Magyar Bank, which is based in New Brunswick. There, the First Baptist Church of Lincoln Gardens will provide counseling to those homeowners it has identified as being in danger of foreclosure. Once these people have been identified, the company (working under The First Baptist Community Development Corporation) negotiates on the homeowner’s behalf with their lender.

They use the proceeds from the $6 million loan to offer up to 70 percent of the loan’s value to the lender. Most lenders are happily taking 70 percent knowing that these individuals are on the verge of foreclosing. The lender will simply write off the remaining 30 percent as a loss and turn the loan over as a paid in full loan (which Magyar Bank will now hold as mortgage holder.)

Sound confusing? It is, but there is more. Magyar Bank holds the loan, but the homeowners are now actually renters in the home, and will make payments to First Baptist. The rent amount is based on what the homeowner can afford to pay. First Baptists works closely with these now tenants so they can improve their credit scores and their financial outlook. Then, once the tenants are ready, they will hopefully be able to refinance the loan into a new one with better terms.

The organization is working with other organizations in the New York area, as well as other areas of New Jersey to offer similar opportunities. There are several families making the transition into new mortgages currently.

Is this the right option for you? If a program like this is offered, and you have exhausted all possibilities with other loans, including FHA loans, then consider it. Work hard to get back ownership of your home though!

Losing A Home As a Short Sale No Better Than Foreclosure

September 4th, 2008

Do not make this mistake: Don’t hire someone to help you foreclose on your home or get a short sale for your home. You are wasting your money.

Next, don’t make this mistake: Don’t allow your home to go to short sale or to foreclosure without first contacting an FHA loan representative to find out if there is any help available to you. Most home loan borrowers will find some options to help them avoid losing their home to either of these financially devastating situations.

What happens when you go through a short sale or a foreclosure? What you may not realize is that both have the same end: you will lose your home and you will have long-term damage to your credit record. There is some evidence that both are just as hurtful to your credit, even though many will try to “sell” you on the idea that home foreclosures are worse on your credit than short sales.

What you do not need is to buy information or advice from a third party, especially when you are already having a difficult time with finding money to pay your lender.

Remember This!

If you do go through a foreclosure or you do have a short sale, one thing is for sure: you will be unable to get a new home loan for at least three years that is insured by FHA. Though there are some exceptions, they are few and only in dire situations. The fact is, if you do go this route, you won’t be able to get FHA insured loans later and that will hurt. More so, any time in the future that you apply for a mortgage, even well after those three years, you will need to state that you lost a home to foreclosure or to a short sale.

According to some experts, the only difference in the two in the long term is that in a short sale, you were involved in the process, or “at the table” for what happened. Whereas in a foreclosure, most home owners have little to do with the legal proceedings.

But, I’m Going To Lose My Home!

Those of you who are in rough water right now, hang tight. Contact an FHA loan advisor to find out if there are any current programs in place to help you through this difficult time. Most home owners are able to get the financial help they need. Many will find FHA loan options to keep them in their homes and to avoid all of these costly situations. You do not need to pay someone to short sell your home for you!