100% USDA Loans Now Cheaper: Lower MI in 2017 for USDA Loans

The USDA Guaranteed Rural Housing Development Loan (aka USDA RHD Loan) is extremely popular with Millennial Home Buyers.  That’s because the program requires Zero Down Payment. That’s right… 100% Financing is available to purchase eligible properties in select areas of Connecticut.

And, it just got more attractive  Just in time for the New Year, the USDA lowered its Up-Front Mortgage Guarantee Fee from 2.75% to 1.00%. And… it also reduced its Monthly Mortgage Insurance Premium from 0.50% to 0.35%

The USDA loan is now one of the most affordable home loans available, This fee reduction makes the RHD less expensive than FHA products. A USDA home loan can make owning a home less expensive than renting one  and could be the avenue for Millennial Home Buyers to move into a new home in 2017. 

What Is a  USDA Loan? The United States Department of Agriculture partners with approved local lenders to assist homebuyers with competitive interest rates and loan terms to buy their primary residence in select areas of Connecticut

The Program Offers:
100% Financing – No Down Payment is Required. Coming up with a Down Payment is one of the biggest barriers to entry into the housing market for Millennial Home Buyers. A USDA mortgage eliminates that obstacle.
Closing Costs Can Be Rolled Into the Loan Amount. The closing costs associated with obtaining a mortgage can be included in the loan amount when the appraised value exceeds the contracted sales price.
Liberal Credit Scores. The USDA Guarantee allows lenders to approve mortgages that would not qualify under guidelines for other programs. Applicants with credit scores down to 640 are eligible for this loan.
Debt:Income Ratios: To qualify, you must meet debt-to-income requirements. The DTI ratio limits are 29% (for PITI) and 41%. The reduced fees make it easier to meet these ability to pay guidelines.

Millennial Home Buyers often chose the more expensive FHA loan program, even when they are buying in USDA-eligible areas. If you are buying in a suburban or rural area, it pays to check USDA eligibility maps. Choosing USDA can save you the 3.5% down payment that FHA requires. And, now that the reduced mortgage insurance fees are in effect, you can save money each month over FHA

Eligible home buyers should weigh the benefits of a USDA loan.

FHA Wants More Fees? Not Again!

The FHA is asking for authority to collect an administrative fee from borrowers to help they say, “further develop its quality assurance efforts.”  This on top of reports they will have a $7.8 billion capital reserve balance at the end of Fiscal 2014 and will not require another bailout from the U.S. Treasury.

The report triggered an immediate call for FHA to reduce the Insurance Premiums it currently charges home buyers. Keep in mind, FHA increased their Annual Mortgage Insurance Premium (MIP) and their Upfront Mortgage Insurance Premium (UFMIP) in 2013 to bolster their Mortgage Insurance Fund that was depleted in the aftermath of the housing crisis. They later required the MIP to be paid for the life of the loan. These increases were on top of increases imposed back in 2011.

Something doesn’t make sense! Here we have a federal agency whose main objective is to “assist in providing housing opportunities for low and moderate-income families.” Yet if one reads between the lines, management is still having quality control issues and is too embarrassed to ask Congress for more money to correct them. Instead let’s force new home buyers pay for the sins of the past by increasing their closing costs again…making it more expensive to own a new home!

And they say the housing market is on the way back? Not with this kind of mentality!

How Much Mortgage Can I Afford?

 

I particularly like drawing on my education background to help First Homebuyers answer the burning question “How Much Mortgage Can I Afford?” They’re excited about this great adventure and I am excited to be trusted to help put their plans together. There is a lot to learn about the process and it takes patience and skill to ensure that these dreams do not turn into a nightmare.

There’s a big difference between How Much Mortgage Can I Afford? and How Big a House Can I Buy?  Theoretically, a borrower with $50,000 income can afford a $1,000,000 home if they just won the lottery and used their savings wisely to pay the for the taxes and upkeep.

So Not too far into our initial conversation, I always ask the question, “Have you given any thought to How Much Mortgage Payment Can You Afford each month?”  Some like John and Beth who just had a new baby and need a place to call home did have a figure in mind. Surprisingly, many reply, “No that’s what we hope you can tell us?” To which I reply, “No, That’s your job!

If you are a First Home Buyer, you might have searched on-line for one of those How Much Mortgage Can I Afford calculators. These calculate your debt-to-income ratio by plugging in certain income, expense and projected housing costs to arrive at an estimate of what a bank may lend you for a mortgage.

Effective January 2014, the Consumer Finance Protection Bureau has mandated that a 43% debt-to-income ratio is the highest ratio can have and still get a Qualified Mortgage.  A Qualified Mortgage is a category of loans that have certain, more stable features that help make it more likely that you’ll be able to afford your loan. And when you eventually apply for Mortgage Pre-Approval, that’s just what the Bank will do; It will tell the maximum amount it will lend you.

 “Purchase or Refinance…I help families live comfortably and financially secure in their own home.” That’s what it says on my letterhead and that’s what I promise all my clients. So when John and Beth throw out a figure, I ask, “Does that include the mortgage payment, property taxes, home insurance, and mortgage insurance. How about maintenance costs? For them and all the others, we go back to basics.

The 43% ratio is based on borrowers gross before tax income and not net take home pay. It includes the mortgage payment, an escrow for property taxes, home insurance; and mortgage insurance (PMI); plus condo fees, debt payments, and alimony or child support if applicable.

Here’s the issue with these scenarios … The bank (and those calculators) aren’t telling you how much house you can comfortably afford. They’re only telling you the maximum they’ll actually lend you. Too often, I have seen First Home Buyers shop for homes at the top of their affordability range, only to find themselves in a difficult financial situation a few years down the road. A temporary job loss, a hike in property taxes (I could go on forever about this issue), a new car, orthodontics, can send homeowners financial situation spiraling out of control.

When I talk to First Home Buyers … we talk about these potential calamities and whether they might have to rethink How Much Mortgage I Can Afford if they had to squeeze their budget to make the monthly mortgage – or if one of these emergencies required them to take money out of the college fund to make ends meet. “It’s not up to me to decide How Much Mortgage I Can Afford,” I ask, It’s up to you to rethink your mortgage goals.”

Bottom Line: Home Buyers aren’t, by any means, required to take all the money a Bank offers to loan them.  No one says  you can’t buy a buy a $150,000 home even if you technically qualify for a $200,000 mortgage. But before you buy a home at all, consider how a mortgage payment – and other homeownership costs – will affect your budget. That way, you won’t wind up in over your head worried about making your house payment.

 

FHA Too Expensive for Home Buyers. There Are Other Options.

FHA says they should have done less business in the past and (to pay for their sins) they should do less business in the future. To help that process along, they drastically increased the Up Front Mortgage Insurance Premium (UFMIP), doubled the cost of the Monthly Insurance Premium (MIP), and will require the MIP to be paid for the life of the loan.

Guess what? Their wish is coming true!  The Government Agency created in 1934 to “assist in providing housing opportunities” for American families saw their application volume drop by 50% in June. At a time when mortgage rates were near all time lows, FHA priced them self out of the market. Great help they are!

Many features of a FHA Mortgage make it an attractive mortgage option for First Home Buyers. However, the cost of the mortgage insurance makes the monthly obligation too expensive. I’m working on two transactions now. Each has challenges that could have been addressed with a FHA loan in the past.  One will be done as a conventional mortgage with a higher rate but lower MI for a savings of $60/month; the other, luckily, as a USDA Loan with a similar rate and MI that is 1/3 the cost of FHA premiums.

I don’t think I’ll recommend a FHA Insured Mortgage to my clients unless that’s the only way to get them in a new home.

FHA Mortgage Monthly Insurance Premiums Are Increasing April 1, 2013

FHA has confirmed that the Monthly Mortgage Insurance Premiums (MIP) Are Increasing for the home loans it insures effective April1, 2013.

If you are sitting on the fence deciding whether to buy a new home this spring,
Now Is the Time to Buy. It’s going to get more expensive as the year progresses.

1.   Beginning April 1, 2013, FHA Monthly Mortgage Insurance Premiums Are Increasing by .10%
         •   For loans with down payment of between 3.5  and 5.0%, the MIP will increase
              from 1.25%  to 1.35%
         •   On loans with a down payment of more than 5.0%, the MIP will increase from
              1.20% to 1.30% 
            ◊   The increase will add about $13 a month to the payment on a $150,000 loan.
                  Not a lot … But it will affect buyers Debt-to-income (DTI) ratios and could
                  prevent some  buyers from qualifying for mortgages they might have
                  qualified for prior to the change

2.    FHA will also eliminate the cancellation of these premiums when the loan is paid down to 78% of the original appraised value.
         •   For loans with less than a 10% down payment, the MIP will be required to be paid for the entire 30 year term of the mortgage.
            ◊   The new monthly MI premium on a $150,000 FHA mortgage will be about $160.00 per month. Buyers with just a 3.5% down payment – even those putting 10% down – will pay this premium for the entire term of the loan … without regard to the value of the home and the decreasing balance on the loan in years to come.
            ◊   Do the math … that’s an additional $38,400 a home owner will have to pay in insurance premiums over a 30 year period

Remember, this is the 2^nd FHA Monthly Mortgage Insurance Premium Increase  in 12 months. Last year’s 0.10% increase was mandated by the Temporary Payroll Tax Cut Act signed by President Obama in 2011. The Act has expired, but the premiums continue. This time the increase is needed to shore up FHA’s capital reserves which are in jeopardy of default.

Personally I think that FHA’s Monthly Mortgage Insurance Premiums Increase is a step backwards for the Real Estate Market.  
HUD and FHA claim their mission is to create a strong, sustainable housing market that will bolster the economy and protect the consumers. First Home Buyers will feel the impact of these changes and present a barrier to home ownership.  That’s ironic because the new administration claims to be an advocate of medium income households. Strange way to show support?

Bottom Line: The housing market is beginning to see an increase in home sale. This will be tempered by an increase in home prices and the expected increase in mortgage rates. Now is the time to consider conventional financing as a viable mortgage option and a take a hard look at other mortgage programs with lower down payment requirements and cheaper MI

Call Me @ 860.945.9284 to discuss the right mortgage option for your family and to take advantage of my FREE Mortgage Pre-Approval service. We’re licensed in all 6 New England states; NY and FL too. I’m here to help.

FHA Mortgage Insurance Premiums Are Not Cheap

With FHA-insured mortgage rates being quoted at about 0.750% lower than comparable conventional loan rates, home buyers often expect a significant savings on their monthly payment by choosing a FHA mortgage to finance the purchase of their new home.
This is not always the case. FHA imposes an Up-Front Mortgage Insurance Premium (UFMIP) of 1.75% to all its borrowers. This UFMIP is usually added to the base loan amount increasing the borrowers’ total loan amount and essentially cutting the equity created by their small down payment in half. In addition, FHA charges an annual Mortgage Insurance Premium (MIP) of 1.25% that is divided by 12 and added to the monthly mortgage payment.

Here’s an example:   A First Home Buyer purchases a single-family house for $155,000 and makes the minimum 3.5% ($5,425) down payment. Their base loan amount is $149,575. The UFMIP of $2618 is added to this base increasing the total loan amount to $152,193. The monthly principal and interest payment is calculated on this total loan amount. Using a 3.25% interest rate, the monthly mortgage payment is $662.04. Added to this payment is 1/12 of the annual MIP ($155.81) increasing the total monthly mortgage obligation $817.84. If taxes are $250 per month and Homeowners insurance (HOI)is $60 per month, the First Home Buyer’s total monthly obligation…Mortgage Principal and Interest + MIP + Taxes + Insurance…would be about $1,128 each month.
By comparison, and without going into much detail, payments on a 4.00% rate conventional mortgage with a 5.00% down payment could be about $820.00 per month including MI (plus taxes and HOI).

Why So Expensive?   Overall, Mortgage Insurance premiums on a FHA-insured mortgage are much higher than a comparable conventional loan. And this is from a government agency supposedly committed to making it easier and less expensive for First Home Buyers to get into the housing market.
Why?  This is because the FHA had a whole lot of loan defaults between 2008 and 2011 and its reserve funds are way below what is required by law. In order to remain solvent, FHA has increase mortgage insurance rates 4 times in the last 4 years. Yes, new home buyers are paying for the sins of the past. Plus, it is expected that premiums will increase again in 2013…we just don’t know how soon.

The Good News!   When FHA does increase their premiums,  all existing FHA-insured borrowers will still pay their current interest rate and MIP premium. So if you are looking to buy your First Home and take advantage of an FHA-insured mortgage the sooner the better…really!

 
Call Me to review you mortgage options and take advantage of my FREE Mortgage Pre-Approval service. I’m here to help.

Buyers Choose Conventional Mortgages Over FHA Loans

The use of FHA mortgages declined over the summer. This new trend suggests that FHA-insured mortgages are losing favor among home buyers and conventional mortgages are gaining market share.

A conventional mortgage conforms to FNMA and FreddieMac lending guidelines. Reasons for this reversal include amazingly low rates; increased acceptance of higher LTV mortgages by PMI companies; and a reluctance to accept the recent increase in FHA mortgage insurance premiums.

Real estate agents may complain about onerous lending requirements, but they report no shortage of mortgage money available for home buyers; even those with less than a 20% down payment and credit scores in the 660-680 range.  With rates in the mid to upper 3.00% range, it’s almost free money!

Astute First Home Buyers know this is an unbelievable opportunity and are beginning to push the up prices of quality homes. NOW is the Time to Buy! 

Call Me @ 860.945.9284 to review your mortgage options and take advantage of my FREE Pre-Approval service. Let me show you how to save $30-50 month on a $165,000 with a conventional mortgage vs. a FHA-insured loan. I’m here to help.

Refinance Your FHA Mortgage with No Appraisal, No Credit Check, No Income Verification

FHA’s Streamline Refinance Is Simple For Those Who Qualify

The Obama Administration’s initiative to help homeowners with FHA mortgages — even those who are underwater — refinance their loans at a lower interest rate and reduced MI premium goes into effect June 11, 2012.

Overview:
Under the Obama plan, if you qualify on the following criteria, you get don’t have to go through the paperwork maze and underwriting hassles that normally come with any refinancing. Here’s a quick overview of the FHA “Streamline Refi” program and what it takes to qualify:
•   Bottom Line: Your current home loan must be FHA-insured and must have been put on FHA’s books no later than May 31, 2009. If you have a mortgage owned by FNMA, Freddie Mac, the VA or a private investor, you’re out.
•   You need an unblemished record of paying your mortgage payment on-time for the last 12 months. If you were late occasionally a couple of years back, that’s OK. But the last 12 months need to be perfect.
•   No new verifications of your income. If you’ve been paying on time for a year, it’s presumed you’ve got the income needed to repay the new obligation.
•   No New Credit Evaluation. NO Concern about FICO scores.
•   No New Physical Appraisal. The program generally accepts the appraised value of your home at the time you closed on your current FHA loan as good enough — even if you’re now in serious negative equity territory.
•   Reduced Upfront MI : 0.01% of the loan size. Annual MIP : 0.55% of the loan size.On a $180,000 FHA loan at a 5.50% rate, homeowners could save about $150.00 per month at today’s rates.

 And the Not So Good Stuff:
•   Refinancing must provide a net savings of at least 5% in your monthly principal, interest and mortgage insurance payments
•   The FHA prohibits increasing a Streamline Refinance’s loan balance to cover closing costs — origination charges, legal fees, taxes, insurance escrow, etc. Closing Costs must be paid by the borrower as cash at closing.

The Next Step:
ACT NOW! If you have an FHA mortgage that closed prior to May 31, 2009 … Call Me Today! Let’s review details of the program as it applies to your unique situation. The longer you wait, the more expensive it will be! 
If you have an  mortgage endorsed by FHA after June 1, 2009, do us both a favor. Tell your friends and co-workers about the FHA Streamline Refinance program. Have them call me at 860.945.9284 to discuss their options.  You’ll feel like a hero and I’ll have the satisfaction of helping another homeowner who might be struggling to make ends meet. Remember, I can help in CT, NY, FL and all of New England.

What is a FHA Mortgage Loan?

What is a FHA Mortgage Loan?  The FHA 203(b) Mortgage Loan is the most “basic” FHA-insured mortgage loan. There are several types of FHA-insured loans … a whole alphabet soup of them.  This is the one buyers talk about when they apply for a home loan.

FHA loans are Not Just for First Homebuyers. FHA loans can also be used to:
•  move up to a bigger home
•  downsize to a smaller one
•  Buy a second/vacation home
•  Refinance an existing mortgage loan
•  However … You can have only one FHA-insured loan at a time. You can’t have a FHA insured loan in your name and get a second loan.

But before we go too much further …Let’s Talk About Some Basics.
The Federal Housing Administration (FHA) is a federal agency that insures loans made by FHA-approved lenders. The FHA’s objective is to assist in providing housing opportunities to families who cannot meet the qualification requirements for conventional mortgage loans.
•  FHA does not set interest rates. Rates are determined by market conditions and negotiated between the buyer and the lender.
•  FHA does not lend directly. The money comes from participating lenders. FHA works with these lenders to insure quality, regulatory compliance, and fairness in the lending process.
•  FHA Mortgage Insurance provides FHA-approved lenders with protection against the risk that homeowners will default (foreclosure) on their mortgage obligation. The comfort level of FHA insurance enables these lenders to consider applications from buyers with as little as 3.50% down payment, credit scores in the mid-600 range and low interest rates.

FHA 203b Loan Guidelines:
FHA sets the guidelines to qualify for a 203(B) mortgage. There are a lot of them. Participating lenders may add “overlay” criteria to qualify for their version of the 203b mortgage. For example; FHA sets minimum credit score of 580 to qualify for this program. Most lenders require a minimum score of 640 to qualify. Talk candidly with your mortgage broker about your situation and about his access to lenders who offer FHA mortgages with the overlays that address your needs.
Here is an overview of the more attractive features of a FHA 203b mortgage:
•  Owner occupied homes only — you must intend on living in the property.
•  The program is not restricted First-Time Home Buyers.  Any qualified borrower may utilize these loans for financing the purchase of a new home.
•  FHA insurance enables lenders to offer the program at a lower interest rate than might be available to a buyer with similar circumstances who opts for a conventional loan product.
•  The FHA 203b program allows for a 3.5% down payment. These monies can come from the borrowers’ own savings or can be a gift from family members. The program also allows 100% of the closing costs can be in the form of a gift.
•  The FHA 203(b) will consider the income of non-occupant co-borrower to help qualify for the loan. This is a great way for parents to help young buyers purchase their first home.
•  Seller Concessions: Home sellers can elect to contribute up to 6% of the house purchase price toward the closing costs associated with the loan. Buyers should discuss this option with their Realtor® when negotiating the purchase contract.
•  The 203(b) loan can be structured as a fixed rate mortgage or an adjustable rate mortgage (ARM) loan. There tends to be more flexibility in calculating household income and debt-to-income ratios.
•  The FHA 203(b) can be used to a single family, a duplex, a 3 family, or a 4 family multi-unit, owner occupied property. Remember, with a 3-4 unit loan, the down payment requirement is greater and the buyer must have 3 months mortgage, taxes and insurance payments (PITI) available in savings after the loan closes.

Now Let’s Talk About Mortgage Insurance.
To cover the risk of a borrower defaulting on the monthly payments, FHA charges an Up Front Mortgage Insurance Premium (UFMIP) as well as an annual Mortgage Insurance Premium (MIP).  The cost of this insurance is paid for by the borrower. The UFMIP is typically added to the base loan amount and becomes part of borrower’s monthly payment. The annual MIP is divided into monthly installments and included in the borrower’s monthly obligation.
Recent legislation has made FHA insurance more expensive. Give me a call. Let’srun the numbers to see if an FHA 203(b) is the best option for you and your family

Bottom Line
When your mortgage is insured by FHA, you become a secure and desirable borrower. Lenders are willing to extend benefits to you can’t find with conventional loans. The major benefit of FHA Loans is that you can qualify for a loan with a low down payment. Most conventional loans require a 20% down payment. FHA loans require a 3.5% down payment. With a gift for the down payment and seller concessions for the closing costs, you could move in with very little out-of pocket expense. Plus, should you have low credit scores or low income, you will still be able to take advantage of the benefits that make FHA Loans so affordable. Talk to your loan officer, or give me a call, to see if this is the Right mortgage option for you.

What is the FHA?

What is the FHA?
The FHA’s main objective is to assist in providing housing opportunities for low and moderate-income families. FHA insured mortgage loans are a type of public assistance and historically have allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. Anyone who is a U.S. citizen, a permanent resident alien, or a non-permanent resident with a work visa and who meets the FHA’s lending guidelines can apply for a FHA-insured mortgage loan.

The Federal Housing Administration, commonly known as “FHA”  is an agency of the federal government that provides mortgage insurance on loans made by FHA-approved lenders. Congress created the Fedral Housing Adminstration in 1934. The FHA became a part of the Department of Housing and Urban Development in 1965.

Every loan … credit card car loan, or mortgage … carries a certain element of risk. Lenders are most concerned with the risk of default … the risk that homeowners won’t repay their mortgage loan. Low down payments and low credit scores increase lenders concern about risk. The smaller the down payment, the greater the risk that the borrower will walk away from the house when times get tough.

FHA mortgage insurance provides FHA-Approved Lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay-off the lender’s mortgage in the event of a homeowner’s default. The added comfort level of FHA insurance enables lenders to consider applications from buyers with as little as 3.50% down payment and credit scores in the mid-600 range. Loans must meet strict requirements established by the FHA to qualify for insurance.

As my Dad used to say, “Nothing in life is free.” The cost of this mortgage insurance is passed along to the homeowner. An up-front mortgage insurance premium (UFMIP) equal to a percentage of the loan amount is due at closing. This UFMIP is normally added to the loan amount and financed over the term of the loan. In addition, there is a monthly mortgage insurance premium (MIP), also referred to as PMI … that is included in the monthly payment. 

In summary … FHA enables homebuyers to own their own home with a small down payment. Little equity means greater risk to the lender. Greater risk means higher interest rates. FHA mortgage insurance reduces lender concerns. Borrower pays UFMIP and MIP to reduce lenders’ risk.  When compared to conventional financing, an FHA-insured mortgage loan provides those homebuyers with limited cash and lower credit scores with the best low-cost financing option.

Avoid disappointment and future regret! NOW is the time to buy! Call me today for details on FHA financing. I’m here to help.