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.
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 Premiumsit 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!
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.
Good News for Home Owners, Home Buyers and Sellers too!
Here is a summary of the Real Estate related issues included in the recent legislation to avert the “Fiscal Cliff.”
• The Home Mortgage-Interest Tax Deduction survived (for now).
◊ This deduction could be back on the table once budget talks resume
◊ Real Estate Taxes continue to be deductible as well. • Homeowners will be able to deduct their Private Mortgage Insurance (PMI) premiums on their income tax returns.
◊ This tax break expired in 2011. The new legislation extends the break through 2013 and makes it retroactive for 2012. • The tax credit for Home-Energy Improvements (up to $500) was restored and retroactive to 2012. • Congress preserved the $250,000/$500,000 Capital Gains Tax Exemption on home sales. • Extended the 15-year straight-line cost recovery for Leasehold Improvements on commercial properties through 2013 and made retroactive to cover 2012. • The Mortgage Forgiveness Debt Relief Act was extended for one year.
◊ Homeowners who had part of their mortgage debt forgiven as a result of a foreclosure, short sale or mortgage modification won’t have to pay federal taxes on the forgiven portion of the debt.
Tax Advice Disclaimer: The information in this blog should not be used in any actual transaction without the advice and guidance of a professional Tax Adviser who is familiar with all the relevant facts.
Call Me @ 860.945.9284to 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 & FL too. I’m here to help.
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.
FHA’s Streamline Refinance Is Simple For Those Who Qualify
The Obama Administration’s initiative to help homeowners with FHA mortgages — even thosewho 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?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 MortgageInsurance 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.