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3 Tips To Consider When Buying A Home With An FHA Mortgage

February 22, 2018 by Sean Young

Tips to Sidestep Common FHA Loan Problems

FHA loans are becoming increasingly popular these days as potential homeowners may not able to qualify as easily for conventional mortgages.

The FHA insures some higher-risk loans, in turn allowing borrowers with low down payments and less than perfect credit to purchase homes and bolster the housing market.

However, while getting through the loan process with an FHA mortgage loan is not necessarily more difficult than with a conventional or conforming loan, there are some issues that you will want to be aware of.

Property Condition

You can’t buy just any property with a FHA loan, or any other loan for that matter. All lenders are concerned with the condition of a property, especially as it relates to livability and safety. 

Major deficiencies in a home will almost always be noted when the home is seen by the FHA appraiser. The appraiser must deem it to be livable, without any conditions that could jeopardize health or safety. 

Sometimes you can get the seller to make the needed repairs to pass the lender requirements. In other cases, you may want go an alternate route. The FHA 203K streamline loan allows you to borrow up to $35,000 for home repairs to bring the house up to code.

Low Appraisal

The primary role of the appraiser is to estimate it’s market value. These estimates are based on the property’s features and a comparison to similar properties that have sold recently. If the appraisal is low, the loan funding could fall through because the FHA underwriting guidelines (along with almost all conventional guidelines) will not let you borrow more than the home’s appraised value. You can, however, add to the amount you bring in to closing if you prefer to compensate for a low appraised value.

Rather than trying to scrape together a bigger down payment, you may want to take the information to the seller to renegotiate the purchase price. The seller will likely recognize that other buyers would be in the same boat, leading the seller to agree to a lower purchase price.

High Debt-to-Income Ratio

Debt to income ratios are a concern with virtually every type of mortgage loan on the market today. Your FHA loan may encounter a snag in the underwriting process if your total debt payments, including your new mortgage, would be a high percentage of your income.

FHA has an automated underwriting program called TOTAL Scorecard which uses an algorithm to determine a borrower’s qualification. The process is quick, and often you can make up for a high debt-to-income ratio with other compensating factors, like a larger down payment or a cash reserve of several months of mortgage payments.

If you have any questions regarding FHA loans or any other home financing questions, please give us a call!

Filed Under: Mortgage Tagged With: FHA Loans, Mortgages

FHA Mortgage Insurance Is Going Down

January 15, 2015 by Sean Young

 

FHA Mortgage Insurance is Going Down

FHA Annual Mortgage Insurance is Going Down! 

Can you believe it? On January 26th, 2015 HUD will be reducing the FHA Annual Mortgage Insurance Premium (MIP) by 0.50% on 30-year loans!

The announcement on January 7th was unexpected, appreciated and much needed. Finally FHA will be more affordable, helping new home buyers qualify and helping other home buyers qualify for a higher purchase price.

 

How Much is FHA Annual Mortgage Insurance?

FHA_Annual_Mortgage_Insurance_Chart

Even though it’s called Annual Mortgage Insurance you pay for the annual policy in 12 equal monthly payments. The payments are included in your monthly mortgage payment.

 

How Much Will I Save With the New MIP? 

With MIP being reduced by .50% you will save around $20.833 for every $50,000.

This may not seem like much, but figure the average sales price in Colorado Springs according to GreatColoradoHomes.com is currently $255,652.

Savings Example: Colorado Springs Average Sales Price

  • Current MIP: Purchase price $255,652 – 3.5% down payment = $246,704 x 1.35% MIP = $3,330.50 / 12 = $277.54 per month.
  • New MIP: Purchase price $255,652 – 3.5% down payment = $246,704 x 0.85% MIP = $2,096.98 / 12 = $174.75 per month.

A savings of $102.79 per month, $1,233.48 per year or $6,167.40 over 5 years. 

 

The average sales price in Denver Metro according to LiveUrbanDenver.com is currently $339,636.

Savings Example: Denver Metro Average Sales Price

  • Current MIP: Purchase price $339,636 – 3.5% down payment = $327,748 (base loan amount) x 1.35% MIP = $4,424.60 / 12 = $368.71 per month.
  • New MIP: Purchase price $339,636 – 3.5% down payment = $327,748 (base loan amount) x 0.85% MIP = $2,785.86 / 12 = $232.15 per month.

A savings of $136.56 per month, $1,638.72 per year or $8,193.60 over 5 years. 

 

To get pre-approved and find out how much you can qualify for click here. 

 

Will The New Lower MIP Help Me Qualify For a Higher Purchase Price?

Yes it can. Let’s say you were previously pre-approved up to $225,000 at the current MIP of 1.35%. With the reduced MIP of 0.85%, you could qualify for around $20,000 more at $245,000.

If you had a hard time finding property prior due to your pre-approved max purchase price, this may open up a new set of homes you can look at, if you get qualified for a higher price.

This of course depends on many other factors like rate, insurance, property taxes etc., but the simple answer is yes. The lower MIP will give you more buying power!

 Increase Your Home Buying Power

To get pre-approved and find out how much you can qualify for click here. 

 

What If I am Currently in The Middle of Getting an FHA loan Now?

If you have a current active FHA case number associated with your loan, FHA will approve cancellation requests within 30 days of January 9th, 2015.

However, most lenders are wanting the cancellation requests to be done prior to January 26th. FHA will begin accepting cancellation requests on January 15th.

If you already have an appraisal done, the appraiser must update the appraisal report with the correct FHA case number.

When your loan is going through processing for an FHA purchase there are items that require an FHA case number. As long as your lender cancels your current case number close to the 26th there should be no delays in the loan process.

You Can Cancel Your Case Number

 

Can I Ever Get Rid of the FHA Annual MIP?

The answer is yes and no. Any FHA loan that was done after June 3rd, 2013 will have to pay MIP for the duration of the loan regardless of how much equity you have in the property.

If you did receive your 30-year fixed FHA loan previous to June 3rd, 2013 you can get out of the Annual MIP if you have made payments for a full five years and your loan balance is at 78% or below the original value (meaning, they will not use current market value). If you did a 15-year loan you would not have to wait for the full 5 years of payments to be made.

The only way to get out of mortgage insurance on any FHA loan done after June 3rd, 2013 is to refinance out of your FHA loan and into a conventional loan.

Keep in mind conventional loans also require mortgage insurance for loan to values over 80%. However, if you don’t have 20% equity in your property you may still have options.

Conventional loans have programs available that will allow you to buy out of your mortgage insurance as a onetime cost paid at closing. The fee is a percentage of your loan amount and is based on your loan to value, credit score, debt to income ratio and area.

The lower the loan to value and the higher your credit score the less it will cost to buy out of the mortgage insurance.

To see if this is an option for you, call your local loan officer or contact me directly to see what your available options are.

 

Last But Not Least, The FHA Streamline

FHA Streamline Refinance

Even with the incredibly low interest rates we have experienced lately it has been hard to do an FHA Streamline for many people, because the benefit of the rate was overshadowed by the high Mortgage Insurance Premium of 1.35%.

With the reduced MIP of .85% there will be many who will be able to benefit doing an FHA Streamline since the interest rates are still very low. 

Note, that if the last time you received financing was prior to May 31, 2009, the Annual MIP is .55%. 

Streamline mortgages can be a great option because appraisals are not always required and only require reduced documentation. 

To see if an FHA Streamline is right for you, call your local loan officer or contact me directly to see if you qualify and if so, how much you can save. 

 

To Pin this article for later:
http://www.pinterest.com/pin/192528952796689605/

 

Filed Under: FHA Loans Tagged With: FHA Loans, First Time Homebuyers, MIP, Mortgage Insurance

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