Monthly Archives: February 2011
There are two costs an FHA borrower pay when purchasing a home with an FHA insured mortgage. One is required, the other is optional, but FHA loan applicants should count on paying for both to insure the best possible experience with the new home. An FHA appraisal is the mandatory expense buyers must pay when trying to buy a house with an FHA mortgage. The FHA must determine the property meets FHA standards for safety, longevity, and other factors before it will insure the loan.
Appraisals are designed to assign the fair market value of the home. While the appraisal is meant to insure the home is safe and livable, it is not considered an inspection and does not pretend to be a comprehensive look at all features of the home. Just because a property has been approved for an FHA guaranteed loan does not mean it is free from defects or problems.
That’s where the second expense–the optional one–comes in. Borrowers have the right to hire a home inspector to examine the property for defects or problems, and must do so at their own expense. In spite of the fact that the inspection must come out of the buyer’s own pocket, the inspection is a very important part of the process of buying a home. You may spend hundreds today on an inspection, but doing so can literally save you thousands of dollars later on.
A home inspector’s job is to look at all aspects of the property and make an impartial determination. That’s one reason why it’s best that the buyer is the one to pay the fee–there is no conflict of interest on the inspector’s part. The inspector’s job does not include assigning a market value of the home or determine how marketable the property may be in the future. Your inspector should provide you with a written report indicating any problems that need addressing, the potential lifespan of features in the home, and note the state of the electrical system of the home and other important details.
Another major difference between inspectors and appraisers is where they come from. The FHA has a list of agency-approved appraisers it may draw from to get the job done. The buyer must find a qualified inspector through the phone book, recommendations from a real estate agent, local professional associates or even the state authority for licensing inspectors where applicable.
First time home buyers often don’t know where to start when it comes time to find that first home. Locating properties for sale isn’t challenging–there are plenty of for sale signs in or near practically every neighborhood and even more to browse in the local papers and online real estate listings.
But finding the home is only part of the challenge. Where does a buyer find a suitable lender? A buyer who wants an FHA home loan might not know where to start looking to find a lender. Conventional borrowers have it easier–any suitable bank with the right terms will do. But not every bank participates in the FHA insured loan program, and not every bank is permitted to do so–the FHA has requirements for its lenders and those who can’t or don’t meet those requirements aren’t admitted to the program.
Fortunately, lenders have plenty of help finding an FHA approved lender. The FHA lender list
There have been several changes to the rules affecting FHA refinancing loans. Subordinate liens, the waiting period borrowers must go through before applying for an FHA refinancing loan, and other important areas have all been affected by new rules designed to protect the FHA loan program and tighten control in certain areas of the refinancing process. For example, borrowers are now required to be current on their mortgage the month prior to and for the month of the closing date.
One important change to FHA refinancing loans affects any FHA borrower applying for a non-credit qualifying FHA refinancing loan such as a streamline refinance. Changes to the old FHA policy on streamline loans include a prohibition from using an appraisal to “increase the insurable mortgage balance beyond the sum of the outstanding principal balance and the new Up-Front Mortgage Insurance Premium.”
The next line in that paragraph from the FHA is probably the most significant for many interested in FHA streamline refinancing loans; “The mortgagee may not add closing costs, discount items, prepaid items, or other financing costs to the new loan balance.”
You read that correctly–to include discount points, closing costs and other expenses to a VA refinancing loan, it must be a loan product for which new underwriting takes place including a credit check, etc.
The FHA policy guidance on this issue states, “Mortgagees may only increase the insurable balance beyond the sum of the outstanding principal balance and the new Up-Front Mortgage Insurance Premium by using a credit qualifying refinance with an appraisal.”
The FHA now requires a credit-qualifying refinancing loan and a new appraisal for any refinancing loan that would increase the “insurable balance beyond the sum of the outstanding principal balance and the new Up-Front Mortgage Insurance Premium”. This change in the rules is “effective 60 days from February 14” according to the FHA.
These changes can definitely affect the plans of a homeowner interested in getting an FHA refinancing loan–especially where the closing costs and other items are concerned. If you were planning to fill out an FHA refinancing application, you’ll need to examine and prepare your credit accordingly if you need to finance those costs.
There have been many changes recently to FHA Refinancing
FHA home loans differ from conventional loans in many ways. One of those differences is the amount of down payment required to purchase a home with an FHA insured loan. FHA loans, like their conventional counterparts, do not have a fixed dollar amount required as a down payment.
Instead, a percentage of the loan amount is calculated, based on the sale price of the property.
Conventional loan down payment requirements vary from company to company–you may be told by one lender that five percent is required, while another may ask for 10%.When it comes to FHA loans, the traditional down payment amount is 3.5% of the contract sales price of the home.
In cases where the buyer wants to purchase a HUD-owned home (a property that has been repossessed by HUD and put back on the market) the
There are many steps in the process of getting an FHA home loan. Borrowers who search for a home, make an offer and set a closing date have a variety of milestones along the way that don’t surprise second-time borrowers, but newcomers to the process often have many questions.
Those who seek pre-approval for home loans should know that a pre-approved loan amount or pre-qualification is not a guarantee that a borrower will get the loan they seek. Much depends on your actual circumstances when it comes time to apply for the loan itself.
A borrower who has full-time employment when in the pre-qualifying stage could have a change of employment or income in the meantime; borrowers should be ready to apply for the loan when it’s time to commit to buying the home–don’t assume pre approval means you can change important issues like debt-to-income ratio after that first step is taken. Avoid running up credit cards or applying for new lines of credit between the time you get pre-approval for a loan and the closing date of the house purchase.
When you are ready to apply for an FHA insured mortgage for a particular home, you will fill out the loan application paperwork, your lender will check your credit, verify your application data, and order an appraisal of the property. Once the loan has been approved you can set a closing date and make arrangements for your home to be inspected.
Between the time you commit to the home, get loan approval and set a closing date, there are plenty of other details to handle. The borrower will need to make a written offer to the seller.
If the seller accepts the offer becomes a contract. The written offer or purchase agreement should include language that says your commitment to the purchase is contingent on a home inspection, which the buyer must arrange and pay for.
These steps are for new construction and existing construction homes. There are differences in the process when a custom home or under-construction property is being purchased but many of the basic details are the same. The buyer needs to make an offer, get the seller’s acceptance of the agreement, set a closing date, etc. The borrower should still hire an inspector for new construction properties–never assume that because a home is brand new that it is free from defects or problems.
There are many options FHA borrowers have to avoid default and foreclosure on an FHA mortgage. Borrowers in trouble are encouraged to contact the FHA and their lender as early as possible in the process of dealing with financial difficulty–the earlier you act, the more options you have. There are several homeowner bailout programs available to help homeowners keep their homes, avoid missing additional mortgage payments and stay on financial track.
For borrowers who are struggling with rising mortgage payments or who have payments that are currently too high, refinancing is an option that can help easy the monthly money crunch. Some refinancing options are easier than others to get into–the FHA Streamline Refinancing program, for example, requires no new credit checks or employment verification in many cases.
In spite of the terms used to advertise some refinancing loans offered by some companies such as “no cost refinancing” there are fees and expenses associated with these loans.
Applying for an FHA loan is, in the minds of some borrowers, the beginning of the process. But when you fill out an application for an FHA insured mortgage, you should actually be ending one process and starting another. One of the most important aspects of getting an FHA loan is finding the right lender and the most favorable terms.
But how should an FHA borrower do that? Some go into their FHA loan research thinking the only real data needed is a list of interest rates on offer and calculating the monthly payment amounts is enough. Think about the process a little deeper and you’ll realize the amount of the loan is only part of the equation.
How much will you pay in fees? What kind of loan is available? The cost of a fixed rate FHA mortgage won’t be the same as the cost of a variable rate, interest only, or balloon