Month: August 2018

FHA Loans Can Still Provide Many Benefits

Many prospective homeowners and mortgage professionals have heard that the regulations for FHA loans are changing. After the sub-prime mortgage industry died down, the FHA home loan program became the scapegoat for any and all problems associated with the housing market. Critics believe that the FHA loan program is too lenient on its credit requirements. Because of this constant scrutiny and other outside criticisms, the FHA has decided to make some significant changes to its qualifying requirements for its home loan program.

In past years, the FHA home loan program did not require a specific credit score in order to qualify for their loans. Although most lenders required at least a 620, many critics of the FHA’s program believe that the lack of a credit score requirement has led to the large number of defaults after the housing market crash. In order to prevent this from happening in the future, the FHA’s new rules state that a borrower must have at least a 580 credit score in order to take advantage of their 3.5% down payment program. If an applicant has a credit score below 580, they must put at least 10% down on a new home.

A protection that has always existed on FHA loans is the required mortgage insurance. Mortgage insurance provides benefits for both the homeowner and the lender. This type of insurance helps the lender because it ensures that they will be paid in case of borrower default. Because the lender knows that the loan is insured by the federal government, they are more likely to offer favorable terms to the borrower.

A new change to the FHA’s mortgage insurance raises the up front premium by half a percent from 1.75% to 2.25% of the loan amount. This effort is a way to ensure the sustainability of the FHA loan program. The FHA is currently trying to obtain Congressional approval to increase the annual premium. If this approval is granted, the FHA would reduce the amount by which they increased the up front premium. Some FHA officials have discussed making the premiums risk based, which would mean that the premiums would vary depending on credit score and history.

The last protection which the Federal Housing Administration has decided to implement with these changes is a reduction in allowable seller concessions. When these new regulations go into effect, the seller will only be able to provide 3%, whereas before, the seller could provide up to 6% of the purchase price. These regulations are all set to take effect in April, 2010 and are an effort to increase the quality of FHA loans.

Only time will tell if these regulations will have the desired effect and increase the quality of the FHA home loans issued. Many homeowners are in agreement with the changes because they want the housing market to bounce back quickly and believe that the best way for this change to occur is to require more of prospective homebuyers. Other homeowners believe that, while encouraging people to improve their credit is beneficial, restricting home loan applicants does more to hinder the housing market rather than stimulate it. Hopefully, these new changes will have a positive effect and help the housing market grow and prosper.

A Few Hints For Shopping For Mortgage Loans

When you are buying a house there are two parts. One of them is rather easy and one of them tends to confuse a lot of people. Even if you have to tour a number of homes to find one that suits both your needs and income it is still the easy part (and also the fun part). The harder and confusing part is shopping for mortgage loans. It is a large investment for anyone so you need to make a wise choice. When dealing with such a large amount spread over such a long time even the smallest numbers will add up and change the overall cost of the loan. By knowing the terms used, watching the often overlooked fees, and knowing a few hints can make mortgage loans make a lot more sense.

To start with, you need to know what a premium rate is. There are two interest rates in mortgage loans and home financing. There is the market rate and the premium rate. The market rate is what the loan will cost the bank. The premium rate is what they are going to charge you. If the market rate, sometimes called the Par rate, is 5%, the bank only makes money on what it charges above 5%. In other words, you would not expect a 4% premium when the Par rate is 5%. That would mean the loan is costing the bank 1%.

Next there are the fees. Banks never get sick of thinking up new ones but they cover the administrative cost of giving you the loan. There are processing fees, underwriting fees and the list goes on. If they are not addressed as such you can be quite sure that they have worked their way into the offer somewhere.

Finally there are the Points we always hear about when discussing mortgage loans. Discount Points are easy to understand but most people do not know how to use them to their advantage. 1 Point is a fee equal to 1% of the loan and are the largest fee the borrower pays. Often a lender can offer an interest rate that is below the Par rate by the charging higher points. Don’t worry, you can still make them work in your favor.

When the bank makes you their offer on the loan it is a mix of all these factors. Every lender does it their own way and this is why shopping for mortgage loans is important.

The best way to look at it is the length of time you plan to be in that house and paying that mortgage. Interest rates are more critical to people who plan on staying in the house longer. Because of that, it is generally best to pay higher points for a lower interest rate. The opposite is then true for the people who plan only to stay a shorter time, perhaps 5-10 years. Yes, they will pay a higher rate but it is for a short time so it does not hurt them as badly and they saved a lot of money to move in. That money might be better spent else where. Paying off higher interest credit cards or auto loans might be a good choice.

Answers to All Your Questions Regarding Loan and Mortgage Protection Insurance

Loan and mortgage protection insurance is designed to help you, and your family keep up-to-date with your loan repayments, when life events happen unexpectedly and regardless of mitigating circumstances. Put simply, mortgages or loans are often long-term commitments, so it makes sense to protect them.

Do You Think About the Unexpected?

There are a number of reasons why even the most responsible money managers may get into financial difficulty. Any of the following reasons can strike at any time and will leave you struggling to make your loan repayments:

>> Change in health – due to sickness, injury or disease

>> Loss of income – due to involuntary unemployment, or

>> Death and Terminal illness – when cancer, stroke or heart attack, etc. may occur.

Loan and Mortgage Protection Insurance – The Benefits

There are a number of benefits you can get from having a loan and mortgage protection insurance plan in place, which include:

>> The premiums are fully tax-deductible

>> Financial protection (you will save your family the worry of lost income)

>> You will save at tax time (you will get more money back in your tax return, and this means more money in your pocket)

>> You can choose how long you would like to receive cover benefits if you are injured and unable to work

>> Benefit payouts for total and permanent disability

>> A benefit amount (e.g. hospital cash) can be calculated for each night you spend in hospital

>> Associated accident costs can be provided to cover incidental costs (e.g. counseling and rehabilitation).

Common Questions regarding Loan and Mortgage Protection Insurance

Is Lenders Mortgage Insurance (LMI) different to Loan and Mortgage Insurance?

>> LMI – is compulsory and covers the lenders/credit providers if they lend you 80% or more

>> Loan and Mortgage Protection Insurance – covers your mortgage repayments in the event of death, sickness, unemployment or disability

Does the Unemployment Benefit apply if I am Self-Employed?

Yes. You may make a claim if:

>> You have worked in your business (for an average of 20 hours per week) for 180 days immediately prior to becoming unemployed, or

>> Your business has permanently ceased trading

What Happens to my Policy if my Unemployment Claim is Successful?

Your cover continues for death or terminal illness after making a successful unemployment claim, and your premium and benefits will remain the same.

Who will be the Beneficiaries?

>> For a single life policy, the benefit will be paid to the policy owner or their estate, and

>> For a joint policy, the benefit payments are made to the policy owners jointly or to the surviving policy owner in the case of the death benefit

What happens if I need to make a Claim and I have Other Insurance Policies?

Upon acceptance of your claim, the loan or mortgage protection policy will payout a lump sum benefit directly to you or your estate and this will be in addition to any other payments you may receive from other insurance policies.

What if I am a Smoker now, will my Premium Change if I Stop Smoking?

>> Yes. Your premium can be changed to a non-smoker rate if you stop smoking for 12 consecutive months, and

>> You will need to make a declaration that you have not smoked any substance during this period

So, now that you are familiar with how “Loan and Mortgage Protection Insurance” can protect you and your family against any of life’s unexpected events, contact an insurance broker. He/she will understand your situation and suggest the best possible insurance policy for yourself.

Your Guide To The VA Home Loan

Consider this: a mortgage program offers certain Americans a home loan with a zero down payment and no private mortgage insurance requirement. In addition, closing costs are limited and if the home is newly constructed, the builder must supply the buyer with a one-year home warranty.

Despite the obvious perks of the program, only 10.5 percent of the nation’s nearly 22 million veterans take advantage of this aspect of their Veterans Administration benefit offerings. When asked why, 33 percent of those who responded said they were completely unaware of the benefit, another group said that they went with the FHA loan because they assumed it was “easier” to obtain.

Obviously, the VA could be doing a better job informing (especially young) members of the military, veterans and surviving unmarried spouses about the VA home loan and the mortgage industry could be doing a whole lot more to get the word out. So, today we’ll take a look at the program and learn why it may just be the best loan product on the market.

Remember, we aren’t VA, mortgage or financial experts, so consult with the appropriate professional should you have any questions regarding the VA home loan program and its benefits.

The basics of the VA home loan program

V.A. home loan

Like the Federal Housing Administration (FHA) program, the U.S. Department of Veterans Affairs doesn’t actually make loans, but offers lenders a guaranty, if the veteran defaults on the loan. Should this happen, the VA will pay from 40 to 50 percent of the balance of the loan (the percentage depends on the size of the loan).

As you can imagine, this promise enables lenders to relax when faced with a borrower who may have little or less-than-perfect credit and a lower-than-average income.

So, what can you do with the VA home loan program?

Buy a home (a condo, too, if it’s in a VA-approved community)
Build a home
Simultaneously buy and rehab a home
Buy a lot and/or manufactured home
Is the VA loan harder to qualify for than the FHA loan?

No-one quite understands why so many current members of the military and veterans assume that the FHA loan is easier to obtain. Although there are additional steps you’ll need to take when pursuing a VA loan, they are quick and somewhat easy (if you have the right lender).

To qualify, you’ll need to say “yes” to at least one of the following questions:

1. Were you on active duty for at least 90 consecutive days during wartime?
2. Have you served at least 181 days of active duty during peacetime?
3. Have you served in the National Guard or Reserves for more than 6 years?
4. Are you a widower or widow of a military service member who died either in the line of duty or as the result of an active-duty service-related injury or disability?

The biggest advantages of the VA loan

As previously mentioned, the biggest advantage of the VA home loan is that you won’t have to put any money down. Now any conventional or FHA-backed loan for which a borrower submits a less-than 20 percent down payment will require the purchase of mortgage insurance (the Mortgage Insurance Premium in the FHA loan and private mortgage insurance, or P.M.I., with a conventional loan).

These policies cover the lender in the event the borrower defaults on the loan. This insurance, which benefits the lender should the borrower default on the loan, can add quite a chunk to your monthly mortgage payment. For instance, FHA’s annual mortgage insurance premium for a 30-year fixed-rate mortgage with 3.5 percent down payment is 0.85 percent annually.

The VA home loan has no monthly mortgage insurance premiums, closing costs are limited and there is no prepayment penalty. With no monthly mortgage insurance premium, the veteran’s house payment each month will be less than if he or she had obtained an FHA loan.

The VA home loan process

Yes, there are a few more hoops to jump through when dealing with the VA. Eligibility requirements, however, are much like those for FHA and conventional loans:

– “Suitable credit.” The VA doesn’t really explain what they mean by “suitable.”
– You should be able to prove that you have the income to cover all your bills and the house payment.
– You must live in the home (you can’t rent it out).
– You must present a VA Certificate of Eligibility (C.O.E.). Most VA-approved lenders can access your COE online or you can access your C.O.E. on the page of the VA website.

The biggest hurdle for vets is that these loans are provided by lenders and they all have their own guidelines. Shop around until you find one that you feel you can work with.

Erika Bentley
Bentley Realty Group
Keeping Real Estate Simple!