Federal Housing Authority
The Federal Housing Administration, known to many as the “FHA”, has been helping people become homeowners since its inception in 1934. It is a government agency that provides mortgage insurance on loans made by FHA approved lenders throughout the United States. FHA loans are a great option for borrowers who would otherwise not be able to purchase a home.
What is an FHA Loan?
Unlike conventional loans, FHA loans are government insured, protecting lenders against borrowers who may default. This allows lenders to relax requirements for borrowers with less than ideal credit but there is a caveat: borrowers must pay mortgage insurance on the loan. At first glance paying for mortgage insurance may seem unappealing but without it, lenders would not even consider to finance loan applications from borrowers with rocky credit histories. Thus, FHA loans offer home buyers a great alternative to conventional loans.
FHA loans are one of the easiest types of mortgages to qualify for. It requires a low down payment (as low as 3.5% down) and you don't need to have the best credit score to meet the requirements. Your credit can be as low as 500 to qualify. Federal Housing Administration (FHA) - which is part of the United States Department of Housing and Urban Development (HUD) - insures the loan, so your lender can offer you a better deal.
For a FHA mortgage the customer must put at least 3.5% of the sales price into the transaction. Some of this money may be used for down payment and the rest for closing costs. The total cost to close on an FHA is commonly over the 3.5%. It can be more like 6-8% of the sales price which takes into account the down payment, closing costs, money for escrow for taxes and insurance, and interest to finish out the month of closing.
The interest rate available will also have a bearing on the total costs. If you select a lower rate so that you can reduce your payment, you may end up paying additional money towards "points". At the same time if you are comfortable with a slightly higher payment you may find a lender that is willing to reduce the costs to close in favor of a higher interest rate. FHA allows the borrower to get the funds necessary to close from other sources, such as, gifts, grants, loans from retirement accounts and seller contributions.
FHA loans have very tangible benefits for borrowers. FHA loans can be used to purchase a home and fix it up (up to a specific amount of $35,000 or less) as well as costs of energy improvements, these costs become part of your loan. The most notable being the flexible credit requirements, low down payments, and relatively low closing costs couple together to make this type of loan very appealing for all types of home buyers.
If you are interested in finding out if an FHA loan is right for you, please contact me or fill out our pre-approval form so I can evaluate your loan options.
Veterans Affairs Loans
VA loans are one of the best and safest methods for military homebuyers to use when buying a home. Those who are serving or have served in the military including the Army, Navy, Air Force, Marines, Reserves and National Guardsmen are eligible to take advantage of this program. If you are a Disabled Veteran, you may qualify for additional benefits on a VA home mortgage loan. A VA loan allows veterans to borrow a sizable amount of money. The loan limit is dependent on the county, in LA borrowers can borrow up to $625,500 with no money down. Moreover, there is no limit to the number of times a veteran may use the program. If you are a veteran or are currently serving in the military, make sure you take advantage of what a VA loan has to offer.
What is a VA Loan?
In 1944, the US government created a military loan guaranty program to help returning service members purchase homes. The VA loan is a mortgage loan issued by qualified lenders and guaranteed by the US department of Veteran Affairs. It was designed to offer long-term home financing for american veterans (or their spouses) where private financing is not generally available by helping veterans purchase properties with no down payment and competitive interest rates.
The VA offers excellent qualifying standards. The VA does not use credit scoring in their analysis of the loan. Even if you have experienced some financial difficulties in your life that caused your scores to be low but have maintained a good payment record over the past year or so, you may qualify for a VA mortgage loan. This can be a tremendous savings compared to the cost of conventional loans when the borrower's credit scores are low.
Veterans will need to provide a Certificate of Eligibility which can be downloaded from the Veterans Administration Website. The Certificate of Eligibility is an important part of the application process since it proves your status as a veteran and certifies that you are eligible to apply for a VA loan.
Borrowers do not have to meet an income threshold but a VA loan applicant will be expected to show a reliable income that will cover monthly expenses, including, the mortgage payment for which they are applying for. Because VA loans are financed through private lenders, borrowers must often satisfy additional requirements depending on the lender.
The most impressive benefit with using a VA loan is the fact that qualified borrowers can borrow a sizable chunk of cash with no money down. Moreover, since VA loans are government backed, lenders do not require borrowers to pay for mortgage insurance, freeing up monthly income for borrowers. Competitive interest rates as well as less stringent qualification standards make the VA loan ideal for borrowers who qualify.
If you are interested in finding out if a VA loan is right for you, please contact me or fill out our pre-approval form so I can help you evaluate your loan options.
Reverse Mortgage Loans
Reverse Mortgages are specialized home loans for homeowners that are 62 years or older and can be very useful to those who want to tap into their home's equity to enhance their cash flow.
What is a Reverse Mortgage?
Also known as home equity conversion mortgages (HECM), reverse mortgage loans allow homeowners age 62 and over to access a portion of their home's equity which they have built up over the years. Payment of the loan is deferred until the homeowner sells their home, access a portion of their home's equity, moves out of their home, dies, or otherwise fails to comply with the loan terms. There are no required monthly mortgage payments on a reverse mortgage loan, meaning that the interest of the loan is added to the loan's principal balance every month. However borrowers are required to continue paying property taxes, property insurance, and maintain the home according to FHA guidelines
For example, let's say an elderly couple has a conventional 30 year mortgage, they borrowed $300,000 and have a remaining balance of $50,000 left. This means that their equity is $250,000. If the couple decides to use a reverse mortgage loan they then tap into their home's equity and are able to draw out money as a means of increasing their cash flow rather than let it stay as equity. This can be particularly useful for older homeowners who want to pull equity out of their home safely for private projects or to simply maintain their current lifestyle without adding to their monthly expenses.
Of course reverse mortgages are a little more complex than the example above however the core concept is maintained: older borrowers are able to draw money from their home's equity, deferring any remaining payment on their mortgage, so long as they comply with the loan terms, until they no longer live there, at which point the remaining balance will then be due shortly thereafter.
To be eligible for a reverse mortgage, the FHA requires all borrowers on title be 62 years or older. Borrowers must also meet financial eligibility criteria as laid out by HUD (Housing and Urban Development). Most single -family homes, two-to-four unit owner-occupied dwellings, townhouses, and approved condominiums are eligible for a reverse mortgage. This is contingent on the property meeting FHA minimum property standards.
Reverse mortgage loans give homeowners the ability to use their equity as a cash source. This is especially useful for homeowners who do not have a steady paycheck to support them. A reverse mortgage loan can then be seen as a way for seniors to maintain their lifestyle without sacrificing time or other treasured assets.
Before you do a reverse mortgage it's best to have an idea of how much money you would like to draw out of your home so as to avoid drawing out too much or too little.
Although the advantages are straightforward, there are very real risks tied to reverse mortgages. Reverse mortgages come with larger closing costs, up to 5% of your home's value in some cases. The loan also gets larger over time, increasing what it would cost for potential inheritors to pay for the home. Lastly, reverse mortgages are not well understood by many individuals increasing the likelihood that borrowers may not utilize their loan the best way. Borrowers must be aware of the risk of foreclosure if they do not comply with the loan terms.
Reverse mortgages are a good option for borrowers who qualify and would like access to their home's equity to fund personal projects or maintain their current style of living. Despite the risks listed above, a reverse mortgage cannot go "upside down", so the heirs will never be personally liable for more than the home is sold for. However the best way to know if a reverse mortgage is right for you is to speak with a loan professional. Give me a call, I would be more than happy to help!
[These materials are not from HUD or FHA and were not approved by HUD or a government agency.]
- Tenure: equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
- Term: equal monthly payments for a fixed period of months selected.
- Line of Credit: unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted.
- Modified Tenure: combination of line of credit and scheduled monthly payments for as long as you remain in the home.
- Modified Term: combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.
- Single Disbursement Lump Sum: a single lump sum disbursement at mortgage closing.
Home Affordable Refinance Program
HARP has been extended through December 31, 2018. HARP was designed to help you get a new, more affordable, more stable mortgage. If you’re not behind on your mortgage payments but have been unable to get traditional refinancing because the value of your home has declined, you may be eligible to refinance through the Home Affordable Refinance Program (HARP).
You may be eligible for HARP if you meet all of the following criteria:
- The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
- The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
- The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
- The current loan-to-value (LTV) ratio must be greater than 80%.
- The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.
Housing Urban Development
HUD Loans help low-income families enjoy home ownership. The Department of Housing and Urban Development (HUD) promotes home ownership among families in all income brackets. As a part of its core mission, HUD insures mortgage loans for families with poor credit or financial struggles, giving mortgage lenders an incentive to extend loans to borrowers with high default risks. As a type of subprime mortgage loan, HUD loans carry a unique set of advantages and disadvantages to borrowers, lenders, the government and society as a whole.